Neptune Petrochemicals Ltd. IPO: Key Details

Neptune Petrochemicals

• Neptune Petrochemicals is coming out with an initial public offering (IPO) of 60,00,000 equity shares in a price band Rs 115-122 per equity share.
• The issue will open on May 28, 2025 and will close on May 30, 2025.
• The shares will be listed on SME Platform of NSE.
• The face value of the share is Rs 10 and is priced 11.50 times of its face value on the lower side and 12.20 times on the higher side.
• Book running lead manager to the issue is Beeline Capital Advisors.
• Compliance Officer for the issue is Ankita Bang.

Profile of the company

Neptune Petrochemicals is engaged in the business of manufacturing and trading of a comprehensive range of bitumen products, bitumen emulsions and allied products. With a diverse product portfolio that includes various grades of bitumen, modified bitumen like Polymer Modified Bitumen, Crumb Rubber based modified bitumen and oils, it serves a broad range of industries, particularly the construction and industrial applications. It offers a broad range of products tailored to the needs of the road construction and infrastructure industries.

The company is also engaged in the trading of bitumen and Fuel oils in some cases, it sources bitumen and oils from reputable suppliers to ensure high quality and reliability, catering to the needs and requirement of its customer. It has manufacturing plants across India for bitumen and bitumen emulsions. It is also engaged in trading of bitumen, bitumen emulsion, PMB (Polymer Modified Bitumen), CRMB (Crumb Rubber based modified bitumen) & other value-added Bituminous Products. It is equipped with both traditionally heated and automated Bitumen decanters at its manufacturing units. Its Bitumen Emulsion Plant is self-functional fully automatic batch machine. It produces quality material from all grades of Bitumen and Bitumen Emulsion used for making road & several other constructions and allied industries.

The company is an ISO 9001: 2015 certified in built Quality Management system, ISO 14001: 2015 certified for the care of Environmental Management System & OHSAS 45001:2018 certified for the care of Occupational Health & Safety Management System, Neptune adheres to all global standards and incorporates all the necessary procedures to create, produce, supply product with quality and finish and by maintaining innovated products and operations. It adheres to all global standards & incorporate all the necessary quality protocols. Its strategy is built on focused market segmentation, allowing the company to customize its products to meet the specific needs of its target markets, such as road construction and industrial applications. This focused approach ensures that it remains responsive to changes in demand and market conditions, helping it to maintain an edge and strong customer relationships.

Proceed is being used for:

• Funding capital expenditure requirement towards installation of additional plant and machinery and related infrastructure
• Funding the capital expenditure for purchase of office space
• Funding working capital requirement
• General corporate purpose

Industry Overview

The petrochemical industry is a cornerstone of modern economies, transforming crude oil and natural gas into a vast array of products that touch nearly every aspect of the lives. Petrochemicals are the building blocks for countless materials, from plastics and synthetic fibers to detergents, pharmaceuticals, and agricultural chemicals. Over the past few decades, the petrochemical industry has grown significantly due to urbanization, rising disposable incomes, and population growth. Asia has become a significant hub for both production and consumption, with China leading the way. Regional differences, however, are evident in the industry, with certain areas being highly dependent on imports of petrochemicals. Government regulations, the price of crude oil, and the availability of natural gas are all having an impact on production trends.

Bitumen, also known as concrete, is a petroleum-based viscous, sticky material. It is vital for the infrastructure and construction industries as a petrochemical derivative. It is primarily produced through the fractional distillation of crude oils. Bitumen is produced by processing the heavier fractions remaining after extracting gasoline, kerosene, and diesel fuel. The specific process varies depending on the crude oil composition and desired bitumen grade. The global Bitumen Market is projected to reach $135.10 billion by 2030, growing at a rate of 3.49% annually from 2022 to 2030. This growth is driven by the increasing use of bitumen in various applications such as road construction, waterproofing, insulation, and adhesives. The rise in infrastructure projects, especially in rapidly urbanizing emerging markets, is expected to boost the market's revenue.

India's bitumen market has witnessed substantial growth in recent years, driven by the government's ambitious infrastructure development plans. The country's extensive road network, coupled with rapid urbanization, has created a robust demand for bitumen. The India bitumen market attained $4.6 billion in 2022 and is projected to reach $6.8 billion by 2032, growing at a CAGR of 4.0% from 2023 to 2032. The Indian bitumen industry has begun to recover from the effects of COVID-19 due to increased government investment in infrastructure projects, which has boosted demand. Companies have adjusted supply chains and implemented new technologies to improve efficiency and production stability. Furthermore, supportive regulatory policies and an increase in construction activity have aided the industry's recovery and growth. 

Pros and strengths

Diverse product portfolio: The company offers a diverse range of products tailored to meet the needs of multiple industries, including construction, roads and highways, and various industrial applications. This extensive portfolio encompasses different grades of bitumen, bitumen emulsion modified bitumen and fuel oils, enabling the organization to address varying market demands effectively. By diversifying its offerings, the company mitigates risks associated with reliance on a single product or market segment. This strategic approach not only enhances stability but also allows for adaptability in an ever-changing economic landscape.

