Anupam Rasayan IPO: Information Analysis

A boom phase is going on for specialty chemical players in India with several of these companies commanding rich valuations. Anupam Rasayan is the latest entrant to this party. The company is involved in custom synthesis and manufacturing of specialty chemicals. Custom synthesis means the exclusive synthesis of compounds a company carries out on behalf of its customer. The company's products are used as additives, ingredients or intermediates in its customers' final products. The company divides its business into two parts: a. Life science specialty chemicals (96 per cent of FY20 revenue) comprising products related to agrochemicals (around 70 per cent), personal care and pharmaceuticals b. other specialty chemicals (4 per cent of FY20 revenue), comprising specialty pigment and dyes, and polymer additives The company, over the years, has built strong relationships with various companies including Syngenta Asia Pacific, Sumitomo Chemical Company and UPL, helping it to grow its exports revenue to 68 per cent for FY20, with its major export market being Europe (36 per cent). Further, the company has also managed to increase its commercialised products from just 15 in 2015 to 41 in December 2020. The chemical sector in India has benefitted in recent years from the China effect. First, the environmental crackdown in China on pollution-causing chemical plants in 2015 led to sudden supply-side problems, thereby benefiting the Indian players. And now, the pandemic is leading global companies to reduce their dependence on China. However, there is a long way to go for the $22 billion Indian specialty industry, which represents just 1-2 per cent of the world's exportable specialty chemicals as of today. To reap the benefits of this trend, Indian chemical players have been doing massive capex spends. Anupam Rasayan has invested more than Rs 680 crore in the last three years (till FY20) and has more than doubled its capacity to 23,438 MTs. Now, the company is raising around Rs 760 crore through its IPO, out of which around Rs 564 crore would be used towards paying off existing debt. The company is also looking forward to ramping up its two recently commenced facilities. Further, it is also looking forward to adding more number of large customers, especially focusing on the Japanese market. Strengths Custom synthesis players, such as Anupam Rasayan, enjoy a strong relationship with their customers. The business relationship is not only limited to selling a product but also of sharing confidential information, process knowledge, product development and more. As a result, customers typically select manufacturers after carefully reviewing them and tend to develop long-term relationships with them as well as limit the number of such manufacturers. This company has been manufacturing products for certain customers for over 10 years and as per the management, the company is the key supplier for its top 10 customers. Such a strong relationship provides high barriers to entry. The company, over the years, through focus on R&D, has been able to increase its product portfolio from 25 products in FY18 to 41 products as of December 2020. The company, over the years, has focussed on boosting its process capabilities. It utilises continuous processes to carry out various chemical reactions instead of the conventional batch technology. The conventional technology is extremely hazardous in nature and generates a large volume of acidic wastewater,