India Phosphate NSE SME IPO review (Apply)

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Review By Dilip Davda on August 22, 2024

•    The company is engaged in manufacturing and marketing of fertilizers and chemicals.
•    Fertilizers contribute just around 7% of the total revenue and the rest by chemical business.
•    It has long term contract with HUL for supply of main ingredient for detergents/soaps.
•    It is expanding its chemical manufacturing capacity which is fully earmarked for supply to HUL.
•    It is poised for bright prospects ahead, considering the trends of FMCG segment.
•    Investors may park funds for the medium to long term in this fully priced offer.

ABOUT COMPANY:
Indian Phosphate Ltd. (IPL) is mainly engaged in the production of Linear Alkyl benzene Sulphonic Acid LABSA 90%, popularly known as LABSA, is an anionic surfactant and it is used in the formulation of all types of detergent powders, cakes, toilet cleaners and liquid detergents. It is also engaged in the manufacturing of "Single Super Phosphate" (SSP) fertilizer and "Granules Single Super Phosphate" (GSSP) Fertilizer which is manufactured and supplied as per the standards of Fertilizer Control Order of India in powder and granulated form as well as fortified with zinc and boron. 

Single Super Phosphate and Granules Single Super Phosphate are being a fertilizer in nature used in agriculture industry. The company operates from its manufacturing facility located at Plot No. 5056, Village: Umarda, Girwa district, Udaipur, Rajasthan which is in the close proximity of supply of both the raw materials (a) Sulphuric Acid 98% (b) Rock Phosphate used in manufacturing of products. The other major raw material Linear Alkyl benzene (LAB) is sourced from IOCL, Vadodara, Nirma Ltd., Vadodara and Reliance Industries Ltd., Patalganga. IPL, a company specializing in manufacturing and supplying Single Super Phosphate (SSP) fertilizer, began its journey by trading dolomite and limestone. In 2004, it commissioned a manufacturing facility of SSP with an installed capacity of 200 MT/day. In 2009, it diversified into the chemical business by setting up its first Sulphonation Plant of LABSA 90% with an installed capacity of 150 MT/day. 

Later on, in 2010, in order to meet increased demand, it expanded its SSP fertilizer capacity from 200 MT/day to 400 MT/day and also commenced manufacturing of Granules Single Super Phosphate with installed capacity of 200 MT/day. Subsequently, in 2011, the company expanded its Granules Single Super Phosphate fertilizer capacity from 200 MT/day to 400 MT/day. In 2022, it commissioned a second LABSA 90% plant with an installed capacity of 200 MT/day increased its combined capacity for manufacturing LABSA 90% to 350 MT/day. In November 2022, the company also ventured into non-renewable energy sector (for captive consumption) by setting up a 750 KWh solar plant in Bikaner.

The company furthermore also produces Zincated Single Super Phosphate - "Powder/Granules" and Zincated and boronated Single Super Phosphate - "Granules" by formulating zinc and boron into the granulator and powder hopper along with Single Super Phosphate powder in required proportion. The Department of Fertilizer and the Government of India encouraged the SSP sector to create value-added fortified SSP with zinc and boron content due to the deficiency of these elements in the soil. Since last 5 years IPL's focus is to produce fortified SSP with Zinc and Boron. It has educated farmers over the past five years, encouraging them to use fortified SSP with boron and zinc according to soil deficiencies. As a result, it is currently generating more than 80% of SSP as fortified SSP.

The company, with a view to increasing its business presence in South Indian Markets and also as a part of business strategy it is setting up manufacturing plant of Sulphuric Acid which is backward integration plant for manufacturing of LABSA 90%. It has acquired a Plot admeasuring area of 8.25 acres on lease basis at SIPCOT Industrial Park, Cuddalore District, Tamilnadu for Sulphuric acid with installed capacity of 200 MT/ day including manufacturing of LABSA 90% with installed capacity of 100 MT/ day & Magnesium Sulphate with installed capacity of 60 MT/day. 

