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Vital Chemtech NSE SME IPO review (Apply)

Review By Dilip Davda on Oct 25, 2022

•    VCL is in the business of manufacturing phosphorous derivatives products.
•    It expanded its capacity to more than double in the recent past.
•    Hiked capacities resulted in decent growth for top and bottom lines. 
•    Issue appears reasonably priced based on its recent financial data.
•    Investors may consider parking funds for medium to long-term rewards.

ABOUT COMPANY:
Vital Chemtech Ltd. (VCL) is engaged in the business of manufacturing Phosphorus Derivatives products. The Company is a manufacturer and supplier of Phosphorus base chemicals with the highest quality practice and compliant with the Highest Environmental, Health, and Safety (EHS) in the chemical industry. The company has State of the art Programmable Logic Controller (PLC) and Supervisory Control and Data Acquisition (SCADA) operated in an integrated complex in the PCPIR region of Dahej, Gujarat, India for manufacturing phosphorus base chemicals. 

Its manufacturing facility is having an integrated facility that helps in manufacturing phosphorus base chemicals. Presently the company manufactures Phosphorus Trichloride (PCl3), Phosphorus Oxychloride (POCl3), Phosphorus Pentachloride (PCl5), Phosphorus Pentoxide (P2O5), Poly Phosphoric Acid (PPA) and Phosphorus Pentasulfide (P2S5) for customers across segments such as Lifesciences, Crop Care, Specialty Chemicals, Textile Auxiliaries, Dyes, Pigments, and Plastic Additives. VCL also does trading of its raw Material. The company is in the process of obtaining approval for Phosphorus Pentasulfide (P2S5) from customers. 

VCL's installed capacity increased year on year basis from 12000 MT in FY 2019-20 to 13200 MT in FY 2020-21, and further to 28800 MT in FY 2021-22. This has helped the company is reporting robust growth in recent years. As on May 31, 2022, it has a total of 50 Employees.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs of working capital (Rs. 45.00 cr.), general corporate purpose, VCL is coming out with a maiden IPO of 6400000 equity shares of Rs. 10 each via book building route. It has announced a price band of Rs. 95 - Rs. 101 per share and at the upper cap, mulls mobilizing Rs. 64.64 cr. The issue opens for subscription on October 31, 2022, and will close on November 03, 2022. A minimum application is to be made for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.72% of the post-issue paid-up capital of the company. From the net issue, the company has allocated 50% for QIBs, 15% for HNIs, and 35% for Retail investors. 

The sole Book Running Lead Manager (BRLM) for this issue is Beeline Capital Advisors Pvt. Ltd., and Skyline Financial Services Pvt. Ltd. is the registrar to the issue. Sunflower Broking Pvt. Ltd. is the market maker for this company. 

Having issued initial equity shares at par, VCL issued further equity shares at a fixed price of Rs. 100 per share in May 2022, and bonus shares in the ratio of 3 for 2 in June 2022. The average cost of acquisition of shares by the promoters is Rs. 5.54 per share. 

Post-IPO, VCL's current paid-up equity capital of Rs. 17.55 cr. will stand enhanced to Rs. 23.95 cr. Based on the upper cap of the IPO pricing, the company is looking for a market cap of Rs. 241.91 cr. 

FINANCIAL PERFORMANCE:
The company got converted to a public limited company on November 25, 2021, and till then, it was operating as an LLP firm. On the financial performance front, as an LLP it has posted a turnover/net profit of Rs. 41.61 cr. / Rs. 1.05 cr. (FY20), Rs. 47.68 cr. / Rs. 2.94 cr. (FY21), Rs. 86.04 cr. / Rs. 7.85 cr. for the period from 01.04.21 to 24.11.21 (of FY22), and as a public limited company, on a consolidated basis, it posted a turnover/net profit of Rs. 57.87 cr. / Rs. 6.71 cr. for a period from 25.11.21 to 31.02.22 (FY22). For the first month of FY23 i.e. for April 22, it earned a net profit of Rs. 1.35 cr. on a turnover of Rs. 10.80 cr.  

For the last three fiscals, VCL has reported an average EPS of Rs. 3.41 and an average RoNW of 68.39%. The issue is priced at a P/BV of 11.53 based on its NAV of Rs. 8.76 as of April 30, 2022, and at a P/BV of 4.14 based on its post-IPO NAV of Rs. 24.41 (at the upper cap). 

If we annualize FY23 earnings and attribute it to the fully diluted post-IPO equity capital, then the asking price is at a P/E of around 14.94. 

DIVIDEND POLICY:
The company has not declared any dividends since incorporation. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, VCL has shown Neogen Chem as their listed peer, which is a highly surprising one. It is currently trading at a P/E of 76.92 (as of October 25, 2022). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 5th mandate from Beeline Capital. Out of the last 4 listings, 1 issue closed below the issue price on the listing date.


Conclusion / Investment Strategy

VCL has started reaping the benefits of capacity expansions and is poised for bright prospects going forward. Recent financial results are indicative of the likely trends. Based on its financial data, the issue appears reasonably priced. Investors may consider an investment with a medium to long-term perspective.

Reviewer recommends Subscribing to the issue.

Review By Dilip Davda on Oct 25, 2022

Review Author

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here. With entry barriers, SEBI wants only well-informed investors to participate in such offers. With crazy listings in the past, SME IPOs drew the attention of investors across the board. However, as SME issues have entry barriers and continued low preference from the broking community, any reader taking decisions based on any information published here does so entirely at own risk. The above information is based on information available as on date coupled with market perceptions. The Author has no plans to invest in this offer.

(SEBI registered Research Analyst-Mumbai).


About Dilip Davda

Dilip Davda

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.

Email: dilip_davda@rediffmail.com

Vital Chemtech IPO FAQs

  1. 1. Why Vital Chemtech IPO?

    The initial public offer (IPO) of Vital Chemtech Limited offers an early investment opportunity in Vital Chemtech Limited. A stock market investor can buy Vital Chemtech IPO shares by applying in IPO before Vital Chemtech Limited shares get listed at the stock exchanges. An investor could invest in Vital Chemtech IPO for short term listing gain or a long term.

  2. 2. How is Vital Chemtech IPO?

    Read the Vital Chemtech IPO recommendations by the leading analyst and leading stock brokers.

  3. 3. Vital Chemtech IPO what should investors do?

    Vital Chemtech IPO offers an opportunity to buy IPO shares before they get listed at the stock exchanges. Read the Vital Chemtech IPO Notes, Analysis and Recommendations by leading stock brokerage firms and experts in the above answer.

  4. 4. Is Vital Chemtech IPO good?

    Our recommendation for Vital Chemtech IPO is to subscribe.

  5. 5. Is Vital Chemtech IPO worth Investing?

    As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to subscribe to the Vital Chemtech IPO.

  6. 6. When will Vital Chemtech IPO allotment status?

    The Vital Chemtech IPO allotment status will be available on or around Nov 9, 2022. The allotted shares will be credited in demat account by Nov 11, 2022. Visit Vital Chemtech IPO allotment status to check.

  7. 7. When will Vital Chemtech IPO list?

    The Vital Chemtech IPO will list on Monday, November 14, 2022, at NSE SME.

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