Incorporated in 2013 by
individual promoters Mr. Ashwin Jayantilal Desai, Ms. Purnima Ashwin Desai, Mr.
Rohan Ashwin Desai and Dr. Aman Ashvin Desai along with AJD Family Trust, PAD
Family Trust, RAD Family Trust, AAD Family Trust and AAD Business Trust, Aether
Industries is a speciality chemical manufacturer in India focused on producing
advanced intermediates and speciality chemicals involving complex and
differentiated chemistry and technology core competencies.
In the first phase of its
development through fiscal 2017, it focused on building team and infrastructure
and its R&D was centred around building core competencies. Its revenue
generation operations commenced with its second phase in fiscal 2017. It is one
of the fastest growing specialty chemical companies in India, growing at a CAGR
(compounded annual growth rate) of nearly 49.5% between FY 2019 and FY2021.
The company has eight chemistry
competencies to use for its wide array of products, which enables it to cater
to niche and advanced intermediate requirements of a wider range of
end-products and applications. All these competencies have been developed
in-house, which is one of the core strengths of its R&D team.
As of March 31, 2022, product
portfolio of the company comprised over 25 products. According to Frost &
Sullivan, in CY2020, it is the sole manufacturer in India of 4MEP
(4-(2-Methoxyethyl) Phenol), MMBC (3-Methoxy-2-Methylbenzoyl Chloride), T2E
(Thiophene-2-Ethanol), OTBN (Ortho Tolyl Benzo Nitrile /
4-Methyl-2-Cyanobiphynyl), NODG (N-Octyl-D-Glucamine /
1-Deoxy-1-(Octylamino)-D-Glucitol), DVL (Delta-Valerolactone) and Bifenthrin
Alcohol.
The company has been focused on
developing high value products, which has resulted in the average selling price
of all its products to grow by a CAGR of 6.8% between fiscal 2016 and fiscal
2021. Its products find application in many therapeutic segments in the
pharmaceuticals industry including hypertension, anti-platelet, anti-psychotic,
antihistamines, and nonsteroidal anti-inflammatory drugs (NSAIDs). Its products
also find application in various other industries like agrochemicals, material
science, coatings, high performance photography, additives, and oil & gas.
The company has two manufacturing
sites at Sachin in Surat (Gujarat, India). Its manufacturing facility 1 is an
approximately 3,500 square meters facility including its R&D facilities,
analytical sciences laboratories, pilot plant, CRAMS facility and hydrogenation
facility. Manufacturing facility 2 spans approximately 10,500 square meters and
acts as a large-scale manufacturing facility with an installed capacity of
6,096 tonne per annum (for its solvent recovery plant 13,140 tonne) distributed
among three buildings that host 16 production streams (and one solvent recovery
plantstream). Capacity utilization was 77.47% (for solvent recovery plant
77.64%) in the nine months ended December 31, 2021, and 73.75% (for solvent
recovery plant 72.99%) in fiscal 2021. Both the facilities are in proximity to
the Hazira Port and JNPT Port, which helps it save freight costs for its
exports.
The company operations at
manufacturing facility 2 have ISO 9001:2015, ISO 14001:2015, ISO 45001:2018,
ISMS 27001:2013 and Indian GMP certification. In August 2021, it commenced
construction of a new manufacturing facility (manufacturing facility 3) at
Sachin, and it is in discussions with relevant authorities for acquiring land
for the fourth manufacturing facility (manufacturing facility 4) at Sachin.
Both these new manufacturing facilities (3 and 4) will be within a short
distance from manufacturing facility 2.
The company has a dedicated
in-house R&D facilities and pilot plant at its manufacturing facility 1 at
Sachin in Surat, Gujarat. Its R&D facilities are dedicated to the
development of its pipeline and next generation products as well as to CRAMS
customers. As of March 31, 2022, it had a specialized R&D team of 164
scientists and engineers including 92 scientists (with PhDs or Master of
Science degrees) and 72 chemical engineers. Its R&Dfacilities are equipped
with laboratories engaged in process development, process innovation and
technology development, which assists it in pursuing efficiencies from the
initial conceptualization up to commercialization of a product.
