Valiant Organics- IPO Analysis
About the issue
Valiant Organics is going to raise around Rs 21.23 crore through offer for sale in this IPO. The company is issuing 9,64,800 equity shares in offer for sale for fixed price of Rs 220 a piece of face value Rs 10 per share. The company will trade under SME platform of BSE.
Purpose of the IPO
Since the Offer is an offer for sale, the company will not receive any proceeds from it. The purpose of the Offer is to achieve the benefits of listing the equity shares in stock exchange to enhance company’s brand equity.
Industry Outlook
Indian chemical industry stands 3rd in world after China and Japan. Indian speciality chemical market is expected to reach at USD 70 billion by 2023 from current level of USD 30 billion. Indian chemical industry is expected to grow at a CAGR of 17.4 per cent supported by 100 per cent FDI, strong R&D capability, rising GDP and purchasing power.
Company Outlook
Valiant Organics Ltd., is a chemical manufacturing company with focus on manufacturing and marketing of different types of chlorophenol. It is a chemicals' company which has several applications mainly into agro-chemical industry, pharmaceutical industry, dyes industry, manufacturing of cosmetics and veterinary drugs.
The company is planning to increase installed capacity from existing 4800 MTPA to 21,600 MTPA over the period of the next three years. Currently the company operates with full capacity (99+%). The enhanced capacity will aid company in establishing market leadership and increase more customers.
The company proposes to increase marketing and sales team which can focus in different regions and also maintain and establish relationship with customers which will help it to grow geographically. The company enjoys strategic advantage of plant location at Valsad, Gujarat. The company has gradually increased its export to 44 per cent in FY16 from 30 per cent in FY14 at 22 per cent CAGR. At the same time, it is struggling on the domestic front. Revenue from domestic segment has reduced by 2 per cent over FY14-16.
Financial Performance
| Particulars (Rs cr) | 2016 | 2015 | 2014 | 2013 | 2012 |
| Revenue | 53.47 | 60.23 | 43.91 | 35.21 | 33.18 |
| Total expenses | 38.97 | 51.21 | 34.34 | 29.63 | 27.35 |
| EBITDA | 17.16 | 12.37 | 9.57 | 7.17 | 7.18 |
| EBITDA margin % | 32% | 21% | 22% | 20% | 22% |
| PAT | 10.31 | 7.27 | 5.54 | 4.03 | 3.92 |
| PAT margin % | 19% | 12% | 13% | 11% | 12% |
| EPS | 28.31 | 19.98 | 15.22 | 11.06 | 9.16 |
| ROCE % | 61.45 | 43.78 | 43 | 37.12 | 39.96 |
| D/E x | 0.04 | 0.36 | 0.27 | 0.16 | 0.13 |
Revenue of the company has grown at a CAGR of 10 per cent over last five years. The company has reported revenue of Rs 53.47 crore in FY16 vs Rs 60.23 crore in FY15. The company has reduced its expenses by 24 per cent in FY16 owing to low commodity prices. The company has successfully maintained EBITDA margin above 30 per cent in FY16. PAT of the company has jumped up by 42 per cent in FY16 vs FY15. The company has expanded its PAT margin by 700 bps in FY16 on a yearly basis.
Peer Comparison and Valuation
| Peer Companies | EPS | P/E | RONW |
| Jayant Agro Organics | 21.07 | 14.81 | 14.16 |
| Atul Ltd | 97.28 | 23.71 | 23.28 |
| Clariant Chemicals Ltd. | 22.44 | 33.7 | 8.2 |
| Sharda Cropchem | 19.94 | 19.66 | 24.55 |
| Valiant Organics Ltd | 28.31 | 7.77 | 45.3 |
Valiant Organics with EPS of 28.31 and P/E of 7.77x at fixed price, looks attractive as compared to other peers. The company has healthy debt/equity of 0.04x, ROCE of 61.45 per cent which shows financial strength of the company. Though revenue of the company has contracted by 11 per cent in FY16 on yeary basis still we see erstwhile financial strength and healthy valuation metrics of the company, which formulates our view of going for subscription of this IPO with long term vision.