- Ambey Laboratories is coming out with a 100% book building; initial public offering (IPO) of 65,70,000 shares in a price band Rs 65-68 per equity share.
- The issue will open on July 04, 2024 and will close on July 08, 2024.
- The shares will be listed on NSE Emerge Platform.
- The face value of the share is Rs 10 and is priced 6.50 times of its face value on the lower side and 6.80 times on the higher side.
- Book running lead manager to the issue is Fast Track Finsec.
- Compliance Officer for the issue is Rimple Sarin.
Profile of the company
Ambey Laboratories is engaged in the business of manufacturing of agrochemical products for the protecting of crops and it’s been almost four decades the company serving the agrochemical sector. The company manufactures and supplies ‘2,4-D base chemicals’ with an emphasis on quality and strict compliance with Environmental, Health, and Safety (EHS) regulations, within the chemical industry. The company has Programmable Logic Controller (PLC) and Supervisory Control along with Quality Assurance Department which ensures testing through HPLC, GC, UV etc. at every stage of production at its manufacturing facility installed, integrated and operating at 5 Acres Facility in the region of Behror, Rajasthan, India for manufacturing of ‘2, 4-D base chemicals’.
The company’s manufacturing Facility located in Behror, Rajasthan, has been certified with ISO 9001:2015 from Quality Research Organization and ISO 14001:2015 from United Accreditation Foundation, a member of International Accreditation forum to maintain highest quality, environmental and safety practices. The company has obtained certificate of compliance from RoHS Directive (2015/863/EC) European Parliament and commission decision (2005/618/EC) on the restriction of use of certain Hazardous Substance [Lead (Pb), Mercury (Hg), Cadmium (Cd), Hexavalent Chromium (Cr6+), Polybrominated Biphenyls (PBBs) and Polybrominated Diphenyl, Bis (2-Ethylhexyl) phthalate (DEHP), Benzyl butyl phthalate (BBP), Dibutyl phthalate (DBP), Diisobutyl phthalate (DIBP)] ethers (PBDEs) in Electrical and Electrical Equipments.
The company works within an interconnected network alongside Aromatic Rasayan Private Limited and OFB Tech Private Limited. All the transactions are performed on arms- length basis and the company enters into transactions both in the capacity of suppliers and customers, it procures raw materials from these partners and deliver finalized products for their sale. This dynamic relationship streamlines the supply chain, promotes mutual support, and enhances the efficiency of operations for all involved parties.
Proceed is being used for:
- Meeting out the working capital requirements of the company
- Meeting out the general corporate purposes
- Meeting out the issue expenses
Industry Overview
India is the 6th largest producer of chemicals in the world and 3rd in Asia, contributing 7% to India’s GDP covering more than 80,000 commercial products and employing more than 2 million people. India’s chemical industry is extremely diversified and can be broadly classified into bulk chemicals, specialty chemicals, agrochemical, petrochemicals, polymers, and fertilizers. A network of 200 national laboratories and 1,300 R&D centers provides a strong base to the Indian chemical industry to drive innovations. This sector, which is currently estimated to be worth $220 billion in 2022 and is anticipated to grow to $300 billion by 2025 and $1 trillion by 2040. India’s agrochemical export was estimated to be at $1.04 billion from April 2023-June 2023 (Provisional). Indian colorants industry has emerged as a key player with a global market share of 15%.
India accounts for 2.5% of the world’s global chemical sales, exporting to more than 175 countries that is contributing 7% to India’s GDP. The industry is expected to reach US$ 304 billion by 2025 at a CAGR of 9.3%, driven by rising demand in the end-user segments for speciality chemicals and petrochemicals segment. Chemicals and petrochemicals demand in India is expected to nearly triple and reach $1 trillion by 2040. From April 2023 to June 2023 (provisional), India's dye exports (Dyes and Dye Intermediates) totaled $561.56 million. Specialty chemical companies are seeking import substitutions while exploring export opportunities to accelerate their business. The petrochemical demand is expected to record a 7.5% CAGR between 2019 and 2023, with the demand for polymers growing at 8%. India is the third largest polymer consumer in the world and is expected to consume 60 million tonnes by 2040.
Over the last few years, the Indian chemicals sector has exceeded all shareholder expectations, outperforming not just the overall equity market but also the majority of its upstream and downstream industries. This exceptional growth has been fueled by consistent revenue expansion, increasing margins, and rise in multiples. India is expected to become a $850-1000 billion chemicals market by 2040, taking 10-12% share of the global chemicals market. Today, the Indian chemical industry offers several opportunities to build at-scale businesses across several Specialty, Inorganic and Petrochemical segments. Identifying these opportunities calls for the right balance between market attractiveness and cost competitiveness. While cost competitiveness is generally a function of feedstock availability, trade balance, and scope of value addition via process or tech innovation, market attractiveness is a composite of current market size, expected CAGR and macro trends.
