scorecardresearchAether Industries hit upper circuit after listing at 10% premium; Is it a good buy?

Aether Industries hit upper circuit after listing at 10% premium; Is it a good buy?

Updated: 03 Jun 2022, 03:14 PM IST
TL;DR.
Aether Industries focuses on producing advanced intermediates and specialty chemicals involving complex, differentiated chemistry and technology core competencies. Let’s get a gist of the company and its potential.
Aether Industries hit upper circuit after listing at 10% premium over issue price

Aether Industries hit upper circuit after listing at 10% premium over issue price

The reason for the premium in such a volatile market is companies’ capabilities. The IPO was subscribed 6.26 times. Let’s get a gist of the company and its potential.

Incorporated in 2013, Aether Industries focuses on producing advanced intermediates and specialty chemicals involving complex, differentiated chemistry and technology core competencies. Its products find application in pharmaceutical, agrochemical, material science, coating, high performance photography, additive, and oil & gas segments of the chemical industry.

Strong product profile

Sole manufacturer in India for advanced intermediates such as 4MEP, MMBC, T2E, OTBN, NODG and Bifenthrin alcohol (Pharma Applications) and speciality chemical DVL (coating additive). One of the largest manufacturers in the world by volume for 4MEP, T2E, NODG and HEEP.

Product portfolio comprised over 25 products. Staff consists of 92 scientists and 72 chemical engineers Two manufacturing sites at Sachin in Surat. Facility 1 is a 3500 square metre facility while Facility 2 encompasses roughly 10500 square metres.

Chemistry focused development

Focused on the core competencies model of chemistry and technology and has 8 chemistry competencies to use for its wide array of products, which enables it to cater to niche and advanced intermediate requirements of a wider range of end-products and applications. All these competencies have been developed in-house, which is one of the core strengths of its R&D team.

Core capabilities

As of March 31, 2022, the company's product portfolio comprised over 25 products.

  1. It is the biggest manufacturer of 4MEP globally in terms of production volume and the only manufacturer of this product in India.
  2. The largest manufacturer of HEEP in India and globally in terms of production volume.
  3. The largest manufacturer of NODG globally in terms of production volume and the only manufacturer of this product in India.
  4. The biggest manufacturer of T2E globally in terms of production volume and the only manufacturer of this product in India.

The company’s sales of its advanced intermediates and specialty chemicals products are predominantly conducted on a business-to-business basis both in India and internationally. Most of its products are exported internationally, and it exports products to 18 countries, including Italy, Spain, Germany, the United States and other parts of the world. As of March 31, 2022, the company had a specialised R&D team of 164 scientists and engineers including 92 scientists (with PhDs or Master of Science degrees) and 72 chemical engineers.

New additions for R&D Expansion

The company also intends to add manufacturing capacities for new product lines that are in the process of developing and getting commercialised. To achieve these expanded capacities, in August 2021, Aether commenced construction of a new manufacturing facility at a third site near the company’s existing manufacturing facilities in Sachin. 

The company is also in discussions with relevant authorities for acquiring land located in Sachin for a fourth facility, where it intends to manufacture other intermediates for applications in pharmaceuticals, agrochemicals, coatings and oil & gas sectors.

For future expansion of business, in March 2022, it secured additional leasehold lands admeasuring ~ 125,000 square metre at the Panoli GIDC Estate of Ankleshwar region of Gujarat, which is ~54 km from current manufacturing facilities in Sachin. As part of R&D expansion plans, the company is looking to recruit an additional 55-

70 R&D scientists. In addition, the company expanded the pilot plant by installing additional trains of pilot scale equipment, which will triple the current capacity.

Its R&D Facilities are equipped with laboratories engaged in process development, process innovation and technology development, which assists in pursuing efficiencies from the initial conceptualization up to commercialization of a product. Company also manufactures its customer’s products under contractual/exclusive supply agreements.

Large Scale Manufacturing, CRAMS and Contract Manufacturing synergies

Company has three business models under which it operates:

  1. Large scale manufacturing of its own intermediates and speciality chemicals.
  2. CRAMS (contract research and manufacturing services) and
  3. Contract / exclusive manufacturing. It is among the few Indian specialty chemical companies to have successfully launched these three separate business models in just 5 years into commercial manufacturing. These business models benefit from, and have synergies with, each other.

The company intends to focus on increasing wallet share with existing customers. It has built long standing relationships with customers through various strategic endeavours, which it intends to leverage by selling baskets of products to the same customers. In addition, the company intends to continue to leverage existing sales and marketing networks, diversified product portfolio and industry standing to establish relationships with new multinational, regional and local customers.

Threats

1. Derives major chunk of revenue from concentrated customers without having long term contracts with all these customers.

2. Dependency on certain industries for significant portion of sales.

3. The company earns 55-60% of its revenues from export and deals in various global currencies, which is very volatile in nature.

Shuchi Nahar is a Certified Research Analyst. She can be found on Twitter at @shuchi_nahar

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.

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First Published: 03 Jun 2022, 02:20 PM IST