Kronox Lab
Sciences manufacture high purity speciality fine chemicals for diversified end
user industries. It manufactures products compliant with reagents,
pharmacopeia, and various food grade standards used in the pharmaceutical,
nutraceutical, veterinary, food, biotech, chemical analysis and research,
metallurgy, personal care and other specialty markets. The company’s product
groups include acetates, carbonates, chlorides, citrates, hypophosphates,
nitrates, nitrites, phosphates, sulphates, and other ultra-pure fine chemicals.
The company
manufacture high purity speciality fine chemicals of various grades in particle
sizes ranging from 10 mesh to 100 mesh. The high purity speciality fine
chemicals are used mainly as reacting agents and raw material in the
manufacturing of Active Pharmaceutical Ingredients (APIs), excipients in
pharmaceutical formulations, reagents for scientific research and laboratory
testing, ingredients in nutraceuticals formulations, process intermediates and
fermenting agents in biotech applications, ingredients in agrochemical
formulations, ingredients in personal care products, refining agents in metal
refineries and ingredients in animal
health products, amongst others.
The company
products are manufactured in accordance with industry standards like IP (Indian
Pharmacopoeia), BP (British
Pharmacopoeia), EP (European Pharmacopoeia), JP (Japanese Pharmacopoeia), USP (U.S.
Pharmacopoeia), FCC (Food Chemical Codex), LR (Laboratory Reagent), AR (Analytical Reagent), GR (Guaranteed Reagent) and
ACS (American Chemical Society) in addition to custom manufacturing
specifications, which differ from the industry standards, required by customers
in select cases.
The company
185 products spanning across the family of phosphate, sulphate, acetate,
chloride, citrate, nitrates, nitrites, carbonate, EDTA (Ethylene diamine tetra acetic
acid) derivatives, hydroxide, succinate, gluconate, among others are supplied
to customers in India and more than 20 countries globally.
In addition
to the manufacturing of products in accordance with various domestic and
international standards, it also undertake custom manufacturing to achieve high
levels of purity, as specified by the client, having different purity levels
than the prescribed industry standards.
The company
has three manufacturing facilities situated at Vadodara in Gujarat which are
close to the seaports of Mundra, Kandla, Hazira and Nhava Sheva and is spread
across 17,454 sq. mtrs. and as on December 31, 2023, have an aggregate
installed capacity of 7,242 TPA (tonne per annum).
The
company’s unit 1 comprises of 2 manufacturing blocks with an aggregate
installed production capacity of 2,400 TPA, and is equipped with glass-lined
and stainless-steel reactors with switch capacities ranging between 1 kl to 5
kl, along with various filtration, centrifugation and drying system The
company’s unit 2 has an aggregate installed production capacity of 3,744 TPA
and is equipped with glass-lined and stainless steel reactor switch capacities
ranging between 1.5kl and 3kl, along with various pulverisers, filtration,
centrifugation and drying system. The company’s unit 3 has an aggregate
installed production capacity of 1,098 TPA and is equipped with glass-lined and
stainless-steel reactor switch capacities ranging between 1.5 kl and 3 kl,
along with various pulverisers, filtration, centrifugation, and drying system
To meet
requirements of new customers, the company intends to establish a new
manufacturing unit at GIDC (Gujarat Industrial Development Corporation) Dahej –
II Industrial Estate and the company have acquired land admeasuring to 20,471
sq. meters for the said facility.
The primary
raw materials essential to the manufacturing high purity speciality fine
chemicals are citric acid, phosphoric acid, potassium hydroxide, sodium
hydroxide, soda ash, potassium carbonate, sodium bicarbonate, acetic acid and
among others. It procure raw materials essential for manufacturing its products
from domestic vendors on a purchase order basis. It usually do not enter into
long-term supply contracts with any of raw material suppliers.
The
promoters of the company are Jogindersingh Jaswal, Ketan Ramani and Pritesh
Ramani.
The Offer and the Objects
The offer comprises an offer for sale of up to
9570000 equity shares, aggregating Rs 130 crore at the upper price band of Rs
136 and Rs 129 crore at the lower price band of Rs 129.
