The ₹1,501 crore-initial public offer (IPO) of Paradeep Phosphates opened for subscription today (May 17). The price band for the IPO, which will close on May 19, has been set at ₹39-42 per share.
The company's shares on were trading at a premium of ₹3 in the grey market, up 10 percent from the issue price. The issue is an entire offer for sale (OFS) worth ₹500 crore, comprising of up to 60 lakh equity shares by Zuari Maroc Phosphates and up to 11.2 crore equity shares by The President of India, acting through the Ministry of Chemicals and Fertilizers.
Paradeep Phosphates, India’s second-largest manufacturer of non-urea fertilisers and di-ammonium phosphates (DAP) in the private sector, raised a little over ₹450 crore from anchor investors on Friday.
The company has allocated a total of 10.7 crore equity shares to anchor investors at ₹42 apiece, aggregating the transaction size to ₹450.52 crore. Anchor investors who bid for the shares include Goldman Sachs, BNP Paribas Arbitrage, Kuber India Fund, Copthall Mauritius Investment and Societe Generale.
The government of India will be offloading its complete (19.55 percent) stake in the company. Currently, Zuari Maroc Phosphates holds 80.45 percent stake in the firm and the government of India owns the remaining.
Ahead of the IPO, most brokerages have given a subscribe rating to the issue given its fair valuations compared to its peers and strong fundamentals.
Let's take a look at what the brokerages have to say:
Geojit Financial Services: Subscribe
“At the upper price band of ₹42, the firm is available at P/E of 7.1x (FY22 annualized) which is attractive on a short to medium-term basis. It is well-positioned to capture favourable Indian fertilizer industry dynamics supported by conducive government regulations, driving raw material efficiency through backward integration of facilities and effective sourcing and established brand name backed by an extensive sales and distribution network. Considering PPL’s expansion plans, deepening the presence in western and southern regions of India, we assign a ‘Subscribe’ rating for the issue on a short to medium basis.”
Choice Broking: Subscribe
As per Choice, the firm is well-positioned to capture the favorable Indian fertilizer sector dynamics supported by conducive government regulations.
"It is driving raw material efficiency through backward integration of facilities and effective sourcing. The company has a secure and certified manufacturing facility, infrastructure and unutilized land available for expansion. The strategic location of the manufacturing facility and sizable material storage, handling and port facilities are other positives for the firm. It also has a strong parentage, experienced management team and prominent shareholders," it said.
It further added that at a higher price band of ₹42, PPL is demanding an FY21 EV/Sales multiple of 0.7x, which is at a significant discount to the peer average of 1.1x. Considering the above observations, it has assigned a 'subscribe' rating for the issue.
Arihant Capital: Subscribe for long-term
The brokerage noted that Paradeep Phosphates has a vast network of dealers and distributors for the marketing and distribution of its products. The company has a huge economy of scale to compete in the industry.
“At the upper price band of ₹42, the company is valued at a P/E multiple of 11x based on its FY21 EPS of ₹3.9. The company is a major player in the fertilizer sector and is expanding its capacity and backward integration operations. Also, it has raw material security through its promoters. Factoring in the business model, the demand for its products and the company fundamentals, we recommend that long-term investors can subscribe to the Initial Public Offering of Paradeep Phosphates,” it said.
Hem Securities: Subscribe for long-term
The broekrage said that it is a company with an established brand name backed by an extensive sales and distribution network has strong parentage, an experienced management team and prominent shareholders is looking decent investment avenue for long-term investment.
“Company is bringing the issue at a price band of ₹39-42 per share at p/e multiple of 11x on FY21 eps basis. Hence we recommend “Subscribe” on the issue for the long term,” it added
Angel One: Neutral
“In terms of valuations, the stock will trade at post issue P/E multiples of 15.3xFY2021 EPS (at the upper end of the issue price band), which is in line with other players like Chambal fertilizer and Deepak fertilizer though they may not be strictly comparable. Given the fact that the company is valued in line with peers and likely to face headwinds in terms of cost pressures due to recent increase in raw material prices, we recommend a NEUTRAL rating on the issue.”
BP Equities: Subscribe for long-term
"With the company in the midst of installing an evaporator to increase the inhouse production of strong phosphoric acid and increase in the phosphoric acid production capacity to 1500 TPD, the extent of backward integration will further improve, leading to improvement in the contribution margins. At the upper end of the price band, the issue is valued at a P/E of 7x based on FY22 annualised earnings, which we believe is reasonably priced,” the brokerage said in its report. Hence, it recommends a ‘subscribe’ rating on this issue for the long term.