Technichem Organics Ltd. IPO: Key Details

Technichem Organics

• Technichem Organics is coming out with an initial public offering (IPO) of 45,90,000 equity shares in a price band Rs 52-55 per equity share.
• The issue will open on December 31, 2024 and will close on January 2, 2025.
• The shares will be listed on SME Platform of BSE.
• The face value of the share is Rs 10 and is priced 5.20 times of its face value on the lower side and 5.50 times on the higher side.
• Book running lead manager to the issue is Shreni Shares.
• Compliance Officer for the issue is Thakkar Parth B.

Profile of the company

Technichem Organics is mainly engaged in the business of manufacturing of a wide range of chemicals, Pyrazoles, Pyrazolones, Speciality Chemicals, Pigment & Dye Intermediates and Air Oxidation Chemistry that serves multiple industries, including pharmaceuticals, agriculture, coatings, pigments, dyes and others. This wide array of end uses highlights the extensive and versatile nature of its product offerings. The company’s extensive and varied portfolio ensures that it is not confined to one sector. This strategic diversification safeguards it from potential downturns in any single market, providing stability and resilience.

The company boasts a global presence, operating in around 11 countries. This extensive international footprint provides it with a broad perspective on market dynamics, enabling it to make informed decisions and better judge market trends. A significant portion of its exports is directed to China, highlighting the exceptional capabilities of its R&D team in synthesizing molecules cost-effectively. This not only underscores its price competitiveness in the global market but also demonstrates its ability to deliver high-quality products at competitive prices. Moreover, its ability to navigate across different chemical processes and applications allows it to meet a wide array of customer needs. This versatility broadens its market presence and enhances its adaptability to changing market conditions and emerging trends.

The company is customer centric, values based, R&D driven chemical manufacturer. Its commitment to quality is further demonstrated by its ISO 9001:2015 certification in Quality Management System and ISO 14001:2015 in Environmental Management System. As an ISO certified company, it prioritizes quality and precision in crafting chemical compounds and raw materials tailored for agrochemical, coating, pharma, dyes, pigments and specialty chemicals industries. With manufacturing under one roof, the company maintains stringent quality control standards throughout the entire manufacturing process. By doing so, it ensures that its products meet the relevant quality standards before they reach the market.

Proceed is being used for:

• Funding of capital expenditure requirements of the company towards setting up of a new plant named as “Plant - 4”
• Repayment or prepayment, in full or in part, of certain borrowings availed by the company from banks, financial institutions and non-banking financial companies
• General corporate purposes

Industry Overview

Covering more than 80,000 commercial products, India’s chemical industry is extremely diversified and can be broadly classified into bulk chemicals, specialty chemicals, agrochemicals, petrochemicals, polymers, and fertilisers. India is the 6th largest producer of chemicals in the world and 3rd in Asia, contributing 7% to India’s GDP. India's chemical sector, which was estimated to be worth $220 billion in 2022, is anticipated to grow to $300 billion by 2025 and $1 trillion by 2040. Globally, India is the fourth-largest producer of agrochemicals after the United States, Japan and China. India accounts for 16-18% of the world's production of dyestuffs and dye intermediates. India’s agrochemicals export was estimated to be at $3.12 billion from April 2023 to December 2023. Indian colourants industry has emerged as a key player with a global market share of ~15%. The country’s chemicals industry is de-licensed, except for a few hazardous chemicals. India has traditionally been a world leader in generics and biosimilars and a major. India holds a strong position in exports and imports of chemicals at a global level and ranks 14th in exports and 8th in imports at the global level (excluding pharmaceuticals).

