| Price | Lot Size | Issue Date | Issue Size |
|---|---|---|---|
| ₹ 129 to ₹ 136 | 110 | 03rd June, 2024 – 05th June, 2024 | ₹130.15 Cr |
Company Overview
Incorporated in 2008, Kronox Lab Sciences Ltd. is engaged in the manufacturing of High Purity Speciality Fine Chemicals of various grades for diversified end-user industries, such as reacting agents and raw materials in the manufacturing of APIs, excipients in pharmaceutical formulations, reagents for scientific research and laboratory testing, ingredients in nutraceuticals formulations, process intermediates and fermenting agents in biotech applications, ingredients in agrochemical formulations, ingredients in personal care products, refining agents in metal refineries; and ingredients in animal health products, amongst others. The company presently operates from three strategically located manufacturing facilities (Unit 1, 2 & 3) at Padra, Vadodara in Gujarat, which is cumulatively spread across 17,454 sq. mts. area with an aggregate installed capacity of 7,242 MTPA. The units are located near several ports including Kandla, Mundra, Hazira and Nhava Sheva. The company’s portfolio includes 185+ products spanning the family of phosphate, sulphate, acetate, chloride, citrate, nitrates, nitrites, carbonate, EDTA derivatives, hydroxide, succinate, and gluconate. Over the years, the company expanded its scale of operations and global footprint with customers in over 20 countries, including the United States, Argentina, Mexico, Australia, Egypt, Spain, Turkey, United Kingdom, Belgium, United Arab Emirates, and China. The company also has an in-house research, development and testing laboratory (“RDT Laboratory”) with 16 members to develop new products and test the existing products against the specified industry standards or customer specifications. It continues expanding its product range to meet the demands of the end-user industries.
Objects of the issue:
The net proceeds from the fresh issue will be used towards the following purposes:
- The company will not receive any proceeds from the offer and all the offer proceeds will be received by the selling shareholder;
- General corporate purposes.
Investment Rationale:
Wide range of products applicable to diversified end-user industries
The company manufactures a broad range of High Purity Speciality Fine Chemicals belonging to the family of citrates, carbonates, phosphates, acetates, sulphate, EDTA derivatives, chlorides, hydroxide, bromide, nitrites, and nitrates. These products have applications across various industries including pharmaceuticals, scientific and laboratory research, nutraceuticals, biotech, agrochemicals, personal care, metallurgy and animal health. Over the years, the company has expanded its portfolio to more than 185 products. In addition to manufacturing products as per these standards, they also undertake custom manufacturing of High Purity Speciality Fine Chemicals to achieve different levels of purity as specified by the customer for their specific requirements. It is important to note that custom manufactured speciality chemicals are high-margin products having specialized usage in the end-user industries. The manufacturing of these products requires deep domain knowledge of chemical compositions, reactions, and combinations with other chemicals when exposed to high temperatures to meet the desired purity level.
High entry barriers due to long customer approval cycles and strict product standards
The company manufactures and markets High Purity Speciality Fine Chemicals used as reacting agents in the manufacturing of Active Pharmaceutical Ingredients (APIs), as excipients in pharmaceutical formulations, as nutritional ingredients in nutraceutical formulations, as ingredients in personal care products, as mixtures for scientific research and laboratory testing, as refining agents in metal refineries, as ingredients in animal health products and as fermenting agents in biotech applications, among others, for use across the globe. The company’s manufacturing process involves multi-step production and purification processes to manufacture fine chemicals. Further, given the nature of the application, the processes and products are subject to and measured against established domestic and international standards and stringent specifications of customers. Over the years, the company has built strong relationships with customers who recognize technical capabilities and timely deliveries and associate the company with excellent and consistent quality products.
Valuation
The company manufactures high-purity speciality fine chemicals of various grades in particle sizes ranging from 10 mesh to 100 mesh. The company’s manufacturing infrastructure is a key growth driver for their business. Currently, they have three strategically located manufacturing facilities near several ports, which ensures they have ready access to port facilities and can conveniently import raw materials and export their products, providing them with a cost and logistical advantage. Over the years, the company has expanded its product portfolio to more than 185 products spread across diverse applications. They have consistently endeavoured to diversify their portfolio of products to cater to changing customer requirements across various segments and geographies. The company has over a decade’s track record of operations and has a robust balance sheet and cash flow position. They have experienced sustained growth in various financial indicators, including revenue and PAT, and a consistent improvement in their balance sheet position in the last three Financial Years, wherein they have seen an increase in their net worth. As we advance, the company’s financial performance, driven by its robust balance sheet, positive operating cash flows coupled with zero debt position, enables it to fund its strategic initiatives, pursue growth opportunities, create higher entry barriers and diversify into new products by setting up a new manufacturing facility. The issue is valued at a P/E of 25.5x on the upper price band based on FY24E earnings, which is fairly valued. We, therefore, recommend an SUBSCRIBE rating for the issue.
