Mumbai-based specialty chemical manufacturer Prasol Chemicals Limited has filed its draft red herring prospectus (DRHP) for an initial public offering (IPO) with the capital market regulator SEBI. Prasol Chemicals IPO is likely to raise around INR700-800 crore, although pricing of the offer will be disclosed after securing regulatory approvals. The company is a leading producer of acetone derivatives and phosphorus derivatives in India.
The upcoming IPO comprises fresh issue of equity shares aggregating up to INR250 crore and an Offer For Sale (OFS) of up to 9,000,000 equity shares by promoters and promoter group. Since the company is profitable during each of the last three financial years, retail investors get a higher reservation of 35% in Prasol Chemicals IPO. The company is looking to raise up to INR50 crore before the IPO and if this sale goes through, the fresh issue size will be reduced to the same quantum.
Prasol Chemicals IPO: Use of proceeds Â
Prasol Chemicals aims to use the IPO proceeds for the following objectives:
- Repayment or prepayment, in full or part of certain borrowings – INR160 crore
- Working capital requirements – INR30 crore
- General corporate purposes
From humble beginnings to IPO
Starting as Prachi Poly Products Private Limited in January 1992, the company changed its name to Prasol Chemicals Limited in 1995 in line with the diversification into phosphorus-based products for agrochemicals and performance chemicals.
Over years, Prasol Chemicals has significantly expanded its business and scale of operations and has grown from a small-scale manufacturer to a large diversified specialty chemical player with a global footprint. As of 31 December 2021, it manufactured over 75 specialty products while another 32 products are in the pipeline.
These include several acetone and phosphorus derivatives which are used in pharmaceuticals, synthesis of agrochemical active ingredients (technicals) and formulations, besides its application as a critical raw material in home and personal care products such as sunscreens, shampoos, flavors, fragrances and disinfectants.
Beyond specialty chemicals
The company also has products in its performance chemical used mainly in specialty coatings, inks, antioxidants, anticorrosion and antiwear agents. There are significant entry barriers to this business and most of the competitors are multinational companies such as SI Group, Solvay, Evonik, Arkema and ALTIVIA, locally it faces little competition due to the limited presence of acetone derivative manufacturers.
As of 31 December 2021, the company had a portfolio of more than 140 products (including specialty chemicals) and a pipeline of 32 products under development. In the last three fiscals and nine months period it has launched 38 products. The company plans to expand its production capacities, diversify product offerings, increase focus on R&D and also focus on import substitution as well as increasing exports.
The company has long-standing relationships with its clients which has helped it immensely over the years. Despite this, the company isn’t dependent on limited customers for revenues. For the nine-month period ended 31 December 2021, its revenue from top 10 customers accounted for INR112.4 crore, translating to 17.8% of overall income.
Substantial export operations
Apart from domestic operations, the company exports its products. The company’s distribution network spans 45 countries across Asia, North America, and the European Union. The revenue from exports for the nine-month period ended 31 December 2021 accounted for INR134.28 crore, effectively contributing 21.2% of the company’s revenues. The company is also a Two Star Export House accredited by the Government of India.
Apart from domestic operations, the company exports its products. The company’s distribution network spans 45 countries across Asia, North America, and the European Union. The revenue from exports for the nine-month period ended 31 December 2021 accounted for INR134.28 crore, effectively contributing 21.2% of the company’s revenues. The company is also a Two Star Export House accredited by the Government of India.
Prasol Chemicals IPO: Strong financial performance
The company has posted strong financial performance in the recent years with revenues growing in each of the three years and it has already crossed last year’s revenues in the latest nine months of FY2022. Consequently, its earnings have also improved, although there was a dip in FY2021.
In these years, the company’s debt equity ratio has also come down from 1.10 in FY2019 to 0.70 as on 31 December 2021. Prasol Chemicals IPO
| Â | FY2019 | FY2020 | FY2021 | 9M FY2022 |
| Revenue | 498.9 | 534.7 | 602.1 | 632.2 |
| Expenses | 460.7 | 490.8 | 568.3 | 565.0 |
| Net income | 23.7 | 37.8 | 25.1 | 50.1 |
| Net margin (%) | 4.7 | 7.1 | 4.2 | 7.9 |
Given these positive aspects, Prasol Chemicals IPO looks an interesting opportunity. Nevertheless, a lot will depend on the pricing of the offer and market sentiments at the time.
