Subscribe to Chemcon Speciality Chemicals: Motilal Oswal

Motilal Oswal's IPO report on Chemcon Speciality Chemicals

Chemcon Speciality Chemicals Ltd (Chemcon) is the speciality chemicals manufacturer of Pharma Chemicals (HMDS, CMIC) and Oilwell Completion Chemicals (inorganic bromides). Leading manufacturer globally for Pharma Chemicals and in India for Oilwell Completion Chemicals: Chemcon is the only manufacturer of HMDS in India and 3rd largest globally. It is also the largest player of CMIC in India and 2nd largest worldwide. Additionally, Chemcon is the only manufacturer of Zinc Bromide and the largest of Calcium Bromide in India. 40% of the revenues come from export which has grown at a CAGR of 18% over FY18-20. Chemcon enjoys high entry barriers which leads to client stickiness and long standing relationships.

Valuation and Outlook

At the higher end of the price band, the issue is valued at 25.5x FY20 P/E (fully diluted), which is reasonable compared to peers. We like Chemcon given its (1) leadership position in niche products, (2) high entry barriers and (3) healthy financials. Hence, investors can Subscribe to the IPO. Further considering the bright prospects for Chemical companies due to shift of supply chain away from China, we believe Chemcon would be well placed to capture this with its planned capex. Risk: (1) Client concentration, (2) limited product portfolio and (3) criminal proceeding against a member of promoter group.

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