Hindcon Chemicals IPO Review, Should You Invest?

Hindcon Chemicals ltd. is ready to issue an Initial public offering (IPO) on 26^th of Feb. 2018. The company has planned to raise Rs. 7.73 cr. for its working capital requirement. Hindcon chemicals IPO on NSE SME is fixed price issue type. The price band of the upcoming IPO is Rs. 28 per equity share with face value of Rs. 10 each. 

Hindcon Chemicals Ltd. Business Profile

Hindcon chemicals Ltd. was incorporated in year 1998, engaged in manufacturing of chemicals particularly for construction industry. The company offers wide variety of chemical products. They offer plasticisers and super plasticisers, Waterproofing additives, Floor topping products, Tile Adhesives, sealant products etc.

They also offer waterproofing and rehabilitation jobs on work contract basis.  The main source of revenue for the company is sale of sodium silicate.

Manufacturing facility of the company is located at Howrah, West Bengal which has existing capacity of 30,000 MT per year.

Customer base of the company includes Larsen & Toubro Ltd., BGR energy systems Ltd., Hindustan construction company Ltd. etc.

Key dates of Hindcon chemicals IPO

Hindcon chemicals NSE SME IPO opens on 26^th Feb.2018 and will close on 28th Feb. 2018. Total 27, 60,000 shares will be issued with market lot of 4,000. Face value is INR 10 per share. Minimum order quantity will be 4,000 shares.

Purpose of IPO

The funds raised from the issue of IPO will be used for the following purposes.

• To meet working capital requirement-Rs. 5.38 crores
• To meet general corporate expenses- 1.60 crores
• To meet issue expenses- Rs. 0.74 crores

Valuation parameters

If we go through the financials of the company from FY 2014 to FY 2017, we can see revenue/net profit for FY 2014 is Rs. 30.92 cr. / Rs. 0.34 cr, for FY 2015 it is Rs.34.96 cr. / 0.33 cr., for FY 2016 Rs.33.45 cr./0.84 cr., for FY 17 it is Rs.34.25 cr./2.05 cr. For the first half of the current fiscal i.e 1HY 2018 Revenue is Rs. 18.12 cr. and net profit is Rs. 2.13 cr.

The company is showing consistency in its result. Also, it has bumper net profit for FY 2017. And same we can see in first half of FY 2018, with revenue of just 18.12 cr. it has net of 2.13 cr. which is surprising.

P/E ratio of Hindcon Chemicals is 10.17; whereas its peer Gillanders has 31 and Pidilite has 51 P/E. Industry composite P/E is around 31.

For last three fiscals, it has posted average EPS of Rs. 3.61.

Should you invest?

As per document, peers of the company are not strictly in line with the business of HCL. Again, sudden jump in result of net in FY 17 and 1HFY 18 raises concern. But, based on valuation parameters, Hindcon chemicals IPO looks good.  Investors can consider investing in this small cap stock for medium to long term investment.