On 24th May, the sole IPO of the week of Aether Industries will open for a period of 3 days and stay open till 26th May. Aether Industries Ltdis a speciality chemicals company, which is into the manufacture of specialized and complex chemicals that cater to a host of industries including pharmaceuticals, metals, plastics etc. Aether Industries is basically into the manufacture of intermediates and speciality chemicals and it basically caters to the institutional market comprising agrochemicals companies and pharmaceutical companies.
Apart from the intermediates business, Aether Industries also operates in the CRAMS (Contract Manufacturing and Research Services) which contracts research and related services. It is a high growth business which is scalable at short notice and also higher on the margins play. In addition, the third vertical that Aether Industries operates is in contract manufacturing on behalf of dedicated customers using customized capacity.
Aether Industries has two manufacturing plants, both state of the art, located near Surat in Gujarat. Its existing product portfolio comprises more than 25 products catering to over 34 international clients spread and 154 Indian clients. Aether basically directly to the institutional purchase of speciality chemicals by corporates.
Snapshot of the Aether Industries IPO issue
There are two important points you must know about the public issue of Aether Industries. Here is a quick take.
- The original fresh issue amount of Aether Industries was pegged at Rs757 crore. However, due to the company raising Rs130 crore by way of a pre-IPO placement of shares to select investors, the size of the issue was reduced to Rs627 crore.
- Here is a quick focus on how the proceeds of the fresh issue of Rs627 crore will be used by the company. The fund’s inflow, net of issue costs, will be essentially used to fund the proposed greenfield project and also to repay and partially prepay its debt. A small surplus will be applied to working capital and general purposes.
How the Aether Industries IPO mix is structured?
The Aether Industries IPO will be a combination of a fresh issue and an offer for sale with a predominant fresh issue portion in the overall issue size. Here are the details.
- The overall public issue of Aether Industries comprises the issue of 1,25,86,355 shares (around 125.86 lakh shares) in the price band of Rs.610 to Rs.642. At the upper end of the price band, the overall issue size works out to Rs.808.04 crore.
- The offer for sale (OFS) consists of the sale of 28,20,000 shares by the existing early investors in the company. In this case, at the upper end of the price band of Rs.642, the OFS works out to Rs.181.04 crore. It will not dilute equity or the EPS.
- The fresh issue component will entail the issue of 97,66,355 shares fresh to the public. At the upper price band of Rs.642, the fresh issue size works out to Rs.627 crore. The fresh infusion of funds will be capital dilutive and also EPS dilutive.
- The company has also reserved up to 11,13,707 shares for preferential allotment to the employees of Aether Industries Ltd. It is not yet final whether the employee offer will be at a discount to the discovered price or at the same price.
If you are retail investors, here are your IPO application options
The minimum IPO investment lot is 23 shares and in multiples of lots of 23 shares thereof. Retail investors can go up to a maximum of 13 lots comprising 299 shares in the retail quota as under.
Revenue and profit numbers of Aether Industries
Aether operates in the speciality chemicals segment which is known to have high operating margins, especially with rising demand. However, this segment has been facing the headwinds of higher costs, although that has had little impact on the company’s performance. Here is a snapshot.
Aether Industries has maintained steady asset turnover amidst a rising asset base. Also, its net margins have been steadily increasing amid better pricing power.
How should investors approach the Aether Industries IPO?
Before we get into the valuation story, here are two fundamental factors that will matter the most in the IPO evaluation.
- Aether Industries has shown consistent growth in sales but this has been amplified by a sharp improvement in net margins of the company. The company has got better operating leverage due to the steady asset turnover it has maintained.
- At an industry level, the overall speciality chemicals business remains a high growth business where niche players have strong global demand. The decision of the Chinese government to come down heavily on these companies will also help.
Let us finally turn to valuations. If you annualize the 9-month FY22 numbers, the stock is available at a P/E valuation of 75 times earnings, which is quite steep, even by industry standards. Despite steady financials, most of the good aspects may already be in the price. Investors should take a cautious approach due to the current macro headwinds.