Also, the company intends to expand operations and supply of SSP fertilizer, it has already acquired 1,00,000 square meter land on lease from the Maharashtra Industrial Development Corporation, situated at Plot No. T-22, Nardana MIDC Phase - II, Tal. Sindkheda & Dist. Dhule, Maharashtra, for the establishment of a manufacturing facility for the production of SSP fertilizer. The company has already received CTE (Consent to Establish) from Maharashtra Pollution Control Board. The company has already spent approx. Rs. 3 crores towards purchase of land, development of site and electricity / water connection from MIDC, Dhule. The Company has a presence in the major states like, Punjab, Bihar, Gujarat, Haryana, Madhya Pradesh, Maharashtra, Rajasthan, Uttar Pradesh, Himachal Pradesh, West Bengal and Uttarakhand. As of March 31, 2024, it had 105 employees on its payroll. It also hires contract labourers as and when needed. 

According to the management, their 93% turnover is coming from speciality chemical business and remaining 7% from Fertilizer business. They are expanding in chemical business that has assured market and has long term Vendor-Principal buyer agreement with Hindustan Unilever Ltd. which is a giant detergent company with around 34% market share and is having assured offtake of chemicals that are primarily used in detergent manufacturing. The company expects this new chemical unit to be on stream from the last quarter of FY25 and will add to its top and bottom lines in coming years. 

The erosion in bottom lines for FY24 is attributed to wild fluctuations in the raw material prices and disturbed situation in many parts of India due to natural disasters. Its enhanced borrowings for working capital during FY24 will get adjusted/reduced post-IPO and will result in finance cost savings and improving net earnings in coming years. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 6804000 equity shares of Rs. 10 each to mobilize Rs. 67.36 cr. at the upper cap. It has announced a price band of Rs. 94 - Rs. 99 per share. The issue opens for subscription on August 26, 2024, and will close on August 29, 2024. The minimum application to be made is for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 27.23% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 24.90 cr. for working capital, Rs. 33.18 cr. for setting up a new facility at SIPCOT for LABSA 90% Sulphuric Acid and Magnesium Sulphate, and the rest for general corporate purposes. 

The issue is solely lead managed by Beeline Capital Advisors Pvt. Ltd., and Bigshare Services Pvt. Ltd. is the registrar to the issue. Beeline Group's Spread X Securities Pvt. Ltd. is the market maker for the company. 

The company has issued entire equity capital at par value so far, and it has also issued bonus shares in the ratio of 57 for 10 in February 2024. The average cost of acquisition of shares by the promoters is Rs. 0.00, Rs. 1.05, and Rs. 1.49 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 18.19 cr. will stand enhanced to Rs. 24.99 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 247.40 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a standalone basis) posted a total income/net profit of Rs. 558.39 cr. / Rs. 16.17 cr. (FY22), Rs. 770.93 cr. / Rs. 16.60 cr. (FY23), Rs. 706.26 cr. / Rs. 13.47 cr. (FY24). 

For FY24 (on a consolidated basis) the company earned a net profit of Rs. 12.10 cr. on a total income of Rs. 717.58 cr. 

For the last three fiscals, it has reported an average EPS of Rs. 8.47 (on a simple average basis), and an average RoNW of 21.80%. The issue is priced at a P/BV of 2.22 based on its NAV of Rs. 44.54 as of March 31, 2024, and at a P/BV of 1.67 based on its post-IPO NAV of Rs. 59.36 per share (at the upper cap). 

If we attribute FY24 earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 18.37 (on a standalone basis) and at a P/E of 20.45 (on a consolidated basis). 

For the reported periods, the company has (on a standalone basis) posted PAT margins of 2.90% (FY22), 2.16% (FY23), 1.91% (FY24), and RoCE margins of 42.08%, 31.00%, 20.93% respectively for the referred periods. Declining trends in both these parameters raises concern.

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Rama Phosphates as its listed peers. It is trading at a P/E of NA (as of August 22, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 47th mandate from Beeline Capital in the last three fiscals (including the ongoing one), out of the last 10 listings, all listed with premiums ranging from 7.14% to 386.67% on the date of listing. 

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