Pros and strengths
Manufacturing facility is at prime location: The company’s Manufacturing Facility is located at SP 1-5, RIICO Industrial Area Sotanala, Behror, Distt. Alwar, Rajasthan. In this estate all the infrastructure facilities such as power, roads facilities, water etc. are developed by State Government. The Manufacturing Facility is strategically located which helps with smooth procurement of raw material from the suppliers and delivery of finished goods to the customers. The vicinity advantage adds to the cost effectiveness and reliability for its suppliers and customers.
Quality assurance and standards: Quality Assurance Standards processes ensure that products or services meet predefined quality criteria consistently. By adhering to standards and implementing robust Quality Assurance procedures, company can produce reliable outputs that meet customer expectations. Quality Assurance and Standards are contributing to the strength, resilience, and competitiveness of company by ensuring consistency, reliability, compliance, efficiency, customer satisfaction, and continuous improvement in products, processes.
Cordial Relationships with suppliers: The company has cordial relationship with its suppliers for supply of materials, which provides the company with competitive advantage of effective and timely sourcing of raw materials. Effective sourcing of materials ensures timely delivery of its products to its customers, thereby enhancing the value provided to its customers.
Risks and concerns
Maximum revenue comes from few customers: The company has not entered into any long-term agreement with its customers. Its Top 5 Customers contribute 98.63% revenue in the stub period and 98.88% in the Financial Year 2022-23. The loss of its major customers or a decrease in the volume of products sourced from it may adversely affect its revenues and profitability. It cannot assure that it shall generate the same quantum of business, or any business at all, from these customers, and loss of business from one or more of them may adversely affect its operations and profitability.
Geographical constrain: Although the company exercise centralized control, being a single point manufacturing facility will prove to be disadvantageous at times because of any disruption on account of labour unrest, power failures, natural calamities, or civic unrest. Its operations will have to be stalled which will impact its production, delivery of goods and financial results.
Stiff competition: The company’s purchase and sales models include various intermediaries who may connect with its competitors and share details of the specialties of its products or its sourcing processes etc. It may not be able to protect its trade secrets and may not be able to detect the same as well. The company has not entered into any non-disclosure agreements with its intermediaries and thus its efforts towards marketing of its products may be leaked to other players in the market. This may affect the demand and exclusivity of its products and make the company subject to fierce competition thereby adversely affecting its business, financial condition and results of operations.
Outlook
Ambey Laboratories manufactures agrochemical products for crop protection. The company has been serving the agrochemical sector for almost four decades. The company manufactures and supplies 2,4-D base chemicals. The company's manufacturing facility in Behror, Rajasthan, is certified with ISO 9001:2015 by the Quality Research Organization and ISO 14001:2015 by the United Accreditation Foundation. The company is focused on improving its cost efficiency by optimizing the effective sourcing of raw materials over the last several years. Ensuring cost efficiencies is a significant parameter in order to compete effectively, whether in the domestic market or overseas. On the concern side, substantial portion of its revenues has been dependent upon its few clients. The loss of any one or more of its major clients would have a material adverse effect on its business operations and profitability. The company’s existing manufacturing operation is geographically located at one place. Hence, it may face the risk of geographical non-diversification of manufacturing facilities.
The company is coming out with a maiden IPO of 65,70,000 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 65-68 per equity share. The aggregate size of the offer is around Rs 42.71 crore to Rs 44.68 crore based on lower and upper price band respectively. On performance front, the company’s total income for the FY23 stood at Rs 10,743.47 lakh whereas in FY22 the same stood at Rs 8511.19 lakh representing an increase of 26.227%. The main reason of increase was multiple new customer acquisition. Moreover, the company’s profit after tax increase to Rs 456.93 lakh in FY23 as compared to Rs 357.47 lakh in FY22. Consequently, its PAT Margin expanded to 27.82% in FY23. Meanwhile, the company intends to backward integrate all Raw materials to the point of basic chemical which will give it opportunity to not only increase the bottom line but also allow the company to make more products from the base chemicals. Thus, further increasing the effectiveness of its backward integration. Forward integration will provide the company benefit of using its capacities to full as it will add another sales dimension to its manufactured products. It will enter the small pack market by selling its manufactured product in its customer brand and also in its own brand. This will give another boost to its bottom line.