Focused market segmentation: The company tailors its products to meet the specific needs of targeted market segments, such as road construction and industrial applications. This customized approach facilitates optimal resource allocation, ensuring that offerings remain relevant and valuable to the intended audience. By focusing on particular segments, the company can quickly respond to fluctuations in demand and shifting market conditions, which is essential for maintaining a competitive edge. This strategic emphasis not only enhances operational efficiency but also fosters stronger relationships with customers. By addressing the unique challenges and requirements of each segment, the company demonstrates its commitment to understanding and meeting client needs.

Effective production planning: Efficient production planning is essential for aligning customer demand with operational capabilities while minimizing waste and controlling costs. By leveraging demand forecasting, the company can anticipate customer needs more accurately, ensuring that raw materials are available when required. This proactive approach reduces the risk of production delays and enhances overall efficiency. Close coordination with suppliers further strengthens this process, allowing for timely procurement of materials that meet quality standards.

Risks and concerns  

Maximum revenue comes from few customers: The company’s top ten customers have contributed 39.55%, 27.92%, 30.20% and 62.19% of its revenues from sales of products for the period ended December 31, 2024, March 31, 2024, March 31, 2023 and March 31, 2022 based on Restated Financial Statements. However, its top customers may vary from period to period depending on the demand and thus the composition and revenue generated from these customers might change as it continues to add new customers in normal course of business. It could experience a reduction in its results of operations, cash flows and liquidity if it loses one or more of these customers or the amount of business it obtains from them is reduced for any reason, including but not limited on account of any dispute or disqualification.

Dependence on international suppliers for raw bitumen and petroleum oils: The company’s operations are significantly dependent on the procurement of raw bitumen from international suppliers. This reliance exposes it to various risks that could impact its ability to secure a stable supply of bitumen. Political instability, diplomatic conflicts, or changes in international relations can disrupt the supply chain, leading to delays or interruptions in receiving raw bitumen. Tariffs, export bans, or changes in trade policies imposed by exporting or importing countries could impact the availability and cost of raw bitumen. Also, transportation delays, shipping disruptions, or port congestion can affect the timely delivery of raw bitumen to its manufacturing facilities.

Business is subject to seasonal fluctuations: During the monsoon season, the frequency and scope of road construction and construction activities typically decrease. A slowdown in construction activities can result in decreased sales volumes and revenue and also affect the production schedules and inventory management. This reduction in activity leads to a lower demand for bitumen, as it is a key material used in road paving and construction. Reduced revenue during the monsoon season can strain cash flow, making it challenging to manage operational expenses, pay suppliers, and invest in growth opportunities which will impact the company’s financial performance and profitability.

Outlook

Neptune Petrochemicals manufactures and trades a range of bitumen products and emulsions. The company's product portfolio encompasses various grades of bitumen, including polymer-modified bitumen and crumb-rubber-modified bitumen. The company has focused market segmentation coupled with effective production planning. On the concern side, dependence on international suppliers for raw bitumen and petroleum oils could lead to supply disruptions due to geopolitical issues, trade restrictions, or logistical challenges which may affect operational performance and financial condition. Moreover, majority of its revenue comes from trading of bitumen and allied products, which exposes it to price fluctuations and supply chain disruptions, which can affect profitability and financial stability.

The company is coming out with a maiden IPO of 60,00,000 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 115-122 per equity share. The aggregate size of the offer is around Rs 69.00 crore to Rs 73.20 crore based on lower and upper price band respectively. On performance front, revenue from operations had decreased by 5.66% from Rs 70,782.29 lakh in FY 2022-23 to Rs 66,773.77 lakh in FY 2023-24. This reduction in revenue from the operation is primarily due to the reduction in the commodity price of bitumen on account of global factors affecting bitumen pricing which is moderately correlated with crude oil prices, however the company has grown its revenue in terms of volume. Moreover, the company reported a net profit of Rs 2,081.56 lakh in FY 2023-24 as compared to a net profit of Rs 1,039.13 lakh in FY 2022-23, on account of improved operational margins and operational efficiencies.

The company’s efforts are continually focused on enhancing the production process to achieve greater efficiency and smooth operations. This involves systematically reviewing each step in the production workflow to identify bottlenecks or inefficiencies that may hinder progress. By pinpointing these areas, the company can implement targeted improvements that optimize resource utilization, effectively reducing waste and minimizing costs. Adopting best practices and integrating appropriate technology are crucial components of this strategy, enabling the production of high-quality products consistently. Furthermore, conducting continuous checks and evaluations ensures that the production flow remains steady and reliable, fostering an environment of ongoing improvement. By prioritizing these efforts, the company not only enhances its operational efficiency but also positions itself to meet customer demands effectively, ultimately contributing to long-term success and competitiveness in the market.