Specialty Chemical Company Slips 5% on Market Debut. More Details Inside...

Sudarshan Pharma Industries, a company engaged in trading of specialty chemicals and intermediaries for the pharma sector, made its market debut on the Bombay Stock Exchange (BSE) today.

Shares of the specialty chemical company were locked in the 5% lower circuit band at Rs 69.35.

The company recently concluded its initial public offering (IPO) on the BSE SME segment where the issue price was set at Rs 73.

The company contemplated to get listed on the main board initially, but considering the time and size, it decided to go with SME listing.

IPO details...

Interestingly, this is not the first time the company is coming out with its IPO. Sudarshan Pharma originally planned an IPO in June 2019, but the IPO failed to sail through.

Back in June 2019, it just managed to get 47% subscription till the last day, and hence it was withdrawn.

This time, the SME IPO of Sudarshan Pharma Industries was subscribed 1.1 times. The issue opened for bidding on 9 March 2023 and closed on 14 March 2023.

The company was looking to raise a little over Rs 500 million (m) by issuing shares in the price band of Rs 71 to Rs 73.

The IPO comprised fresh issue of 68,62,400 equity shares. About 3,44,000 equity shares were reserved for subscription by market maker to the issue. So the net issue comprised of 65,18,400 equity shares.

According to the company's red herring prospectus, post IPO, the promoter and promoter group shareholding will reduce to 57.4% as against 80.3% pre-IPO.

A look at the financials

In the past five years, the company has grown its sales at a compounded annual growth rate (CAGR) of 32% while profits have grown at a CAGR of 48% during the same period.

Although right now, expenses account for almost majority of the company's sales.

Sudarshan Pharma Financial Snapshot (2018-2022)

Rs m, standalone	FY18	FY19	FY20	FY21	FY22
Net Sales	881	1,391	1,480	1,934	3,571
Growth (%)	59%	58%	6%	31%	85%
Total Expenditure	875	1,348	1,432	1,862	3,461
Expenditure (% of revenues)	99%	97%	97%	96%	97%
Operating Profit	23	52	48	75	114
Operating Margin (%)	3%	4%	3%	4%	3%
Net Profit	7	23	13	27	53
Net Profit Margin (%)	1%	2%	1%	1%	1%
Debt to Equity (x)	1.2	0.8	1.1	1.3	1.0

Data Source: Ace Equity

According to the RHP, the company has reported revenues of Rs 1,954.9 m and net profit of Rs 36 m for the period ended September 2022.

Understanding what the company does...

Sudarshan Pharma has a contract manufacturing facility for generic formulations. It is engaged in import & export activities, and supply of specialty chemicals, Pharma API, and intermediates.

The company is primarily involved in products such as finished formulations, bulk drugs and intermediates, paints, coatings, corrosives, pesticides and agrochemicals, among others.

The company has its own sales force and distribution network in 5 Indian states including Maharashtra, West Bengal, Chhattisgarh, Uttar Pradesh, and Gujarat.

It's also present globally as it has a commercial presence across the UK, Australia, Uzbekistan, Syria, Oman, and Taiwan.

As part of its expansion plan, the company is in the process of applying for 16 formulation registrations in countries like Ghana, Georgia, Myanmar, Nigeria, Kenya, Malaysia & MINA region.

Cipla, L&T, Berger Paints, Navin Fluorine, Insecticides India, SRF, Clean Science are some of its key clients.

Take a look at the table below to see the peer comparison with listed peers:

Comparative Analysis

Company	Sudarshan Pharma	Aarti Drugs	Eris Lifesciences
ROE (%)	12.6	21.3	23.9
ROCE (%)	14.6	20.8	26.4
Latest EPS (Rs)	1.1	16.5	29.2
TTM PE (x)	-	23.4	19.5
TTM Price to book (x)	-	3.3	3.6
Dividend yield (%)	-	0.3	1.1
Industry PE	31.5
Industry PB	3.30

Data Source: Ace Equity

In conclusion

The SME exchange is a relatively recent phenomenon. BSE SME platform started in March 2012 while NSE SME IPO platform started later the same year.

Unlike mainline IPOs that are vetted by the market regulator, SME IPOs are managed by exchanges.

SME IPO platform was offered on exchange as a way for small companies to go public, as they did not meet the requirements related to profitability and net worth to go on main exchange.

If you're looking for high-growth potential and don't mind a little risk, SME companies are worth a closer look.

However, the minimum lot size and lack of liquidity are significant hurdles that can make investing in these stocks challenging.

While some SME IPOs have experienced massive gains, investors must be cautious and conduct thorough research before investing.

Ultimately, investing in SME IPO stocks can provide high-growth potential, but it comes with significant risks that investors must be prepared to navigate.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...