India’s leading Fragrance producer Company SH Kelkar is going to hit capital market on 28th October to raise Rs.510 crore through its maiden public offer (IPO). The price band is fixed at Rs.173 to Rs.180 per share and the offer will close on 30th October. Before deciding on whether you should invest in this IPO or not, let us first see the various aspects of SH Kelkar IPO.
Business Overview of SH Kelkar & Company
SH Kelkar (SHK) is one amongst the largest domestic fragrance producers with 20.5% market share in India. Market share in flavour segment stands at 2% but offers potential to grow remains immense.
In fragrance segment SHK has over 3,700 customers with marquee clientele [Godrej Consumer, Marico, Wipro Consumer, HUL, Vini Cosmetics and J.K. Helen Curtis Ltd]. The company has over 400 customers in flavour segment with client like Britannia, VICCO, Vadilal and Ravi Foods. SHK has 18 scientists, 12 perfumers, 2 flavourists for development of fragrance and flavour as per the client requirement. In FY15, SHK developed and commercially launched 502 new fragrance & flavours compounds.
SH Kelkar IPO Features
- Issue Opens On: Wednesday, October 28, 2015
- Issue Closes On: Friday, October 30, 2015
- Issue Type: 100% Book Building
- Issue Price Band: Rs.173– Rs.180
- Face Value Per Share: Rs.10
- Minimum Bid Lot: 80 Equity Shares and in multiples of 80 equity shares thereafter
- Minimum Order Value: Rs.13,840 to Rs.14,400
- Issue Size: Rs.510 crore
- Proposed Listing: Bombay Stock Exchange and National Stock Exchange
- Lead Managers: Kotak Mahindra Capital Company Limited and JM Financial Institutional Securities Limited
- Registrar: Link Intime India Private Limited
- Company Promoters: Mr.Ramesh Vinayak Vaze, Ms. Prabha Ramesh Vaze and Mr. Kedar Ramesh Vaze.
- Download SH Kelkar IPO
Objectives of SH Kelkar IPO
- Repayment/pre‐payment in full or in part of certain loans availed by the company tune to Rs.126 crore.
- Investment in K.V. Arochem Pvt. Ltd., the wholly owned subsidiary (“KVA”) for repayment/prepayment in full or in part of certain loans availed by KVA.
- Other General Corporate Purposes
|Allocation (% of Issue Size)||Percentage|
|Qualified Institutional Buyers (QIB)||55%|
|Non‐Institutional Buyers (NIB)||25%|
Financial Performance of SH Kelkar
- Company has reported consistent growth in Revenue from Operations with a CAGR of 12.73% over the past 5 years. For the 3 months ended 30th June, 2015, sales of Rs.222 crore have been accounted.
- Company has maintained good EBIDTA margin on sales of around 17% to 20% in last 5 years.
- FY 2011 to FY2014, PAT was on increasing trend but last year, despite of increase in sales, profit stayed at lower level of Rs.65 crore which translates PAT on sales of 7.69% only. Profit for 3 months ended, 30th June, 2015 is reported at Rs.20.66 which if annualized comes close to Rs.80 crore shows the company is back on line.
- Return on Equity for past couple of years remained above 10% which shows company’s potential.
SH Kelkar IPO Turn-On Points
- SH Kelkar is one of the largest domestic fragrance producers in India with 12% market share. Company also enjoys market share of 12% in Indian fragrance and flavour industry and 2.0% of the Indian flavour industry.
- Company’s clientele list includes top FMCG companies of India namely Godrej Consumer Products Limited, Marico Limited, Wipro Consumer Care and Lighting Limited, Hindustan Unilever Limited, VINI Cosmetics Private Limited and J.K. Helen Curtis Limited, Britannia India, VICCO Laboratories, Vadilal Industries Limited and Ravi Foods.
- Company has been awarded several times including the “Dream Company to Work For Award” in the manufacturing sector by the Human Resource Development Congress in February 2015, an award for “Best HR Strategy in Line with Business” at the Global HR Excellence Awards in February 2015, “Best Performance in Quality Award” at Marico Samyut, 2014 and the “Learning and Development – Diversity Award” at the National Learning and Development League Conference in 2014.
- Company has strong in-house research and development (R&D) team consists of 18 scientists operating at its facilities in Mumbai and Barneveld, the Netherlands, 12 perfumers, two flavourists along with a panel of evaluators and application executives at its creation and development centres.
SH Kelkar IPO Turn-Off Points
- There are several outstanding litigations involving Company, its Promoters, its Directors, its Subsidiaries and its Group Companies.
- Food products and their ingredients, FMCG (such as cleaning and personal care products) and cosmetic substances are subject to high regulatory standards for the protection of consumers from health hazards and stricter standards could hamper the business and operations.
- The auditor’s report on company’s financial statements contain certain qualifications for the three months ended June 30, 2015 and financial years 2015, 2014, 2013, 2012 and 2011 for the Company and its certain Subsidiaries.
- Company has disclosed Contingent liabilities of Rs.25 crore which if motorized could adversely affect company’s financial condition.
Should you Invest in SH Kelkar IPO?
At the asking price of Rs.173 to Rs.180 per share, taking last year consolidated EPS of Rs.4.87, PE at cap price works out to be 36.96X and likewise, at floor price PE comes at 35.52X.
Company has reported EPS of Rs.1.56 in FY 2016 Q1 results. If we annualize EPS and then calculate PE, at cap price and floor prices PE comes to 27.72X to 28.84X, which seems very high.
Since there are no listed companies in the same sector, reasonability of the issue prices cannot be ascertained. However, company has reported robust growth figures with stable margins. But asking PE of 35.52X to 36.96X looks very aggressive which leaves no benefit for the short term investor.