HP Adhesives IPO sailed through on the first day of sale with retail investors heavily oversubscribing their portion of the issue. The Rs 126 crore IPO is among a plethora of public issues that have entered Dalal Street this month to raise funds. HP Adhesives is offering shares to investors in a fixed price band of Rs 262-274 per share. Ahead of the IPO, HP Adhesives managed to raise Rs 56.68 crore from just three anchor investors. In the unlisted space there was no trading activity in HP Adhesives shares.
Subscription update
So far the IPO has been subscribed 2.43 times. Qualified Institutional Buyers (QIB) have not bid for shares so far while Non-Institutional Investors (NII) have bid for 0.04 times their portion. NIIs have bid for 25,350 shares against 6.89 lakh on offer. Retail investors have massively oversubscribed their portion, bidding for 61.1 lakh shares against the 4.59 lakh on offer. Retail investor portion has been subscribed 13.32 times.
The IPO is a mix of a fresh issue of equity shares and an offer for sale (OFS) by existing shareholders. The fresh issue size of the IPO amounts to Rs 113 crore while the remaining is an OFS. 75% of the entire IPO is reserved for Qualified Institutional Buyers (QIB) while 15% is reserved for Non-Institutional Investors (NII) and the remaining 10% for retail investors. Post issue, promoter and promoter group shareholding in the company will drop to 71.35% from the current 95.31%. On the other hand, public shareholding will increase to 28.65% from the current 4.69%. Through the funds raised through the IPO, HP Adhesives plans to fund the capital expenditure for existing and proposed expansions.
Valuation watch
In terms of valuations, at a higher price band of Rs 274, the company is demanding a TTM P/E multiple of 49.2x, which seems to be at premium considering the small business size, said analysts at Choice Broking. The brokerage firm has a ‘Subscribe with caution’ rating on the issue. HP Adhesives is a consumer adhesives and sealants company with no exact peer listed on the bourses. “Considering the TTM (Sept-2021) adjusted EPS of Rs.5.57 on post issue basis, the company is going to list at a P/E of 49.23 with a market cap of Rs 5,035 mn,” said analysts at Marwadi Share and Finance. They added that Pidilite Industries, a similar business, is trading at P/E of 89.75. Marwadi share and Finance has a ‘Subscribe’ rating on the issue.
Company strengths
HP Adhesives is among the leading manufacturing companies in India in the consumer/ bazaar segment of the adhesive industry for its largest product category — PVC solvent cement. “It manufactures a wide range of products such as PVC, cPVC and uPVC solvent cement, synthetic rubber adhesive, PVA adhesives, silicone sealant, acrylic sealant, gasket shellac, other sealants and PVC pipe lubricant which are sold across India,” said Religare Broking in a note. At the end of September this year, the company had a distribution network comprising 4 depots situated in Delhi, Kolkata, Bengaluru, and Indore with more than 750 distributors who cater to more than 50,000 dealers in India.
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