Paradeep Phosphates IPO: Evaluation is reasonable but subscribe only if you can

New Delhi: The initial public offering (IPO) of Paradip Phosphates, a major non-urea fertilizer manufacturer, will open for public bidding on Tuesday. The company and its shareholders plan to raise Rs 1,502 crore through the issue.

Out of the total IPO amount, the company will issue shares worth Rs 1,004 crore to investors. It will use it for partial financing of a plant acquisition and loan repayment in Goa. Also, its promoter and the Government of India will sell the stock worth Rs 498 crore through an offer for sale.

Analysts mixed in on the issue, saying that in the price band of Rs 39-42, the price of the stock is quite right. Moreover, there are some headaches for the company. So, those who can take the risk should apply for the matter, they said.

In the price band above Rs 42, the company’s price is based on the FY21 EPS of 11x P / E multiple at Rs 3.90, analysts said. “The company is a major player in the fertilizer sector and is expanding its capacity and backward integration activities. Also, it has raw material security through promoters. Based on the business model, the demand for its products and the fundamentals of the company, we recommend that long-term investors can subscribe to the IPO, ”said Abhishek Jain of Brokerage House.

The company is the third largest private non-urea fertilizer producer in India. It markets its products under the brands ‘Joy Kisan – Navaratna’ and ‘Navaratna’. It has a manufacturing facility in Paradip, Odisha that produces D-Ammonium Phosphate (DAP), NPK, Sulfuric Acid and Phosphoric Acid. It is also acquiring another fertilizer facility in Goa, which includes phosphate-based entities as well as urea.

Amarjit S Maurya of Angel One said the stock will trade at 15.3x FY21 EPS (at the top end of the issue price band) in the P / E multiples of the issue post, which is consistent with other players such as Chambal Fertilizer and Deepak Fertilizer. Strictly comparable.

Maurya said, “The company is being assessed due to the recent rise in raw material prices and may face headwinds in terms of cost pressures.

The positive aspects of IPO include:

The second largest manufacturer of phosphatic fertilizers in India

Cost reduction through retroactive integration of benefits and efficient sourcing

Brand names supported by an extensive sales and distribution network have been established

Safe and certified manufacturing facilities and infrastructure

Unused land available for expansion

On the other hand, the risks include:

Business relies heavily on agricultural performance

Highly regulated industry

Business is subject to climatic conditions and cyclical in nature

Disruption in the supply chain of imports of raw materials like phosphate rock

Peer comparison

The company has already raised Rs 450.52 crore from anchor investors at Rs 42 per share. Investors in this round include Society General,

MF, MF, Nippon MF, Goldman Sachs, etc.

Investors who wish to bid for this issue can apply for a minimum of 350 shares and its multiplier. The issue will close on Thursday.

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