Retail Research

Sector: Chemicals
21 January 2011

Omkar Speciality Chemicals Ltd.

IPO Note View: NEUTRAL Price Band: `
95 -98
Omkar Speciality Chemicals Ltd. (OSCL) was originally
incorporated as Omkar Speciality Chemicals Pvt. Ltd. on February
24, 2005 and was converted into a public limited company on
March 18, 2010. The company has four units at MIDC, Badlapur
(E), Thane, Maharashtra. At present, they carry out manufacturing
activities at two units viz. Unit 1 & Unit 2.
OSCL is primarily involved in the production of speciality
chemicals and pharma intermediates. They manufacture a range
of organic, inorganic and organo inorganic intermediates. The
inorganic intermediates include Molybdenum derivatives,
Selenium derivatives, Iodine derivatives, Cobalt derivatives,
Bismuth & Tungsten derivatives and the organic intermediates
include Tartaric acid derivatives and other intermediates.
These products find applications in various industries like
pharmaceutical industry, chemical industry, glass industry,
cosmetics, ceramic pigments and cattle & poultry feeds. Iodine &
Selenium derivatives are key category of products contributing
88.23% to gross sales during the year 2009-10.
They are exporting products to Europe, North America, Asia,
South America & Australia. The total exports constituted 8.69%,
12.35% and 7.97% of gross sales during FY 2008, FY 2009 and FY
2010 respectively.
The company carries out research & development activities at
Badlapur, Maharashtra. The research is carried out for improving
the quality of existing products and development of new processes
for the existing products.
ISSUE DETAILS:
Date of Opening 24th January 2010
Date of Closing 27th January 2010
Issue Size @ Rs. 95 - 98 Rs. 76.95 cr. - 79.38 cr.
No. of Shares Offered 81,00,000 (81 lac)
Face Value Rs. 10
BRLM Almondz Global Securities Ltd.
Registrar Bigshare Services Pvt. Ltd.
CARE Rating 3/5 (Average Fundamentals)
Bid Lot 60
Post Issue Share Capital Rs. 19.63 cr.
OBJECTS OF ISSUE
Particulars Amount (Rs. cr.)
Setting up of new manufacturing facility at Unit 4 32.16
Expansion of existing manufacturing facilities at
Unit 1, Unit 2 & Unit 3 14.62
Meeting Working Capital requirements 10.00
General corporate purposes [ ]
Issue expenses [ ]
Total [ ]
SHAREHOLDING PATTERN
PRE ISSUE No. of Shares %
Promoter & Promoter Group 11,527,980 100.00
Non Promoters 20 0.00
Public -0.00
Total 11,528,000 100.00
POST ISSUE No. of Shares %
Promoter & Promoter Group 11,527,980 58.73
Non Promoters 20 0.00
Public 8,100,000 41.27
Total 19,628,000 100.00
Source: RHP, SSL Research
For complete information and a complete list of the risk factors,
please refer the Red Herring Prospectus.

SBICAP Securities Limited, Corporate Office: 191, Maker Towers F , Cuffe Parade,
Mumbai 400 005
Tel.: (Board) +91 22 30273300/01 Fax: (022) 30273420.
For a list of our branches refer to our website: www.sbicapsec.com
Omkar Speciality Chemicals Ltd. Chemicals
Key Strengths

Multi product capability

The company has a diverse product range comprising a mix of organic,
inorganic and organo inorganic intermediates. The product portfolio comprises
of more than 90 products in these segments. They have manufacturing facilities
which can produce multiple products using a combination of processes. The
manufacturing infrastructure helps them change product mix in response to
changes in market demand. The diverse product mix enables them to address
a larger base of potential new customers in addition to existing customers.
Customer base
OSCL has a diverse customer base from different industry segments like
pharmaceutical, chemical, glass, cosmetics, ceramic pigments, etc. Further, they
export products to various countries in Europe, Asia, North America, South
AmericaandAustralia.Theyfocuson expandingtheircustomerbase bycatering
to the requirements of customers from various industry segments.
Existing client relationship
They constantly try to address customer needs around a spectrum of products.
They believe that their production and research facilities help to get repeat
business from customers. They have existing client relationships in domestic
and international markets from whom they get repeat orders. They believe
that existing relationship with clients represents a competitive advantage in
gaining new clients and increasing business.
Cost advantage
OSCLbelieves thattheyhavedeveloped processesfor manufactureofproducts
in a cost effective manner. Their R&D team is continuously working on the
processes for existing products in order to improve the production with
optimum utilization of resources and cost saving. This provides them a
competitive edge over others and helps to widen the customer base.
~ Multi product capability
~ Existing client relationship
~ Cost advantage
For complete information and a complete list of the risk factors, please refer t
he Red Herring Prospectus. Source: RHP
SBICAP Securities Limited January 21, 2011 2
Omkar Speciality Chemicals Ltd. Chemicals
Business Strategies

