Securities and Exchange Board of India (SEBI) has given its signal to Ducol Organics and Colours Limited, a chemical manufacturer for its IPO launch on 9th January 2023 at a price of 78 per share. The following article will cover the details of the issue and our thoughts on it as we explore it in more detail.
About the company
Ducol Organics and Colours Limited started as a small laboratory in 1990. The laboratory witnessed many researches on product applications and development processes. Today the company is a leading chemical manufacturer that produces dispersions for a wide range of industries such as paints, inks, textiles, and plastics. They develop, manufacture, market, and distribute to these industries which also include ink, textile, rubber, plastic, leather, paper, soaps, detergents, and FMCG., with a Pan-India presence and customer base.
They provide the following pigment dispersions and preparations-
- Dutint – water-based dispersions for decorative paints
- Duplast – MB for the plastic industry
- Duprint – water-based dispersion for printing ink formulations
- Dutex – pigment pastes for the textile printing industry
- Dusperse – for the soap and detergent industry
- Dupralin – for the paper industry
- Dupren – used in the rubber industry
- Ducem – Dry dispersions of various general applications
The company exports to over 30 countries and has a government-recognized export house. The company Promoters and Directors also have an experience of over 2 decades in the business.
They have adequate infrastructure and production units. Two of these units are in Taloja and the third one is in Mahad which is currently under trial. These units are well equipped and have sufficient technical support in order to cater to the needs of their customers and provide comprehensive solutions.
Ducol Organics and Colours Limited IPO Details
- The company’s IPO will open on 9th January 2023 and will close for subscription on 11th January 2023.
- The face value of the company’s equity share is ₹10.
- The company will list National Stock Exchange for Small and Medium Sized Companies
- 40.4 lakh shares are being offered by the selling shareholders in the IPO.
- The pre-issue shareholding of the promoters in the company is 53.90%.
|Issue Open Date||9th January 2023|
|Issue Close Date||11th January 2023|
|Amount to be raised||₹31.512 crores|
|IPO size||40,40,000 equity shares|
|Face value||10 per share|
|Issue Price||78 per share|
|Minimum Bid||1600 equity shares|
|Listing Platform||NSE SME|
|Lead Manager||First Overseas Capital Limited|
|Retail||18,19,200 Equity Shares|
|NII and QIB||18,19,200 Equity Shares|
Objectives of IPO
The objectives of the issue as mentioned in the prospectus of the company are-
- Funding working capital requirements of our Company
- General corporate purposes
Ducol Organics and Colours believe that the issue will enhance its corporate image and visibility of the brand name of the company. It will also provide liquidity to the existing shareholders and will also create a public trading market for the shares of the company.
Out of the gross proceeds of the issue, 31.512 crores, 80 lakhs will go for issue expenses. 23.77 crores will be directed towards working capital and 6.93 crores for general corporate purposes.
The key strengths of the company are as follows-
- The company has well-experienced promoters and directors.
- The company has a good customer base not only domestically, but also in 30 other countries, which makes it easier for them to get new customers and hence improved sales.
- The company has well-equipped and technologically advanced labs, operated by well-trained professionals which rules the possibility of shortage out.
- The company also has a government-certified export house, making the process credible.
The following are the key risks that the company may face in its business-
- The company has a total of Rs. 47.85 lakh tax proceedings against the company.
- Certain registrations, licenses, and planning permissions from the government and regulatory law enforcing authorities are required for the business, and any inability to obtain or renew such approvals on time may have a detrimental effect on the operational processes.
- The business is relying on production facilities, a significant proportion of which is focused primarily in one region, Maharashtra. Any damage, shutdown of operations, or change in laws and procedures relating to manufacturing in the state could have a negative impact on the business and production operations.
- Being in the chemical manufacturing market, there are significant changes in the structures and compositions of such elements; such modifications can have a critical influence on the cost, resulting in an increase.
Fundamentals of Company
The following are the business fundamentals of the company
- The company’s revenue from operations increased by 20.24% to ₹8,798.57 lakhs in FY22, compared to FY20. The revenue from operations for the quarter that ended September 2022 is ₹4859.19 lakhs.
- The company’s profit after tax increased 7 folds to ₹4.91 crore in FY22, compared to the FY20.
- The company has long-term borrowings of ₹1104.34 lakhs for the previous year.
- The company’s cash flows from operations have consistently continued to be positive over the years.
- The company’s earnings per share stood at ₹4.68 for the period ended September 30, 2022.
- The price-to-earnings ratio is 16.68, which is lower than the industry average of 23.67.
- The company’s net asset value per equity share stood at ₹23.67 for the period ended September 30, 2022, and after the issue, the value shall be ₹38.76.
- The company’s return on net worth was 23.50% for FY22.
- Promoters of the company Aamer Ahmed Farid and Hani Ahmed Farid hold a 53.90% stake in the company that will go down to 38.93% in the post-issue phase.
The company has the following peers in the market-
- Aksharchem (India) Limited
- Asahi Songwon Colors Limited
- Clariant Chemicals (India) Limited
- Vipul Organics Limited, Ultramarine
- Pigments Limited and Sudarshan Chemical Industries Limited
The highest p/e ratio is shown by Sudarshan Chemical Industries Limited at 39.57 and the highest eps is shown by Ultramarine & Pigments Limited. Compared with its peers, the company has the lowest eps and is only second to the lowest in terms of the P/E ratio among its peers. Comparing the net asset value too, the company stands at the last spot.
Ducol Organics and Colours Limited has a good experience in the industry and also possesses a fair cash flow from its operations, these factors can prove to give good returns in the market. With the government’s focus on infrastructure in the country, if also reflected in the upcoming budget, the company might have a good opportunity to grow in the future. However, the company does not perform well in the peer comparison section and there is also a major drop in the promoter holding which is not a very positive aspect potential investors hence looking for any listing gains must look at these numbers before they make any decision to move forward with the IPO.