The company has a state-of-art
pilot plant, which is a vital link between R&D and large-scale production.
It has one of the largest pilot plants in the world with 106 reactors
installed, for both batch as well as continuous reaction technology. Pilot
plant has a dual functionality: it functions to generate critical scale-up data
in the transition from R&D to production to help eliminate issues at full
production scale and it also functions as a stand-alone manufacturing facility
for low volume, high value products for CRAMS customers.
The company has three business
models under which it operates - large scale manufacturing of its own
intermediates and speciality chemicals, CRAMS (contract research and
manufacturing services) and contract or exclusive manufacturing
The company engage in contract
research and manufacturing services (CRAMS,second business model), which are
the research and technology services that customers outsource to it and include
contract research, pilot scale-up services, contract manufacturing, technology
development and process development and optimisation. Its CRAMS customers work
jointly with its scientists and engineers, and it execute their projects in its
R&D facilities, analytical sciences laboratories, and pilot plant.
Molecules developed in CRAMS business for customers have the potential to
convert into regular commercial supplies and become large scale manufacturing products
for the company. The CRAMS business model also enables its dialogue and
discussions with the top technical teams and leadership (CTOs), technical
directors and technical vice presidents) of customers, opening future contract
manufacturing opportunities.
Examples of its CRAMS customers
include Adama Group (Israel), Altana AG (Germany), Aramco Performance Materials
LLC (US/Saudi Arabia), Austin Chemical Company, Inc. (USA), Avient Corporation
(UK), BYK Chemie GmbH (Germany), Connect Chemicals (Germany), Milliken &
Co. (USA), Polaroid Film BV (Netherlands), and Tosoh FineChem Corporation
(Japan). In the nine months ended December 31, 2021, and FYs 2021, 2020 and 2019,
revenues from CRAMS business constituted 7.44%, 7.98%, 9.10% and 10.02%, respectively,
of revenues from operations.
The company also manufacture
customers products under contractual/exclusive supply agreements (third
business model). These customer contracts are both short-term and long-term and
involve both exclusive and non-exclusive arrangements. In the nine months ended
December 31, 2021, and FYs 2021, 2020 and 2019, revenues from contract
manufacturing business constituted 21.85%, 19.38%, 7.39% and 16.09%,
respectively, of revenues from operations.
Examples of contractual / exclusive
manufacturing customers include Adama Group (Israel), Altana AG (Germany), BYK
Chemie GmbH (Germany), Divis Laboratories Limited (India), Dr. Reddy’s
Laboratories Limited (India), Moehs Iberica SL (Spain) and UPL Limited (India).
The raw materials used in the
manufacturing process are primarily sourced from third party suppliers globally
and in India. During the nine months ended December 31, 2021, fiscal 2021,
fiscal 2020 and fiscal 2019, cost of materials consumed as a percentage of revenue
from operations was 48.55%, 51.28%, 51.74% and 54.47%, respectively. Raw
materials include crude oil derivatives such as phenol and other commodities
such as hydrogen, ethylene oxide and Isobutylene gas. Other important raw
materials include chlorobenzonitrile, methanol, toluene, methylene dichloride
tetrahydrofuran, dichlorotoluene and thiophene, amongst others.
The company sales of advanced
intermediates and speciality chemicals products are predominantly conducted on
a business-to-business basis both in India and internationally. The company
export its products to more than 18 countries. Some of the key geographies to
which it exports products include Italy, Spain, Germany, and the United States.
During the nine months ended December 31, 2021, FYs2021, 2020 and 2019, export
sales (excluding deemed exports), as a percentage of revenue from operations
were 48.87%, 50.65%, 42.94% and 45.64%, respectively
The Offer and the Objects
The offer comprises fresh issue
of 9766355 equity shares at upper price band of Rs 642 and 10278689 equity
shares at lower price band of Rs 610 aggregating up to Rs 627 crore by the
company and an offer for sale by Purnima Ashwin Desai, promoter selling
shareholder of up to 2820000 equity shares aggregating to Rs 181 crore at the
upper price band of Rs 642 and Rs 172 crore at lower price band of Rs 610. The
company will not receive any proceeds from the offer and all the offer proceeds
will be received by the selling shareholders, net of its proportion of offer
related expenses and the relevant taxes thereon.
