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17 October 2023

Saroja Pharma Industries IPO: Navigating the Chemical and Pharma API Landscape

Introduction:

Saroja Pharma Industries India Limited, established in 2019, is a company that specializes in trading, exporting, and supplying Specialty Chemicals and API (Active Pharmaceutical Ingredient). The firm deals in three primary product categories: Chemical, Pharma Intermediary, and Veterinary Pharma API. Some of the key products supplied by Saroja Pharma Industries include Liquid Bromine, utilized as an agro-intermediate, and Ethyl Acetate, which serves as an API solvent.

IPO Overview:

The Saroja Pharma Industries IPO was a fixed price issue with a total worth of ₹9.11 crores, consisting entirely of a fresh issue of 10.85 lakh shares. The IPO bidding commenced on August 31, 2023, and concluded on September 5, 2023. Allotment was completed on September 8, 2023, and the shares commenced trading on the NSE SME on September 13, 2023. The IPO was priced at ₹84 per share, with a minimum lot size of 1600 shares requiring an investment of ₹134,400 for retail investors. High Net Worth Individuals (HNIs) were required to apply for a minimum of 2 lots (3,200 shares) for ₹268,800.

Key Players:

Swastika Investmart Ltd acted as the book running lead manager for the Saroja Pharma Industries IPO, and Kfin Technologies Limited served as the registrar for the issue. Swastika Investmart also played the role of the market maker for the IPO.

Stock Performance:

As of September 27, 2023, Saroja Pharma Industries India Limited's stock (Arrow) was trading at ₹67.35, reflecting a 0.22% increase. The stock opened at ₹68.00, reached a high of ₹70.00, dipped to a low of ₹67.20, and had a previous closing price of ₹67.20. The total traded value amounted to 17,600 shares.

Ownership Structure:

Pre-issue shareholding stood at 100.00%, and post-issue, it was 73.02%.

Financial Performance:

Saroja Pharma Industries demonstrated inconsistent financial performance. As of March 31, 2023, the company's assets were valued at ₹2,133.99 lakhs, while revenue amounted to ₹5,035.09 lakhs. Profits after tax amounted to ₹106.06 lakhs. The net worth of the company stood at ₹508.66 lakhs, with reserves and surplus of ₹215.09 lakhs. The total borrowing as of that date was ₹1,018.86 lakhs.

Performance Indicators:

Key performance indicators for the Saroja Pharma Industries IPO included a post-issue P/E (Price-to-Earnings) ratio of 23.27 and a Market Capitalization of ₹33.77 crores.

Objectives of the Issue:

The net proceeds from the IPO were allocated for the following purposes:

1. To Set-up a Manufacturing Unit.
2. To Repay the Unsecured Loans.
3. Public Issue Expenses.

Expert Opinion:

Noted that Saroja Pharma Industries India Limited is currently engaged in trading specialty chemicals and pharma APIs. The company has displayed inconsistency in its financial performance for the reported periods. Although the firm has plans to enter manufacturing activities, the IPO's asking price appeared ambitious based on its financial data thus far. The relatively small equity post-IPO indicated a longer gestation period for migration to the mainboard. He suggested caution regarding this "High Risk/Low Return" investment.

Subscription Status:

The Saroja Pharma Industries IPO generated moderate interest, with a subscription rate of 8.88 times as of September 5, 2023. Retail investors displayed significant enthusiasm with a subscription rate of 14.83 times. The QIB (Qualified Institutional Buyers) category did not participate significantly, and the NII (Non-Institutional Investors) category had a subscription rate of 2.90 times.

Conclusion:

Saroja Pharma Industries India Limited operates in the competitive landscape of specialty chemicals and pharmaceutical APIs. The IPO signifies the company's aspirations for growth and diversification into manufacturing. However, given its inconsistent financial performance and the relatively high IPO valuation, potential investors should exercise caution and conduct thorough due diligence before making investment decisions.

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