IPO Analysis: HP Adhesives Ltd

IPO Rating: Invest for long-term 

About the issue: 

HP Adhesives is a fast-growing multi-product, multi-category consumer adhesives and sealants company. The company is coming out with its initial public offering (IPO) of equity shares of the face value of Rs 10 per equity share. The maiden offer comprises of fresh issue of Rs 113.44 crore and an offer for the sale of shares worth Rs 12.53 crore by existing investors, according to its red herring prospectus. The price band of the issue has been fixed at Rs 262 to Rs 274 per equity share. The IPO opening date is December 15, 2021, while it will be closing on December 17, 2021. The issue will be listed on the exchange on December 27, 2021. The IPO market lot size is 50 shares. A retail-individual investor can apply up to a maximum of 14 lots (700 shares or Rs 191,800). 

 The objects of the offer are: 

• Funding the working capital requirements of the company 

• Funding capital expenditure for expansion of production capacity at the existing manufacturing facility in Maharashtra and at the additional unit having a proposed construction area admeasuring about 4,532.57 sq. mtrs. 

HP Adhesive IPO Details: 

About the company: 

HP Adhesives Limited is an adhesives and sealants company. The company manufactures a wide range of consumer adhesives and sealants such as PVC, cPVC, and uPVC solvent cement, synthetic rubber adhesive, PVA adhesives, silicone sealant, acrylic sealant, gasket shellac, other sealants, and PVC pipe lubricants. These adhesives and sealant products have applications in multiple industries such as plumbing and sanitary, drainage and water distribution, general-purpose building/construction, and interior operations as well as for glazing operations, woodwork, footwear, automotive, foam-furnishing, and other varied industries. Apart from the above products, the company also sells ancillary products like ball valves, thread seals, and other tapes and FRP products for drainage and architectural solutions. 

As of September 30, 2021, the company has a distribution network of four depots situated in Delhi, Kolkata, Bengaluru, and Indore and more than 750 distributors who cater to more than 50,000 dealers in India. The company's manufacturing facility is located at Narangi village, Raigad (Maharashtra) which is a multi-product manufacturing facility. During the FY 2020-21, the company sold its products in 21 countries. 

Competitive Strengths: 

Growing company with established brand presence 

Wide product portfolio and multiple SKUs 

Diversified product portfolio with a diversified customer base 

Extensive distribution network across India 

Established presence in international markets 

Large players as customers 

Efficient manufacturing set-up with scope for expansion 

Focus on quality 

R&D set up for constant product improvement and new product development 

Experienced management team with a committed employee base 

Company Financials: 

Despite Fiscal 2021 being impacted by COVID-19, its revenue from operations have grown by 39.82 per cent between Fiscal 2020 to Fiscal 2021. It has registered sales growth with a CAGR of 37.5 per cent in last 11 years. The EBITDA nearly tripled from Rs 6.5 crore in FY20 to Rs 17.7 crore in FY21. The EBITDA margin almost doubled 7.7 per cent in FY20 to 14.97 per cent in FY21. 

Recommendation: 

Increasing acceptance in newer product categories due to high quality and efficient pricing has established the company’s brand reputation. When it started its business activities, it only had one product category i.e., PVC, cPVC and uPVC solvent cement. Over last few years, it has expanded its product portfolio to multiple product categories including silicone sealants, synthetic rubber adhesives, PVA adhesives and other sealants.  

It also has a presence in international markets. Its exports business constitutes 17.20 per cent of sales in the Fiscal 2021 and has grown 17.30 per cent CAGR over last 11 years. As a growth strategy, the company is focused to introduce new product categories to cater to more end-users. It has constantly expanded the distribution network across the country, and this continues to be one of the core strategies of the company to further expand the distribution network. It is in the process of carrying out capacity expansion plans at its existing manufacturing facility at Raigad, Maharashtra to aid its growth efforts and pan-India presence.  

The company’s financials look strong. Due to exceptional items of Rs. 7.4 crore, the company reported losses in the period 2019-20. Though, on operational front, company had performed well during the period 2019- 20 as well. Majority of the issue is the fresh issue which again is a positive point. The promoters are sticking to their stake at a greater extent. Considering all such factors, we recommend our readers to invest in the IPO for long-term.