The company has undertaken a
pre-IPO placement of 2024921 equity shares aggregating to Rs 130 crore. The
size of the fresh isssue of equity shares aggregating up to Rs 757 crore has
been reduced by Rs 130 crore pursuant to the pre-IPO placement and accordingly,
the fresh issue comprises aggregating up to Rs 627 crore.
Promoter Purnima Ashwin Desai
post-issue shareholding shall decrease to 25.75% from 30.4% pre issue
shareholding.
The company proposes to utilize
the net proceeds of the fresh issue towards prepayment or repayment of all or a
portion of certain outstanding borrowings availed by the company amounting to
Rs 137.9 crore, funding capital expenditure requirements for proposed
greenfield project amounting to Rs 163 crore, funding working capital
requirements of the company amounting to Rs 165 crore and balance towards
general corporate purposes. As on March 31, 2022, the aggregate outstanding
borrowing of the company is Rs 141.328 crore.
The total estimated cost for the
proposed Greenfield project is Rs 190 crore out of which Rs 163 crore would be
met through net proceeds and Rs 27 crore from internal accruals. The company
expects commercial production of the proposed Greenfield project to start by
November 1, 2022.
Strengths
According to Frost &
Sullivan, the global chemicals market is expected to grow at a CAGR of 6.2%
from CY 2020 to CY 2025 and the India speciality chemical market at a CAGR of
11.2%. This growth is expected to be led by sustained demand in the end-use
customer segments for its intermediate and speciality chemical products or
business, which are experiencing consumption-led growth in India and key global
markets.
According to Frost &
Sullivan, in CY2020, the company is the sole manufacturer in India of 4MEP,
MMBC, T2E, OTBN, NODG, DVL and bifenthrin alcohol. It is the biggest
manufacturer of 4MEP globally in terms of production volume and the only
manufacturer of this product in India, the largest manufacturer of HEEP
(1-2-(2Hydroxyethoxy) Ethyl Piperazine) in India and globally in terms of
production volume, the largest manufacturer of NODG globally in terms of
production volume and the only manufacturer of this product in India and the
biggest manufacturer of T2E globally in terms of production volume and the only
manufacturer of this product in India.
The speciality chemicals industry
presents significant entry barriers, including customer validation and
approvals, expectation fromcustomers for process innovation and cost reduction,
high quality standards and stringent specifications
The company investments in
R&D have been critical to its success and a differentiating factor for it
to attain leading market positions for certainproducts. Based on the technical
expertise it has developed over the years, it is able to carry out innovative
processes at global scale, which, is difficult to replicate, and creates
significant barriers for new entrants
Most of the companys advanced
intermediates and speciality chemicals product portfolio was developed for the
first time in India and constitutes 100% import substitution, thus furthering
the make in India or atma -Nirbharta campaigns of the Government of India. For
example, 4MEP, T2E, MMBC, NODG, BFA, OTBN and DVL were 100% imported into India
from China four years ago and now it is selling these products to Chinese
customers. DVL were 100% imported into India from China four years ago and now the
company is selling these products to Chinese customers.
The company chemistry and
technology core competencies and all of its products have been developed by its
own R&D team, scaled up in its own pilot plant, and launched into
production employing in-house design and engineering.
The company has long standing
relationships with a diversified customer base. Its customers include over 160
multinational, global, regional, and local companies. As of March 31, 2022, its
product portfolio was sold to 34 global customers in 18 countries and to 154
domestic customers.
The company has nuanced criteria
for choosing products based on their chemical complexity, niche applications,
limited competition, scalability, and commercial potential. Using these
criteria, it developed, and continues to develop, advanced intermediates and
speciality chemicals products having applications in the pharmaceutical,
agrochemicals, material science, coatings, high performance photography,
additives, and oil & gas segments of the chemicals industry.
