Shiv Texchem BSE SME IPO review (Apply)

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Review By Dilip Davda on October 3, 2024

•    The company is an importer and distributor of hydrocarbon-based chemicals.
•    It operates on an asset light model of business with a steady growth in its top and bottom lines for the reported periods.
•    Based on FY25 annualized earnings, the issue appears lucratively priced.
•    Looking at the trends of its recent financial performance, the company is poised for bright prospects ahead.
•    Investors may lap it up for medium to long term rewards.

ABOUT COMPANY:
Shiv Texchem Ltd. (STL) is primarily engaged in the business of importing and distribution of hydrocarbon-based chemicals of the product family viz. Acetyls, Alcohol, Aromatics, Nitriles, Monomers, Glycols Phenolic, Ketones, and Isocyanates, which are critical raw materials and inputs and have application across wide spectrum of industries like paints and coatings, printing inks, agro-chemical products, specialty polymers, pharmaceuticals products and specialty industrial chemicals. In the petrochemical industry, there is a wide array of base chemicals that serve as the foundation for various derivative chemicals. These chemicals serve as secondary and tertiary chemicals for application in various industries. 

Its business focuses on the import and redistribution of these secondary and tertiary chemicals, which are essential raw materials for multiple industries. The company manages the supply chain of these secondary and tertiary chemicals derived from base chemicals. These secondary and tertiary chemicals are indispensable base raw material inputs in various industries including paints, coatings, printing inks, agrochemicals, pharmaceuticals, specialty polymers, and industrial chemicals. STL's role involves sourcing these chemicals from international producers and suppliers, redistributing them to domestic industries, and ensuring sufficient and timely supply to manufacturers. By handling the import and distribution of these essential raw materials, it supports various industries in accessing high-quality chemicals for their manufacturing processes. 

STL bridges the gap between global suppliers and local industries, ensuring a steady and reliable supply of crucial chemicals. It acts as one of the preferred sourcing partners for its customers wherein the company assists and supports customers for their purchase planning of these products, aggregate orders from customers, engage with global and domestic producers and suppliers to negotiate terms which includes price, specifications, quantity and delivery schedule and manage supply chain, which includes storage, handling and logistics support.

It has strategically sourced a wide variety of products from global producers and suppliers and has successfully delivered to a diverse range of customers such as Apcotex Industries Limited, Hemani Industries Limited, Gujarat Fluorochemicals Limited amongst others. STL's sourcing efforts has spanned multiple countries including China, Taiwan, South Korea, Kuwait, Qatar, USA, Netherlands, Belgium and Italy amongst others.

Over the past three Fiscals, it has expanded product portfolio from offering 21 products in Fiscal 2022 to 39 products by Fiscal 2024 and 43 products by June 30, 2024. Its customer base has also grown from above 400 customers by Fiscal 2022 to over 650 customers by Fiscal 2024 and above 700 customers by June 30, 2024 which has helped it to penetrate a wide market that is not only limited to number of customers but also products; while its network of suppliers has expanded from above 30 in Fiscal 22 to above 60 during Fiscal 2024 and above 65 during quarter ended June 30, 2024. The company continuously endeavours to expand the souring and supply of products from diverse suppliers and from multiple countries. As of June 30, 2024, it had 59 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 6105600 equity shares of Rs. 10 each to mobilize Rs. 101.35 cr. (at the upper cap). The company has announced a price band of Rs. 158 - Rs. 166 per share. The issue opens for subscription on October 08, 2024, and will close on October 10, 2024. The minimum number of shares to be applied is for 800 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.35% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, the company will utilize Rs. 75.00 cr. for working capital, and the rest for general corporate purposes. 

The IPO is solely lead managed by Vivro Financial Services Pvt. Ltd., and Link Intime India Pvt. Ltd. is the registrar to the issue. Rikhav Securities Ltd., is the Market Maker for the company. 

Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs. 40 - Rs. 815, between March 2006, and November 2023. It has also issued bonus shares in the ratio of 7 for 1 in July 2024. The average cost of acquisition of shares by the promoters is Rs. NIL, Rs. Negligible, Rs. 1.25, Rs. 2.99, Rs. 93.75, and Rs. 101.89 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 17.07 cr. will stand enhanced to Rs. 23.17 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 384.66 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total revenue/net profit of Rs. 865.48 cr. / Rs. 13.87 cr. (FY22), Rs. 1118.67 cr. / Rs. 16.03 cr. (FY23), and Rs. 1536.69 cr. / Rs. 30.11 cr. (FY24). For Q1 of FY25 ended on June 30, 2024, it earned a net profit of Rs. 10.06 cr. on a total revenue of Rs. 567.08 cr. Thus the company has reported steady growth in its top and bottom lines for the reported periods. 

For the last three fiscals, the company has reported an average EPS of Rs. 17.92 and an average RoNW of 17.64%. The issue is priced at a P/BV of 1.40 based on its NAV of Rs. 118.88 as of June 30, 2024, and at a P/BV of 1.26 based on its post-IPO NAV of Rs. 131.30 per share (at the upper cap). 

If we attribute FY25 annualized super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 9.56, and based on FY24 earnings, the P/E stands at 12.77. The issue relatively appears lucratively priced.

For the reported periods, the company has posted PAT margins of 1.61% (FY22), 1.43 % (FY23), 1.96% (FY24), 1.78% (Q1-FY25), and RoCE margins of 22.82%, 21.10%, 26.99%, 7.16%, respectively for the referred periods. 

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

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has no listed peers to compare with.

MERCHANT BANKER'S TRACK RECORD:
This is the 2nd mandate from Vivro Financial in the last three fiscals (including the ongoing one).  The only listing so far has opened with a premium of 90% on the date of listing.

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