IPO: Sanstar

The IPO (initial public offering) of Sanstar Ltd, a plant-based specialty manufacturer of food and animal nutrition ingredients, will open for subscription on July 19, 2024 and close on July 23, 2024. Below is a breakdown of the company's strengths, weaknesses, and growth prospects to help investors make an informed decision. In a nutshell Quality: Its three-year average ROE and ROCE were 30.5 and 24.2 per cent, respectively, between FY22 and FY24. Growth: Its revenue and net profit grew 45.5 and 104.6 per cent per annum, respectively, between FY22-FY24. Valuation: The stock will trade at a P/E and a P/B of 25.8 and 2.8 times, respectively. Overview: Growth in industries like pharmaceuticals, animal nutrition and food, especially the 'ready to eat' products should help Sanstar scale up. However, the industry's low entry barriers and the company's heavy reliance on maize may challenge its profitability. About Sanstar With an annual capacity of 363,000 tons per annum (TPA), Sanstar is India's fifth largest manufacturer of maize-based specialty products and ingredients. The company turns maize into products that are used as thickening agents, stabilisers, sweeteners, and additives in food products and as nutritional ingredients in animal nutrition products, among others. The food industry is its largest segment with a 58 per cent share in its revenue pie. Sanstar also has a large global presence with exports making up 36 per cent of its total revenue in FY24. Strengths of Sanstar Solid brand recall: The company has a strong market position in India, especially in products made from maize. It offers a wide range of products, which helps it produce on a large scale. It also has a solid rapport with its customers. About 89 per cent of the company's orders in FY24 came from recurring clients. Its customer base is diversified, with the top 10 clients accounting for 41 per cent of its FY24 revenue. Weaknesses of Sanstar Risks to margins: The company has single-digit EBIT margins and its profitability is highly dependent on how maize prices move. Just like in other commodity businesses, any increase in prices of maize, which is its key raw material, can severely dent its financials. Competitive heat: Due to low capital requirements and abundantly available raw material (maize), the entry barriers in the industry are low. As a result, the competition in the industry is intense and on a swift rise. IPO details Total IPO size ( Rs cr) 510 Offer for sale (Rs cr) 113 Fresh Issue (Rs cr) 397 Price Band (Rs) 90-95 Subscription dates July 19, July 22 and July 23, 2024 Purpose of issue Funding capex, repayment of debt Post-IPO M-cap (Rs cr) 1,731 Net worth (Rs cr) 613 Promoter holding (%) 70.4 Price/earnings ratio (P/E) 25.8 Price/book ratio (P/B) 2.8 Financial history Key financials (Rs cr) 2Y growth (% pa)