The company products are advanced
intermediates and speciality chemicals that occupy a position in the chemical
industry value chain between commodity chemicals and final actives and
formulations with its products more closely aligned to the higher value range,
further away from the commodities and closer towards the final active part of
the value chain. According to Frost & Sullivan, the company is known to
have strong market positioning in complex intermediates where global
competition is intense. The average selling price of all its products in fiscal
2021 was Rs 1,440.85 per kg compared to Rs 200-300 per kg for commodity chemicals
and Rs 400-700 per kg for regular speciality chemicals.
Weaknesses
The company manufacturing
processes involve manufacturing, storage and transportation of various
hazardous substances such as phenol, hydrogen, ethylene oxide, isobutylene gas,
tetrahydrofuran, methanol, toluene and methylene dichloride amongst others, and
it is required to obtain approvals from various authorities for storing
hazardous substances. The company is subject to operating risks associated with
handling of such hazardous materials such as possibility for leakages and
ruptures from containers, explosions, and the discharge or release of toxic or
hazardous substances, which in turn may cause personal injury, property damage
and environmental contamination.
The company require various
licenses and approvals for undertaking businesses and the failure to obtain or
retain such licenses or approvals in a timely manner, or at all, may adversely
affect operations
Although the specialty chemicals
industry provides for significant entry barriers, the company faces competition
in business based on pricing, relationships with customers, research and
development, product registration, product quality, customisation, and
innovation.
The company manufacturing
facilities (which include R&D facilities and pilot plant) are located at
Sachin in Surat, Gujarat. Additionally, its proposed Greenfield project is
situated in the same area. The concentration of all operations in Gujarat
heightens its exposure to adverse developments related to regulation, as well
as political or economic, demographic, and other changes in Gujarat as well as
the occurrence of natural and man-made disasters in Gujarat, which may
adversely affect business, financial conditions, and results of operations.
Prices of some of raw materials
that it uses are closely linked to crude oil prices. Crude prices globally have
been volatile. Any inability to pass on increase in prices of such raw
materials to customers would adversely affect business, financial condition,
and results of operations.
Top 20 customers contributed to
72.93% of total revenue from operations in 9MFY22.
Some of raw material imports are
regulated by the manufacture, storage and import of hazardous chemical rules,
1989 that, inter alia, allows the concerned authority to stop any import if it
is deemed that the chemicals proposed to be imported may cause major accidents.
Restrictions on import of raw materials and an increase in shipment cost may
adversely impact business, financial conditions, and results of operations
Valuation
For FY 2021, consolidated
sales were up by 49% to Rs 449.82 crore. OPM rose110 bps to 24.9% which led to 56%
increase in operating profit to Rs 112.16 crore. Other income increased 101% to
Rs 3.97 crore while interest cost rose 21% to Rs 11.32 crore and depreciation increased
40% to Rs 11.01 crore. PBT increased 66% to Rs 93.81 crore. Tax expenses were 37%
higher at Rs 22.69 crore. Net profit increased 78% to Rs 71.12 crore.
For 9M FY2022, consolidated
sales were up by 32% to Rs 442.54 crore compared to 9M FY2021. OPM increased by
560 bps to 28.5% which led to 65% increase in operating profit to Rs 126 crore.
Other income increased 108% to Rs 6.77 crore, while interest cost rose 26% to
Rs 10.04 crore and depreciation increased 36% to Rs 11.42 crore. PBT increased
75% to Rs 111.31 crore. Tax expenses for 9MFY2022 rose 87% to Rs 28.41 crore.
Net profit rose 72% to Rs 82.91 crore.
The TTM EPS on post-issue
equity works out to Rs 8.5. At the upper price band of Rs 642, P/E works out to
76.
