Kronox Lab Sciences IPO Analysis: Should You Subscribe?

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The initial public offer (IPO) of Kronox Lab Sciences Ltd, which kicked off today, will close for subscription on Wednesday, June 05. The specialty fine chemicals maker seeks to raise Rs 130.15 crore through its IPO, which is entirely an Offer for Sale (OFS). 

The price band for the issue is set at Rs 129-136 per share. Investors can bid in lots, with each lot consisting of 110 shares. To apply for the IPO, the minimum investment is set at Rs 14,960 (calculated as 110 x 136).

According to market observers, shares of Kronox Lab Sciences Ltd are currently trading at a grey market premium (GMP) of Rs 82. The public offer is anticipated to debut on BSE and NSE on the 10th of June, 2024.

Kronox Lab Sciences IPO Subscription Status

The IPO of Kronox Lab Sciences Ltd was fully subscribed within just thirty minutes after it opened, thanks to substantial interest from Retail and Non-Institutional Investors (NII). On the first day of bidding, the issue was subscribed 11.10 times. Specifically, the Non-Institutional Investors segment and the Retail segment were subscribed at 19.97 times and 13 times, respectively, while the Qualified Institutional Buyer segment saw a subscription rate of 1.11 times. 

About Kronox Lab Sciences Ltd

Kronox Lab Sciences Ltd (Kronox) is a manufacturer of high purity specialty fine chemicals, serving a variety of industries. Its products are essential in several applications, including pharmaceuticals, nutraceuticals, scientific research, agrochemicals, metal refineries, personal care, and animal health. 

The firm operates three manufacturing facilities in Vadodara, Gujarat, strategically located near the Mundra, Kandla, Hazira, and Nhava Sheva seaports, with a combined installed capacity of 7,242 tonnes per annum (TPA).

Key Strengths

  • Robust Financials: Kronox has delivered impressive growth, with a 24% CAGR in operational revenue from FY21 to FY23, alongside a 22% rise in EBITDA and a 31% increase in net profits.
  • High Profitability Margins: Kronox boasts an EBITDA margin of 30.23% and a net profit margin of 22.60% as of December 2023, demonstrating strong financial health and efficiency.
  • Superior Returns: Kronox boasts robust return ratios, with a Return on Equity of 25.66% and Return on Capital Employed of 33.15%, surpassing industry peers.
  • Customer Loyalty: Over the past three years, Kronox has retained 141 of its 592 customers, indicating a ~24% repeat order rate. The firm has sustained long-term relations averaging 7 to 9 years with its top 20 customers.
  • Financial Stability: Kronox’s debt-free status and positive cash flows position it well for strategic investments and managing cash flow variations.
  • Global Expansion: Kronox serves customers in over 20 countries and has seen its export revenues grow by 37.5% CAGR from FY21 to FY23. 

Key Concerns

  • Product Concentration Risks: Kronox's revenue heavily depends on its top 20 products, which contributed 61% and 71% of total sales as of 9MFY24 and FY23. Such a concentrated revenue stream subjects the company to substantial demand risks for these crucial products.
  • Customer Dependence: Revenue from Kronox’s top 10 customers constituted 45% and 51% during the same periods. The lack of long-term agreements with these key customers risks sales continuity and could harm its financial health.
  • Under-Utilization of Capacity: Capacity utilization at Kronox's plants ranged between 50% and 78% from FY21 through 9MFY24. Fluctuations in supply, demand, and market conditions could further decrease these levels, negatively impacting operations.

Final Verdict: Subscribe

Kronox has exhibited consistent growth in revenue and profits over the past three years, buoyed by impressive operating margins and return metrics. Operating within the high-purity specialty chemical sector, the firm enjoys a near-monopoly in several products.

In terms of valuation, the IPO is reasonably priced at a P/E ratio of 25x based on the forecasted FY24 earnings post-IPO. Additionally, the presence of a healthy grey market premium (GMP) suggests a strong debut on the bourses.

Considering the firm’s solid fundamentals, significant competitive advantages, potential for growth, and fair valuations, investors may subscribe to this IPO from a medium-to-long perspective.  

Read the full report here: Kronox Lab Sciences IPO Analysis

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