India's chemical sector, which was estimated to be worth $220 billion in 2022, is anticipated to grow to $300 billion by 2025 and $1 trillion by 2040. The demand for chemicals is expected to expand by 9% per annum by 2025. The chemical industry is expected to contribute $383 billion to India’s GDP by 2030. An investment of Rs. 8 lakh crore ($107.38 billion) is estimated in the Indian chemicals and petrochemicals sector by 2025. Specialty chemicals account for 20% of the global chemicals industry's $4 trillion, with India's market expected to increase at a CAGR of 12% to $64 billion by 2025. The Indian chemical industry is expected to further grow with a CAGR of 11-12% by 2027, increasing India’s share in the global specialty chemicals market to 4% from 3%. A shift in the global supply chain brought on by the China+1 strategy and a resurgence in domestic end-user demand was expected to fuel significant revenue growth of 18 - 20% in 2022 and 14 - 15% in 2023.

Despite the pandemic situation, the Indian chemical industry has numerous opportunities considering the supply chain disruption in China and the trade conflict between the US, Europe and China. Anti-pollution measures in China will also create opportunities for the Indian chemical industry in specific segments. Additional support, in terms of fiscal incentives, such as tax breaks and special incentives through PCPIRs or SEZs to encourage downstream units will enhance production and development of the industry. The dedicated integrated manufacturing hubs under the Petroleum, Chemicals and Petrochemicals Investment Regions (PCPIR) policy to attract an investment of Rs 20 lakh crore ($276.46 billion) by 2035. To bring about structural changes in the working of the domestic chemical industry, future investments should not only focus on the transportation of fuels such as petrol and diesel but also on crude-to-chemicals complexes or refineries set up to cater to the production of chemicals. 

Pros and strengths

Multi-product capability: The company is focused on manufacturing chemical intermediates involving complex and differentiated chemistry and technology. Its products have applications across a wide spectrum of industry including agrochemical, coating, pharma, dyes, pigments. However, it has versatile manufacturing facility by which it can produce multiple products using a combination of processes. The flexible manufacturing infrastructure helps it to change its product mix in response to changes in market demand. It has complete infrastructure of formulation development, pilot plant and validation studies and are able to develop efficient and cost-effective specialized processes at short notice. Its diversification of revenue across multiple industries allows it to prevent any possible customer concentration in any of its product categories.

Established infrastructure and integrated production: The company’s manufacturing infrastructure is equipped with technology and systems that are key drivers for its products. It has an integrated production facility, located at Khambhat, Gujarat, which is located in the district of Anand is spread across around 26,079 square meters. Its facility is equipped to function independently, with its own research & Development laboratory, pilot plant, quality department etc. Moreover, it sources majority of its raw material locally with minimum dependency on imports. Its manufacturing facilities employ technologies and systems such as High Temperature Reaction up to 2200C; Low Temperature reaction up to -100C, Solid Phase Back Reaction etc. Currently, the company has three plants at its factory and its total annual installed capacity is 9,50,000 kg per annum. Its facility is equipped with its own quality department, effluent treatment plant, sewage treatment plant and stockyard. Its operations have an ISO 9001:2015 certification.

Supply chain efficiency: The company maintains an efficient and well-managed supply chain. This efficiency results in reduced lead times, minimized inventory costs, and improved overall responsiveness to market changes. Such streamlined supply chain operations provide a significant competitive advantage in the chemical industry, where timeliness and efficiency are crucial factors. By leveraging these competitive advantages, the company continues to thrive in competitive chemical market, delivering high-quality products, satisfying customer needs, and driving its long-term success. In the chemical industry, where precision, timeliness, and compliance are critical, an optimized supply chain can indeed provide a substantial competitive advantage. Furthermore, the ability to adapt to market changes swiftly is crucial in an industry where regulations and consumer preferences can significantly impact demand and production.

Risks and concerns  

Significant revenue comes from limited customers: The company’s customer base currently comprises a host of international and domestic companies. It depends on certain customers who have contributed to a substantial portion of its total revenues. In the aggregate, its top five customers accounted for 47.67%, 37.06%, 41.73%, and 36.19%, of its total revenue as on June 30, 2024 and for the financial year ending March 31, 2024, 2023 and 2022, respectively. There is no guarantee that it will retain the business of its existing key customers or maintain the current level of business with each of these customers. It usually does not enter into long-term contracts with any of its customers. Reliance on a limited number of customers for its business may generally involve several risks. These risks may include, but are not limited to, reduction, delay or cancellation of orders from its significant customers; failure to renegotiate favourable terms with its key customers; the loss of these customers; all of which would have a material adverse effect on the business, financial condition, results of operations and future prospects of the company.