As of 20 May 2022, its
listed peers such as Clean Science and Technology trades at TTM P/E of 121,
Navin Fluorine International trades at TTM P/E of 77, Vinati Organics trades at
TTM P/E of 58, PI Industries trades at TTM P/E of 51 and Fine Organic
Industries trades at TTM P/E of 67.
For FY2021, Aether
Industries OPM and ROE stood at 24.9% and 40.8% respectively, compared to 55.6%
and 45% for Clean Science and Technology, 34.2% and 16.1% for Navin Fluorine
International, 39.7% and 19.1% for Vinati Organics, 25.1% and 18.6% for PI
Industries and 19% and 17.8% for Fine Organic Industries, respectively.
Aether Industries:
Issue Highlights
|
Fresh
issue (in Rs crore)
|
627
|
Offer for
sale (in number of shares)
|
2820000
|
Offer for
sale (in Rs crore)
|
|
- in Upper price band
|
181
|
- in Lower price band
|
172
|
Price Band
(Rs)
|
610-642
|
For Fresh
Issue Offer size (in no of shares )
|
|
- in Upper price band
|
9766355
|
- in Lower price band
|
10278689
|
Pre issued
capital (Rs crore)
|
114.72
|
Post issue
capital (Rs crore)
|
|
- in Upper price band
|
124.48
|
- in Lower price band
|
125.00
|
Pre issue
promoter shareholding (%)
|
96.97
|
Post issue
Promoter shareholding
|
|
-On higher price band (%)
|
87.09
|
-On lower price band (%)
|
86.74
|
Bid Size
(in No. of shares)
|
23
|
Issue open
date
|
24/5/2022
|
Issue
closed date
|
26/5/2022
|
Listing
|
BSE, NSE
|
Rating
|
48/100
|
Aether
Industries: Standalone Financials
|
Particulars
|
1903 (12)
|
2003 (12)
|
2103 (12)
|
2012 (09)
|
2112 (09)
|
Total
Income
|
201.18
|
301.81
|
449.82
|
334.09
|
442.54
|
OPM (%)
|
23.6
|
23.8
|
24.9
|
22.9
|
28.5
|
Operating
Profits
|
47.51
|
71.76
|
112.16
|
76.54
|
126.00
|
Other
Income
|
2.10
|
1.98
|
3.97
|
3.25
|
6.77
|
PBIDT
|
49.60
|
73.73
|
116.13
|
79.79
|
132.77
|
Interest
|
10.60
|
9.38
|
11.32
|
7.97
|
10.04
|
PBDT
|
39.00
|
64.36
|
104.82
|
71.82
|
122.73
|
Depreciation
|
6.41
|
7.85
|
11.01
|
8.37
|
11.42
|
PBT
|
32.60
|
56.51
|
93.81
|
63.46
|
111.31
|
Share of
Profit/loss of JV
|
0.00
|
0.00
|
0.00
|
0.00
|
0.00
|
PBT Before
EO
|
32.60
|
56.51
|
93.81
|
63.46
|
111.31
|
EO
|
0.00
|
0.00
|
0.00
|
0.00
|
0.00
|
PBT after
EO
|
32.60
|
56.51
|
93.81
|
63.46
|
111.31
|
Provision
for Tax
|
9.26
|
16.55
|
22.69
|
15.20
|
28.41
|
Profit
after Tax
|
23.34
|
39.96
|
71.12
|
48.25
|
82.91
|
PPA
|
0.00
|
0.00
|
0.00
|
0.00
|
0.00
|
Net profit
after PPA
|
23.34
|
39.96
|
71.12
|
48.25
|
82.91
|
MI
|
0.00
|
0.00
|
0.00
|
0.00
|
0.00
|
Net profit
after MI
|
23.34
|
39.96
|
71.12
|
48.25
|
82.91
|
EPS (Rs)*
|
1.9
|
3.2
|
5.7
|
#
|
#
|
*EPS
annualized on post issue equity capital of Rs 124.48 crore of face value of
Rs 10 .each
|
# Not
annualised due to seasonality of business
|
Figures in
Rs crore
|
Source:
Capitaline Corporate Database
|
|