Long standing track, reassuring promoter stake, scalable production capacities, impending expansion plans, fair IPO pricing, etc. make it an investible grade.
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HP ADHESIVES OFFER AT A GLANCE |
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| Offer Type | Book Built |
| Platform | Main Frame |
| Offer Size | 45,97,200 equity shares (Rs 126 Cr) |
| Fresh Issue | 41,40,000 equity shares (Rs 113 Cr) |
| Offer for Sale | 4,57,200equity shares (Rs 13 Cr) |
| Face Value | Rs10 |
| Price Band | Rs 262–274 |
| Mkt/Bid Lot | 50 Nos. |
| Implied M-Cap | Rs 503 Cr |
| Implied Equity Cap | Rs 18.37 Cr |
| Free Float | 28.65% |
| Lead Manager | Unistone Capital |
| Registrar | Bigshare Services |
| Listing | BSE, NSE |
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INDICATIVE ISSUE SCHEDULE |
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| Opening :15-Dec-2021 | Closing :17-Dec-2021 |
| Allotment :22-Dec-2021 | Refunding :23-Dec-2021 |
| Demat Credit :24-Dec-2021 | Trading : 27-Dec-2021 |
The Offer
The Mumbai-based HP Adhesives Ltd (HPA) is coming up with an IPO of Rs 126 Cr. The offer is comprised of a fresh issue of 41 lakh equity shares (Rs 113 Cr) and an offer for sale of 4.57 lakh equity shares (Rs 13 Cr) from one of the promoters of the company. The offer is being made through the book-building route with a price band of Rs 262-274 for Rs 10 paid-up share.
Applicants for the IPO should bid for a minimum lot 50 of shares and multiples thereof. The shares are proposed to be listed on the main frame of BSE & NSE on Monday, December 27, 2021. Unistone Capital is managing the offer and Bigshare Services is the registrar to the issue. The bidding opens onWednesday, December 15, 2021 and closes on Friday, December 17, 2021.
The company proposes to utilize the proceeds of the fresh issue (Rs 113 Cr net of issue expenses) towards funding capital expenditure of the expansion at the existing manufacturing facility and construction of new unit (Rs 25.50 Cr), funding the working capital requirements (Rs 54 Cr) and general corporate purposes.
Lineage
HPA presents itself as a fast-growing multi-product, multi-category consumer adhesives and sealants company. For its largest product – PVC solvent cement, HPA is amongst the country’s leading manufacturers in the consumer/ bazaar segment of the adhesive industry with sales across India and also in international markets. HPA’s revenue has grown from Rs 3.56 Cr in fiscal 2010 to Rs 118 Cr in fiscal 2021, registering a CAGR of 37.5% in last 11 years.
The company was originally formed as a partnership firm in 1987 under the name and style of H.P. International. Haresh Motwani and Seema Abhichandani were the partners. HPA’s present promoter, Anjana Haresh Motwani, was admitted to the partnership in October 2001. Pursuant to the demise of her spouse Haresh Motwani, her son Karan Motwani became a partner in 2007. The partnership firm was thereafter converted into a joint stock company in May 2019 and its name was changed to HP Adhesives. In the first year after conversion, the company posted loss. However, for fiscal 2021 it put up an impressive performance.
Key Management
The main promoter Anjana Motwani (65) is designated as the Executive Director and Chairperson of the company. She claims to have over 40 years of experience in the adhesive industry. In 1979 she reportedly founded Hindustan Plastics, sole proprietorship concern, for manufacturing solvent cement. Post 2007, she has been leading the operations of HP International and has been instrumental in the growth and development of the company. Karan Motwani (36) currently holds the position of Managing Director of the company. Since his admission into the partnership in 2007, he has played a key role in devising the company’s growth strategy and executing its vision.
Stakeholders
Currently, HPA is having an equity capital of 1,42,34,947 shares of Rs 10 each. Promoter Anjana Motwani is holding 71,97,335 shares (50.56%) at an average cost of Rs 22.97 a share and co-promoter Karan Motwani is having 63,70,000 shares (44.75%) at a cost of Rs 10 a piece. The balance 6,67,612 shares (4.69%) are held by seven shareholders under the public category. Post-offer for sale, Anjana Motwani will hold 6,740,135 shares (36.68%) at an average cost of only Rs 5.94 a share. Karan Motwani will continue to have same quantity of shares at same cost but, in percentage terms his stake will be 34.67% on the enlarged equity.
Business
HPA manufactures a wide range of consumer adhesives and sealants 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, through an extensive distribution network of distributors, and also exports to several countries, through network of distributors and direct customers. Also, the company manufactures these products for select large PVC pipe manufacturing companies under co-branding or private label on order basis.
Apart from the above products, the company sells ancillary products like ball valves, thread seal and other tapes and fiber-reinforced plastic products for drainage and architectural solutions that are distributed along with the company’s products to the end- customers through its distribution network. The adhesives and sealant products have applications in multiple industries such as plumbing and sanitary, drainage and water distribution, general purpose building/ construction and interior operations as well as for glazing operations, woodwork, footwear, automotive, foam-furnishing, etc.
Financial Track
In the first year after conversion from partnership firm the company incurred a loss of Rs 467 lakh. In fact, during the financial year 2020, the company had incurred an aggregate loss of Rs 743.71 lakh due to exceptional item of settling tax claims/disputes under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 and Maha VAT Amnesty Scheme. Nevertheless, in fiscal 2021 when most of the companies were affected by the pitfalls of COVID-19, HPA’s revenue grew 23.75% and the company posted a record profit of Rs 10 Cr.