Geographical constrain: The company generates major portion of its domestic sales from customers situated in Gujarat and Maharashtra. The company has garnered 57.03%, 57.03% and 76.36% of its total revenue from Gujarat in FY24, FY23 and FY22, respectively, while the company has garnered 26.21%, 21.05% and 16.88% of its total revenue from Maharashtra in FY24, FY23 and FY22, respectively. Such geographical concentration of its business in these regions heightens its exposure to adverse developments related to competition, as well as economic and demographic changes in these regions which may adversely affect its business prospects, financial conditions and results of operations.

Existing manufacturing facility is concentrated in a single region: The company’s manufacturing unit is located at Khambhat in the district of Anand in the state of Gujarat which exposes it to risks of concentration. Any materially adverse social, political or economic development, natural calamities, civil disruptions, or changes in the policies of the state government or state or local governments in this region could adversely affect manufacturing operations, and require a modification of its business strategy, or require it to incur significant capital expenditure or suspend its operations. Any such adverse development affecting continuing operations at its manufacturing facilities could result in significant loss due to an inability to meet customer contracts and production schedules, which could materially affect its business reputation within the industry. The occurrence of, or its inability to effectively respond to, any such events or effectively manage the competition in the region, could have an adverse effect on its business, results of operations, financial condition, cash flows and future business prospects.

Outlook

Technichem Organics is engaged in the business of manufacturing a various range of chemicals, Speciality Chemicals, Pigment & Dye Intermediates and Air Oxidation Chemistry. The company serves a variety of industries, including pharmaceuticals, agriculture, coatings, pigments, dyes, and more, showcasing the versatility of its products. It has established infrastructure and integrated production with cost efficiencies. The company’s core focus on consistent R&D, value engineering and to leverage complex chemistry and technology. On the concern side, the company is highly dependent on certain key customers for a substantial portion of its revenues and it does not have long term contracts with all of these customers. Loss of relationship with any of these customers may have a material adverse effect on its profitability and results of operations. Moreover, it generates its major portion of sales from its operations in certain geographical regions especially, Gujarat, Maharashtra, Telangana and Haryana. Any adverse developments affecting its operations in these regions could have an adverse impact on its revenue and results of operations.

The company is coming out with a maiden IPO of 45,90,000 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 52-55 per equity share. The aggregate size of the offer is around Rs 23.87 crore to Rs 25.25 crore based on lower and upper price band respectively. On performance front, the revenue from operations during FY 2023-24 was Rs 4,639.11 lakhs as compared to Rs 5,035.79 lakh in FY 2022-23 indicating a decrease by 7.88%. The company is in line with its strategy to focus on high margin products and to phase out production of low margin products over time. Moreover, profit after tax in FY 2023-24 was Rs 472.68 lakh representing 10.06% of Total income. The same in FY 2022-23 was Rs 172.93 lakh which was 3.39% of Total Income.

The company intends to expand and upgrade its manufacturing capacities for existing products and new products that are currently in development and commercialization stages. The company’s investment in these plants and machinery will augment its current installed capacity, thereby enabling it to address the demand in the Speciality Chemicals and Pigment & Dye Intermediates. In its ongoing project, it is dedicated to scaling up production from pilot to plant level. It intends to explore opportunities to expand its operations by developing new products within its existing lines of business. Its plan involves increasing production capacity by installing new plant and machineries at its existing manufacturing facility, consequently it intends to fund capital expenditure towards construction and purchase of plant and machineries for expansion and upgradation at the existing manufacturing facility from net proceeds of the issue. It will continue to pursue such opportunities where it will add value to its business, stakeholders and customers.