Paradeep Phosphates Rs 1,500-crore IPO opens today; should you subscribe? Here’s what brokerages say

The initial public offer (IPO) of Paradeep Phosphates opens for subscription today (17 May), and will close on Thursday (19 May). The price band for the Rs 1,501 crore IPO has been fixed at Rs 39-42 per equity share of face value Rs 10 each. The shares will be listed on BSE as well as NSE. Paradeep Phosphates shares on Tuesday were commanding a premium of Rs 3 in the grey market, 10% on the issue price. Ahead of the IPO, several brokerages have given a subscribe rating to the issue given its fair valuations compared to its peers.

Paradeep Phosphates, India’s second largest manufacturer of non-urea fertilisers and di-ammonium phosphates (DAP) in the private sector, raised a little over Rs 450 crore from anchor investors on Friday. The company has allocated a total of 10.7 crore equity shares to anchor investors at Rs 42 apiece, aggregating the transaction size to Rs 450.52 crore. Goldman Sachs, BNP Paribas Arbitrage, Kuber India Fund, Copthall Mauritius Investment and Societe Generale are among the anchor investors.

Govt to offload its entire stake

The government of India will be offloading its entire 19.55% stake in the company. Currently, Zuari Maroc Phosphates Pvt Ltd (ZMPPL) holds 80.45% and the government of India owns the remaining 19.55 per cent stake in the company. The offer for sale (Rs 500 crore) comprises up to 60 lakh equity shares by ZMPPL and up to 11.2 crore equity shares by The President of India, acting through the Ministry of Chemicals and Fertilizers.

Paradeep Phosphates IPO details

Issue size: 1501.7 crore
Fresh Issue size: 1,004 crore
Offer for sale size: 498 crore
Price Band: Rs 39 to Rs 42 per equity share
Face Value: Rs10/share
No. of shares pre-issue: 57.5 crore
Fresh Issue: 23.9 crore
Offer for sale: 11.9 crore
No. of shares post-issue: 81.4 crore
Bid Lot size: 350 Equity share and in multiple of 350 equity share thereafter
QIB: (including Anchor) portion: 50%
Non-Institutional reserved portion: 15%
Retail investors portion: 35%

Proceeds of fresh issue ( Rs 1,000 crore) will be used to partly finance the acquisition of the fertiliser manufacturing facility in Goa and payment of debt and general corporate purposes.

Should you subscribe to Paradeep Phosphates IPO?

Arihant Capital: Subscribe for long-term

Paradeep Phosphates is the second largest private sector manufacturer of non-urea fertilizers in India and the second largest private sector manufacturer of Di-Ammonium Phosphate. It has a vast network of dealers and distributors for marketing and distribution of its products. The company has a huge economy of scale to compete in the industry. “At the upper price band of Rs 42, the company is valued at a P/E multiple of 11x based on its FY21 EPS of Rs 3.9. The company is a major player in the fertilizer sector and is expanding its capacity and backward integration operations. Also, it has raw material security through its promoters. Factoring in the business model, the demand for its products and the company fundamentals, we recommend that long term investors can subscribe to the Initial Public Offering of Paradeep Phosphates Ltd.”

Choice Broking: Subscribe

According to the brokerage firm, Paradeep Phosphates is well-positioned to capture the favorable Indian fertilizer sector dynamics supported by conducive government regulations. It is driving raw material efficiency through backward integration of facilities and effective sourcing. The company has a secure and certified manufacturing facility, infrastructure and unutilized land available for expansion. Strategic location of the manufacturing facility and sizable material storage, handling and port facilities are other positives for the firm. It also has a strong parentage, experienced management team and prominent shareholders. “At a 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,” Choice Broking said in its note.

Angel One: Neutral

The issue comprises both an offer for sale and fresh issue. While the Government of India will be selling its entire 20% holding in the company Zuari Maroc Phosphates Pvt Ltd. will also be selling part of its holding in the offer for sale. “In terms of valuations, the stock will trade at post issue P/E multiples of 15.3xFY2021 EPS (at the upper end of the issue price band), which is in line with other players like Chambal fertilizer and Deepak fertilizer though they may not be strictly comparable. Given the fact that the company is valued in line with peers and likely to face headwinds in terms of cost pressures due to recent increase in raw material prices, we recommend a NEUTRAL rating on the issue.”

Kotak Securities: Not rated

The brokerage noted that Paradeep Phosphates is well-positioned to capture favorable Indian fertilizer industry dynamics supported by conducive government regulations. As of March 31, 2022, (i) its total annual granulation capacity of DAP and NPK production plant was approximately 1.50 million MT; (ii) its total annual installed capacity of Sulphuric acid production plant was approximately 1.30 million MT; and (iii) its total annual installed capacity of Phosphoric acid production plant was 0.30 million MT, in addition, the plant has three operational concentrators to concentrate weak Phosphoric acid into strong Phosphoric acid. PPL has an established track record of delivering robust financial performance, according to Kotak Securities.

BP Equities: Subscribe for long-term

“With the company in the midst of installing an evaporator to increase the inhouse production of strong phosphoric acid and increase in the phosphoric acid production capacity to 1500 TPD, the extent of backward integration will further improve, leading to improvement in the contribution margins. At the upper end of the price band, the issue is valued at a P/E of 7x based on FY22 annualised earnings, which we believe is reasonably priced,” the brokerage said in its report. Hence, it recommends a ‘subscribe’ rating on this issue for the long term.

Geojit Financial Services: Subscribe

“At the upper price band of Rs.42, PPL is available at P/E of 7.1x (FY22 annualized) which is attractive on a short to medium term basis. PPL is well-positioned to capture favourable Indian fertilizer industry dynamics supported by conducive government regulations, driving raw material efficiency through backward integration of facilities and effective sourcing and established brand name backed by an extensive sales and distribution network. Considering PPL’s expansion plans, deepening the presence in western and southern regions of India, we assign a ‘Subscribe’ rating for the issue on a short to medium basis.”

Hem Securities: Subscribe for long-term

“Company is bringing the issue at price band of Rs 39-42 per share at p/e multiple of 11x on FY21 eps basis. Company being second largest private sector manufacturer of Phosphatic fertilizers in India is well-positioned to capture favorable Indian fertilizer industry dynamics supported by conducive government regulations. Company with established brand name backed by an extensive sales and distribution network has strong parentage, experienced management team and prominent shareholders is looking decent investment avenue for long term investment. Hence we recommend “Subscribe” on issue for long term.”

(The recommendations in this story are by the respective research analysts and brokerage firms. Financial Express Online does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)