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HP Adhesives Financials (in Cr) |
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| Period Ended |
Sep-21 |
Mar-21 | Mar-20 |
Mar-19 |
| Months |
6 |
12 | 12 |
12 |
| Revenue |
70.52 |
118.16 | 95.48 |
87.42 |
| Operating Profit |
5.13 |
11.97 | 4.49 |
8.14 |
| OPM% |
7.3 |
10.1 | 4.7 |
9.3 |
| Other Income |
2.22 |
5.72 | 2.43 |
0.56 |
| EBIDTA |
7.34 |
17.69 | -0.52 |
8.70 |
| EBIDTA % |
10.1 |
14.3 | -0.6 |
9.9 |
| Interest |
1.72 |
2.55 | 2.95 |
3.91 |
| Depreciation |
1.41 |
1.90 | 1.90 |
0.74 |
| Net Profit |
3.10 |
10.06 | -4.67 |
4.00 |
| Accumulated Loss |
0 |
0.34 | 10.52 |
0 |
| Equity (Implied) |
18.37 |
13.00 | 13.00 |
13.00 |
| Reserves (Implied) |
132.62 |
0 | 0 |
1.66 |
| Borrowing |
27.31 |
31.39 | 33.28 |
23.58 |
| Fixed Assets |
32.80 |
25.70 | 12.00 |
8.80 |
At present NPA has one manufacturing facility in Village Narangi, Raigad, Maharashtra, with an aggregate estimated installed capacity of 6,099 KLPA of solvent cement, 2,491 MTPA of other adhesives and 783 MTPA of sealants. In Fiscals 2019, 2020 and 2021, the company’s overall capacity utilization for solvent cement was 54%, 57% and 51%, respectively, for other adhesives was 7,48%, 20.74 % and 34.30%, respectively and for sealants was 7,71%, 38.08% and 52.92%, respectively.
In order to meet the growing demand for adhesives and sealants, the company has now proposed to expand its facility to hike capacities for manufacturing existing products and also begin manufacturing epoxy adhesives and spray paint to further expand its market base. Post completion of the proposed expansion plans, the production capacity is expected to increase to 8,266 KLPA of solvent cement and 11,908 MTPA of other adhesives and sealants. The proposed expansion is expected to be operational during the fiscal 2024.
Valuation
HPA has fixed a price band of Rs 262-274 for Rs 10 paid up share. The IPO cap price discounts the company’s last fiscal earnings about 50 times, which may compare well with industry heavy weight Pidilite. However, as compared to a more appropriate peer, Jyoti Resins, HPA pricing looks steep.
Notwithstanding higher valuation, HPA merits investment on the following factors. First, the stock’s P/E multiple is bound to move favorably once the proposed expansion starts yielding profit. Second, the promoters have kept for themselves a higher stake of 71% which exudes their optimism about the company’s future. Third, at a time when many a promoter has chosen to offer large quantity through the OFS so as to keep the residual cost of holding negative, HPA promoters are offering lesser quantity that binds the residual holding at a cost.
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How HP Adhesives compares with its peers |
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Financials |
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| (Amount in Cr) |
HP Adhesives |
Pidilite Ind |
Jyoti Resins |
| Market Cap |
503 |
119818 |
330 |
| Borrowing |
31 |
214 |
0 |
| Fixed Assets |
26 |
3428 |
39 |
| Revenue |
118 |
7293 |
103 |
| Other Income |
6 |
79 |
5 |
| EBIDTA |
18 |
1760 |
17 |
| Interest |
3 |
37 |
0 |
| Net Profit |
10 |
1126 |
12 |
| Equity Cap |
18 |
51 |
4 |
| Reserves |
133 |
5542 |
40 |
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Stock Features |
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| Current Price (Rs) |
274 |
2358 |
824 |
| Face Value (Rs) |
10 |
1 |
10 |
| Book Value |
82.18 |
110.05 |
109.93 |
| Promoter Stake % |
71.35 |
69.99 |
48.98 |
| Debt/Equity |
0.21 |
0.04 |
0.01 |
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Profitability |
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| OPM % |
10.1 |
23.1 |
11.9 |
| Net Margin % |
8.1 |
15.3 |
11.3 |
| Cash EPS |
6.51 |
26.2 |
31.97 |
| Earnings Per Share |
5.47 |
22.25 |
30.41 |
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Return |
|||
| RONW % |
26.8 |
20.1 |
27.7 |
| ROCE % |
22.9 |
26.9 |
36.7 |
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Discounting |
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| Price/Earnings |
50.1 |
106.0 |
27.1 |
| Price/Cash EPS |
42.1 |
90.0 |
25.8 |
| Price/Book Value |
3.3 |
21.4 |
7.5 |
| Price/EBIDTA |
28.5 |
68.1 |
19.6 |
| Price/Revenue |
4.3 |
16.4 |
3.2 |
| Price/Fixed Assets |
19.6 |
35.0 |
8.5 |
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Distribution |
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| Dividend % |
0 |
850 |
30 |
| Yield % |
0 |
0.4 |
0.4 |
| Pay-out % |
0 |
38.4 |
9.9 |
Concern
The company needs to improve its corporate governance. There have been instances of delayed / incorrect filings in the past with the Registrar of Companies. Also, in the past, certain statutory records and registers have not been maintained in the manner as required under various applicable laws.