Promoter shareholder Jogindersingh Jaswal
stake post-issue will decrease to 26.4% from 34.99% pre-issue shareholding,
Ketan Ramani stake post-issue will decrease to 26.4% from 34.99% and Pritesh
Ramani stake post-issue will decrease to 21.4% from 30%. The promoter selling
shareholders will be entitled to the entire proceeds of the offer after
deducting the offer expenses and relevant taxes thereon. The company will not
receive any proceeds from the offer.
Strengths
The company
manufactures a broad range of high purity speciality fine chemicals belonging
to the family of citrates, carbonates, phosphates, acetates, sulphate, EDTA
derivatives, chlorides, hydroxide, bromide, nitrites, and nitrates. Their
products have applications across a wide spectrum of industries like
pharmaceuticals, scientific and laboratory research, nutraceuticals, biotech,
agrochemicals, personal care, metallurgy and animal health. Over the years,
they have expanded their product portfolio to more than 185 products. In
addition to manufacturing products as per these standards, they also undertake
custom manufacturing of High Purity Speciality Fine Chemicals to achieve
different levels of purity as specified by the customer for their specific requirements.
The company
has served more than 592 customers in the last 3 financial years and during the
9 months period ended December 31, 2023, of which 141 customers amounting to
23.82% of total customers placed repeat orders. The average tenure of relationship
with top 20 customers is 7 years, 8
years and 9 years for fiscals 2023, 2022 and 2021, respectively.
High entry
and exit barriers due to long customer approval cycles and strict product
standards.
The
company’s robust balance sheet, positive operating cash flows coupled with zero
debt position enable it to fund its strategic initiatives, pursue opportunities
for growth and better manage unanticipated cash flow variations.
The company
has 3 strategically located manufacturing facilities which are located in
Padra, Vadodara, Gujarat, which is in
close proximity to several ports including Kandla, Mundra, Hazira and Nhava
Sheva thereby providing the company with a cost and logistical advantage. Also
the manufacturing facilities are in proximity to DMIC and Delhi-Mumbai
Expressway and have access to rail and airport facilities. Further, the
manufacturing facilities are located in Gujarat, where some of the major APIs,
pharmaceutical formulations, nutraceuticals, biotech and other application
industries are located. The company’s manufacturing facilities are located in
close proximity to each other, thereby ensuring greater logistic synergies and
operational efficiencies.
The company
has set up an in-house research, development and testing laboratory (RDT
Laboratory) to develop new products and test the products against the specified
industry standards or customer specifications. For the 9 months periods ended
December 31, 2023, December 31, 2022, and fiscal 2023, fiscal 2022 and fiscal
2021, the company manufactured and sold 188, 155, 157, 156 and 159 products,
respectively.
The
company’s experience and expertise of 15 plus years in the industry has helped
it to capitalize on new opportunities offered by the customers. The company has
expanded its product portfolio to more than 185 products spread across diverse
applications. Further, the company is working towards new products forming a
part of the family of acetate, adipate, ascorbate, aspartate, benzoate,
citrate, EDTA, gluconate, glycinate, lactate, malate, orotate, propionate,
sorbate and succinate, among others.
Over the
years, it has expanded its scale of operations and global footprint with
customers in over 20 countries including United States, Argentina, Mexico,
Australia, Egypt, Spain, Turkey, United Kingdom, Belgium, United Arab Emirates,
China, among others. Kronox Lab Sciences revenue from exports have grown at a
CAGR of 37.46% between fiscal 2021 and 2023. For nine months periods ended
December 31, 2023, and for the fiscals 2023, revenue from exports (excluding
merchant exports) amounted to R 16.97 crore, and Rs 24.268 crore, and accounted
for 25.07%, and 25.39% of revenue from operations, respectively.
.
Weaknesses
The company
products are required to meet domestic and international industry standards.
Any failure on its part to meet these standards required by the customer could
lead to rejection of products or even a suspension of orders from the customer.
