Ambani Organics IPO Opens July 6, Should you Invest?

Ambani Organics IPO has planned to raise Rs. 9.03 crore. The IPO includes the offer for sale of 100000 shares and fresh equity issue of 1268000 shares.

Ambani Organics Ltd. (AOL) will get listed on NSE SME Emerge and the paid up equity will get increased to Rs.5.08 crore. The IPO is managed by Aryaman Financial Services Ltd. and Universal Capital Securities Pvt. Ltd. is the registrar to the issue.

Ambani Organics Ltd. Business Profile

• The company has two manufacturing facilities in Maharashtra
• The Company has their own in-house Research & Development and Quality Assurance/Quality Control Team which undertakes rigorous testing and quality management.
• AOL has a range of over 100 specialty chemicals under the “AOPL” brand portfolio, which are used in various industries and for various applications.
• The industries AOL cater to are (a) Paper industry, (b) Textile Industry, (c) Adhesive Industry, (d) Paint and Construction Industry and (d) Carpet Industry.
• AOL then export these Specialty Chemicals in the domestic as well as overseas market.

Purpose of the issue

The objects of the IPO are:

1. To achieve the benefits of listing their Equity Shares on the Stock Exchanges.
2. Long-Term Working Capital Needs Funding of Rs.7.24 crore
3. General Corporate Purposes Expenditure Funding of Rs.0.58 crore

The Offer for Sale: The company will not receive any proceeds from the Offer for Sale.

Ambani Organics IPO Detail

• Issue Type: Book Built Issue IPO
• Issue Open: July 6, 2018 – July 10, 2018
• Issue Size: 1,368,000 Equity Shares of Rs 10 aggregating up to Rs 9.03 Cr
• Issue Price: INR 66 Per Equity Share
• Market Lot: 2000 Shares
• Minimum Order Quantity: 2000 Shares
• Listing At: NSE SME
• This IPO is expected to be listed on July 18th, 2018 

Key Risks

• AOL has significant debt of 16 Cr on standalone basis as on 31^st March 2018.
• The increase in prices of raw materials may significantly affect the profit as the cost of raw materials constitute around 90% of total expense in FY18. Currently the company passes this cost to customers
• AOL has installed capacity of 2000 MT as on FY18 but the utilizes only 47%, which means it is significantly underutilized.
• AOL’s two subsidiaries are in losses in last three financials years i.e FY16, FY17, and FY18, which is a matter of concern

Valuation: Should you Invest?

Ambani Organics Ltd in FY 15 and FY 16 were in losses. However, in FY 17, the company posted turnover of Rs.52.89 Crore with the bottom line of Rs. 0.79 crore.

AOL delivered net profit of Rs. 1.91 crore and revenue of Rs.65.58 crore in FY 18 on a consolidated basis. The company has Nikhil Adhesive as its listed peer which is currently trading at a P/E of around 21 (as on 03.07.18).

Based on FY 18 financials and on diluted equity post issue, AOL will be at a P/E of around 18. AOL has current debt ratio of 2.73. The investors should be “neutral” to Ambani Organics IPO.