Paradeep Phosphates Limited opened its initial public offering on May 17, 2022. The Price Band of the Offer has been fixed at Rs 39 per equity share to Rs 42 per equity share of face of Rs 10 each. Bids can be made for a minimum of 350 equity shares and in multiples of 350 equity shares thereafter.
The Issue offer comprises (i) fresh issue of equity shares face value Rs 10 each share aggregating to Rs 10,040 million and (ii) Offer for Sale up to 118,507,493 equity shares by Promoter Selling Shareholders and GoI Selling Shareholder.
Paradeep Phosphates Limited is the second-largest private sector manufacturer of non-urea fertilizers in India and second-largest in terms of Di-Ammonium Phosphate (“DAP”) volume sales for the 9 months ended December 31, 2021.
PPL is primarily engaged in manufacturing, trading, distribution and sales of a variety of complex fertilizers such as DAP, three grades of Nitrogen Phosphorus-Potassium (“NPK”) (namely NPK-10, NPK-12 and NP-20), Zypmite, Phospho-gypsum and Hydroflorosilicic Acid (“HFSA”). They are also engaged in the trading, distribution and sales of Muriate of Potash Ammonia, Speciality Plant Nutrients (“SPN”) and City compost. Their fertilizers are marketed under some of the key brand names in the market ‘Jai Kisaan – Navratna’ and ‘Navratna’.
Increasing foothold in high demand pockets
On March 1, 2021, PPL has entered into a business transfer agreement (“BTA”) (amended by the Addendum to the Business Transfer Agreement dated July 30, 2021 and December 30, 2021) with ZACL for the purchase of its fertilizer plant in Goa (the “Goa Facility”) which will help access high demand Maharashtra , Karnataka, Madhya Pradesh, Chattisgarh and Telangana which account for ~45% of total phosphate sales. The company plans to use proceeds of fresh issue will be used to partly finance this purchase, for payment of debt and general corporate purposes.
Sectoral tailwinds to boost IPO sentiment
The supply glut in international DAP market due to exports ban from China from mid-October is spiking DAP prices. The exports controls are in effect till June 2022. Russia might also pause export of DAP which will further inflate the price. PPL is the 2nd largest private sector manufacturer of non-urea fertilizers in India and 2nd largest in terms of Di-Ammonium Phosphate (“DAP”) volume sales for the 9 months ended December 31, 2021. Expected MRP/Subsidy hike, normal monsoon, extended winter spell to well for the business in coming quarters.
Should you subscribe?
Axis Securities
PPL tailwinds are expected to overpower the cost inflation headwinds, the strategic acquisition of Goa plant will solidy PPL’s position in the domestic fertilizer market, with increased presence in key states. We believe the IPO is priced at discount to its fair value. On the upper end of the price band PPl will trade at 5x 9MFY22 annualised EPS & 11x FY21 EPS compared to average PE ~14x of industry peers.
Choice Broking
At higher price band of Rs. 42, PPL is demanding an FY21 EV/Sales multiple of 0.7x, which is at significant discount to the peer average of 1.1x. Considering the above observations, we assign a “SUBSCRIBE” rating for the issue.
Marwadi Financial Services
Considering the FY21/FY22(Annualised) EPS of Rs.2.74/Rs.5.94 on a post issue basis, the company is going to list at a P/E of 15.32x/7.07x with a market cap of Rs.34,209 mn whereas its peers namely Coromandel International and Deepak Fertilisers & Petrochemicals are trading at PE of 16.9x and 12.9x. We assign “Subscribe” rating to this IPO as the company is the second-largest private sector manufacturer of Phosphatic fertilizers in India and is well-positioned to capture favorable dynamics of the Indian fertilizer industry. Also, it is available at reasonable valuation as compared to its peers.