The company
products are supplied in limited quantities for specific use by application
industries. Any reduction in the requirement of its products may result in loss
of business and may affect its financial performance and condition.
The company
top 20 products contributed 60.49%, 70.58%, 68.62%, 69.85% and 70.04% of its
revenue for the nine months period ended December 31, 2023, December 31, 2022
and the fiscal 2023, fiscal 2022 and fiscal 2021, respectively. The
concentration of its product sales being dominated by top 20 products makes it
vulnerable to demand risks for these products.
The
majority of sale of its products is concentrated in industries viz.
Pharmaceuticals and Scientific Research and Laboratory Testing. Any change in
demand or change in application or processes by its customers in these
industries may lead to loss of revenues and profits.
The company
may not be able to expand its production capacity and products manufactured at
Unit – III as GPCB has restricted any such expansion in the area where its Unit
– III is situated i.e. Padra region, near Vadodara, Gujarat due to ground water
contamination related issues. It is therefore limited to the manufacturing of
only certain products at Unit - III that are viable under such restrictions.
Hence, there has been a decrease in the capacity utilization for aforementioned
periods. Capacity utilization for Unit- III has decreased from 92.58% in FY2021
to 22.93% for 9MFY2024.
The average
utilised capacity of its manufacturing units is 50.47%, 67.23%, 70.98% and
78.36% for the nine months period ended and fiscals 2023, 2022 and 2021 and may
reduce in future due to various factors including raw material availability,
product requirements of customers, product mix, product cycle, availability of
man power, industry and market conditions may adversely affect the operations.
The company
face competition primarily from domestic and international companies including
Canton Laboratories Private Limited (India), Jost Chemicals, USA, (Czech
Republic), Budenheim (Germany), Jiangsu Kolod Food Ingredients Co. Ltd.
(China), CFL Chemische Fabrik Lehrte GmbH & Co. KG (Germany) and Ichimaru
Co. Ltd. (Japan), amongst others.
The process
of customer approval is long and stringent and it usually takes average 18
months to get customer approval and involve high cost of development. In the
event of delay or non-receipt of approval of customers for product may result
into loss of investment and resources in the product development.
The company
is subject to operating risks associated with handling of various chemical
substances and certain raw materials such as possibility for leakages and
ruptures from containers, explosions, and the discharge or release of hazardous
substances.
The company
business operation requires significant working capital specifically for raw
materials, work in progress and finished goods to undertake manufacturing
operations.
The company
customers expect it to obtain and maintain certain certifications and any
failure by its part to obtain and maintain such certifications may affect its
reputation, business, results of operations and financial condition.
The company
operations are subject to extensive government regulations and is required to
obtain and maintain a number of statutory and regulatory permits and approvals
under central, state and local government rules in India, generally for
carrying out business operations.
Valuation
In the nine
months ended Dec 2023, standalone sales were down by 9% to Rs 67.69 crore. The
OPM increased 610 bps to 30.2% leading to 14% increase in OP to Rs 20.46 crore.
OI decreased by 58% to 0.75 crore. Interest cost was nil compared to Rs 9 lakh.
Also,depreciation decreased by 17% to 1 crore. PBT increased by 10% to Rs 20.21
crore. Net profit rose 10% and stood at Rs 15.47 crore as against net profit of
Rs 14.09 crore in the same period last year.
For FY2023,
standalone sales were up by 16% to Rs 95.98 crore.The OPM fell 90 bps to 23%,
leading to 12% increase in OP to Rs 22 crore.Other income was up 76% to Rs 1.78
crore, while interest cost decreased 77% to Rs 9 lakh and depreciation fell 26%
to Rs 1.5 crore. PBT increased 22% to Rs 22.33 crore. Tax expenses were 21%
higher at Rs 5.71 crore. Net profit increased 22% to Rs 16.62 crore.
The TTM EPS
on post-issue equity works out to Rs 4. At the upper price band of Rs 136, TTM
P/E works out to 34.
