JG Chemicals IPO opens today: Should you subscribe to the issue?

G Chemical's initial public offering (IPO) opened for public bidding on Tuesday, March 5 and the issue can be subscribed until March 7, Thursday. The manufacturer of zinc oxide has fixed the price band in the range of Rs 210-221 apiece. Interested bidders can make bids in the lot size of 67 equity shares and its multiples.

Brokerage firms tracking the issue are mostly positive on it, suggesting to subscribe to the issue on the back of strong financial performance, niche market sector, high entry barriers and growing demand for its products in various sectors. However, dependence on one single product and select customers poses a threat to the company.

JG Chemicals is expanding its production facilities and diversifying product offerings to meet growing market demands, particularly in the ceramics industry and non-tyre markets. With a leading market position and strong customer base, the company maintains high customer retention rates and explores growth opportunities in South East Asia, said Arihant Capital.

"Despite high entry barriers, its certifications and global supplier base ensure continued growth. The favorable demand outlook in automotive, rubber and ceramics, along with expected revival of the chemical industry in early FY25, positions JG Chemicals for sustained growth and market leadership," it said with a subscribe rating for the issue.

JG Chemicals, incorporated in 1975, produces more than 80 grades of zinc oxide. It has various industrial applications including ceramics, paints and coatings, pharma and cosmetics, electronics and batteries, agrochemicals, fertilisers, speciality chemicals, lubricants, oil & gas and animal feed.

The Rs 251.19 crore-IPO includes a fresh share of Rs 165 crore and an offer-for-sale (OFS) of up to 39 lakh equity shares by promoters Vision Projects & Finvest, Jayanti Commercial, Suresh Kumar Jhunjhunwala (HUF) and Anirudh Jhunjhunwala (HUF). .

The net proceeds from the issue would be utilised towards funding long-term working capital requirements, investment in the material subsidiary- BDJ Oxides for repayment or pre-payment of certain borrowings availed by it, funding capital expenditure requirements; and general corporate purposes.

Ahead of its IPO, JG Chemicals raised Rs 75.36 crore from anchor investors as it allocated 34,09,818 shares at a price of Rs 221 apiece. Massachusetts Institute of Technology, Carnelian Structural Shift Fund, Pinebridge Global Funds and SBI General Insurance Company were the key anchor investors for the issue.

JG Chemicals also has a record of sustained consolidated revenue from operation, growing at a CAGR of 34.3 per cent during FY 21-23. The company maintains high customer retention rates and explores growth opportunities in Southeast Asia. Despite high entry barriers, its certifications and global supplier base ensure continued growth, said StoxBox in its IPO note.

The favorable demand outlook in automotive, rubber, and ceramics, along with the expected revival of the chemical industry in early FY25, positions JG Chemicals for sustained growth and market leadership. The issue is valued at a P/E of 29.6x on the upper price band based on FY24 earnings, which is fairly valued, it added with a 'subscribe' rating for the issue.

JG Chemicals operates three manufacturing facilities: Two in Jangalpur and Belur, both in Kolkata, West Bengal and one in Naidupeta (Nellore), Andhra Pradesh. Naidupeta is the largest facility, which is owned and operated by the material subsidiary. The company serves 200 local and 50 international clients in more than 10 countries.

JG Chemicals has developed into a significant, diversified zinc oxide player by growing its business and operational scope. The company has Long-term relationships with customers and suppliers. The market share of the company is around 30 per cent and the company has a track record of financial performance, said Swastika Investmart.

"However, some key risks like the industry are competitive, and heavily dependent on the rubber and tyre industry. The IPO valuation of 12.75 times P/E appears fairly priced on a current basis. While the company's future growth potential and the positive industry outlook are encouraging thus we recommend Subscribe rating for this IPO," it added.

JG Chemicals has reserved 50 per cent of the net offer for the qualified institutional investors (QIBs), while non-institutional investors (NIIs) will get 15 per cent of shares. Retail investors will get 35 per cent of the net offer.

Centrum Capital, Emkay Global Financial Services and Keynote Financial Services are the book running lead managers of the JG Chemicals IPO, while Kfin Technologies is the registrar for the issue. Shares of the company are likely to be listed at the bourses- both BSE and NSE- on Wednesday, March 13.

 

Disclaimer: Business Today provides stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.