As of 01 June
2023, its nearest available reference listed peers such as Tatva Chintan Pharma
Chem trades at TTM P/E of 79.7, Tanfac Industries trades at TTM P/E of 38.0, Neogen
Chemicals trades at TTM P/E of 109.9, Sigachi Industries trades at TTM P/E of 36.6
and DMCC Speciality Chemical trades at TTM P/E of 69.2.
Kronox Lab
Sciences Ebitda margin for 9MFY2024 stood at 30.2% while Tatva Chintan Pharma
Chem Ebitda margin was 17.8%, Tanfac Industries was 19.8%, Neogen Chemicals was
15.2%, Sigachi Industries was 20.5% and DMCC Speciality Chemical was 11.3%.
For FY2023,
Kronox Lab Sciences ROE stood at 37.2% compared to 8.8% for Tatva Chintan
Pharma Chem, 30.5% for Tanfac Industries,
10.4% for Neogen Chemicals, 16.2% for Sigachi
Industries and 3.5% for DMCC Speciality Chemical.
Kronox Lab
Sciences:Issue Highlights
|
Fresh
issue (in Rs Crore)
|
0
|
Offer for
sale (in number of shares)
|
9570000
|
Price Band
(Rs)
|
129-136
|
Offer for
sale (in Rs crore)
|
|
- in Upper price band
|
130
|
- in Lower price band
|
123
|
Pre issued
capital (Rs crore)
|
37.10
|
Post issue
capital (Rs crore)
|
37.10
|
Pre issue
promoter shareholding (%)
|
100.00
|
Post issue
Promoter shareholding
|
74.21
|
Bid Size
(in No. of shares)
|
110
|
Issue open
date
|
03-06-2024
|
Issue
closed date
|
05-06-2024
|
Listing
|
BSE,NSE
|
Rating
|
46/100
|
Kronox Lab
Sciences: Consolidated Financials
|
Particulars
|
2103 (12)
|
2203 (12)
|
2303 (12)
|
2212 (09)
|
2312 (09)
|
Total
Income
|
62.46
|
82.25
|
95.58
|
74.10
|
67.69
|
OPM
|
23.7
|
23.9
|
23.0
|
24.1
|
30.2
|
Operating
Profits
|
14.80
|
19.70
|
22.00
|
17.88
|
20.46
|
Other
Income
|
0.78
|
1.09
|
1.92
|
1.78
|
0.75
|
PBIDT
|
15.58
|
20.79
|
23.92
|
19.66
|
21.21
|
Interest
|
0.38
|
0.41
|
0.09
|
0.09
|
0.00
|
PBDT
|
15.20
|
20.38
|
23.82
|
19.57
|
21.21
|
Depreciation
|
1.98
|
2.03
|
1.50
|
1.20
|
1.00
|
PBT
|
13.22
|
18.36
|
22.33
|
18.37
|
20.21
|
Share of
Profit/loss of JV
|
0.00
|
0.00
|
0.00
|
0.00
|
0.00
|
PBT Before
EO
|
13.22
|
18.36
|
22.33
|
18.37
|
20.21
|
EO
|
0.00
|
0.00
|
0.00
|
0.00
|
0.00
|
PBT after
EO
|
13.22
|
18.36
|
22.33
|
18.37
|
20.21
|
Provision
for Tax
|
3.49
|
4.73
|
5.71
|
4.28
|
4.74
|
Profit
after Tax
|
9.73
|
13.63
|
16.62
|
14.09
|
15.47
|
PPA
|
0.00
|
0.00
|
0.00
|
0.00
|
0.00
|
Net profit
after PPA
|
9.73
|
13.63
|
16.62
|
14.09
|
15.47
|
MI
|
0.00
|
0.00
|
0.00
|
0.00
|
0.00
|
Net profit
after MI
|
9.73
|
13.63
|
16.62
|
14.09
|
15.47
|
EPS (Rs)*
|
2.6
|
3.7
|
4.5
|
#
|
#
|
*EPS
annualized on post issue equity capital of Rs 37.1 crore of face value of Rs
10 .each
|
# Not
annualised due to seasonality of business
|
Figures in
Rs crore
|
Source:
Capitaline Corporate Database
|
|