Expansion of existing manufacturing facilities and setting up a new unit

The company proposes to expand its existing manufacturing capacities at
Unit 1, Unit 2 and Unit 3. This expansion will increase capacity by 1450 MT
per annum. They intend to set up a new manufacturing facility with an
installed capacity of 1250 MT per annum at Unit 4 to produce new molecules
in the Iodine derivates and other pharma intermediates with innovative
technologies like catalytic high pressure reactions. After the proposed
expansion and setting up of new facility, the total installed capacity will be
3650 MT per annum from existing 950 MT per annum.
Increase product range
At present their product portfolio comprises of more than 90 products in
organic, inorganic and organo inorganic intermediates. The implementation
of the proposed expansion will enable them to increase product range and
cater to the needs of customers from various industry segments viz.
pharmaceutical, chemical, glass, cosmetics, ceramic pigments, etc.
With the proposed expansion, OSCL will be able to expand its product lines
in Selenium, Molybdenum, Cobalt, Bismuth etc. Further, a new range of
products in Metal oxides such as Cobalt Oxide, Molybdenum Trioxide,
Molybdenum Disulfide, etc. will be added to the product portfolio after the
proposed expansion of manufacturing facilities.
Enhancing focus on Research & Development
With a view to strengthen research and development, the company has taken
99.82% stake in Rishichem Research Ltd (RRL) on May 14, 2010 whereby it
becomes their wholly owned subsidiary. It is engaged in manufacturing and
R&D of speciality chemicals and pharma intermediates. They propose to
concentrate specialized research and development activities in RRL by
developing CRAMS business model wherein initial testing and trial of small
quantities of product would be undertaken by RRL and if the product is
successful, it will be commercialized and OSCL shall procure their commercial
rights in this regard thereof.
Increase in exports
The company exports its products to Europe, Asia, North America, South
America and Australia. The exports constituted 12.35% of the total sales for
FY 08-09 and 7.97% of the total sales for FY 09-10. With the proposed expansion,
the installed capacity will increase to 3650 MT per annum and it will enable
them to increase geographical presence in the international markets and scale
up exports.
~ Expansion of existing manufacturing facilities and
setting up a new unit
~ Increase product range
~ Increase in exports
For complete information and a complete list of the risk factors, please refer t
he Red Herring Prospectus. Source: RHP
SBICAP Securities Limited January 21, 2011 3
Omkar Speciality Chemicals Ltd. Chemicals
Risk Factors

Revenues are significantly dependent on sale of some of their products

Iodine & Selenium derivatives are key category of products contributing
88.23% to gross sales for the year 09-10. In case they are not able to launch
new products, dependence on these products will increase. Any decline in
revenues from these products on account of reasons beyond company's control
or any other factor that negatively affects these products will adversely affect
business, financial performance and results of operations.
The company has not entered into any supply agreement for the major
raw materials
While OSCL is not significantly dependent on any single manufacturer of
such raw material, raw material costs are dependent on global commodity
prices, which are subject to fluctuation. In the event the prices of such raw
materials were to rise substantially or if imports were to be restricted in any
manner, they may find it difficult to find alternative suppliers for raw
materials, on terms acceptable, and business, results of operations and
financial condition could be adversely affected.
They have historically dependent on a relatively small number of
customers for a significant portion of sales
While they are constantly striving to increase customer base and reduce
dependence on any particular customer, there is no assurance that they will
be able to broaden their customer base in any future periods, or that business
or results of operations will not be adversely affected by a reduction in demand
or cessation of relationship with any major customers.
They have not entered into any long-term contracts with any customer
and typically operate on the basis of purchase orders
OSCL does not have any long-term contracts with customers and any change
in the buying pattern of the customers could adversely affect the business of
the company. Although they believe that they have satisfactory business
relations with customers and have received continued business from them in
the past, there is no certainty that the same will continue in the years to come
and may affect profitability.
~ No supply agreement for the major raw materials
~ Historically dependent on a relatively small
number of customers
~ No long-term contracts with any customer
For complete information and a complete list of the risk factors, please refer t
he Red Herring Prospectus. Source: RHP
SBICAP Securities Limited January 21, 2011 4
Omkar Speciality Chemicals Ltd. Chemicals
Financials & Valuations Snap Shot: Relative Valuation:
Omkar Speciality Chemicals Ltd.
(Standalone) (Rs. cr.)
Pre Issue
FY10
Post Issue
FY10
Particulars Fixed Price Bnd
95 98
Net Sales 68.3 68.3 68.3
Total Income 68.9 68.9 68.9
EBIDTA 12.5 12.5 12.5
PAT 5.1 5.1 5.1
Equity Share Capital 11.5 19.6 19.6
No of Equity shares 1.2 2.0 2.0
Face Value 10.0 10.0 10.0
EPS 4.5 2.6 2.6
CMP 98 95 98
Cash and Bank 0.4 0.4 0.4
Debt 26.8 26.8 26.8
Market Cap 113.0 186.5 192.4
Enterprise Value 139.3 212.8 218.7
P/E (x) 22.0 36.3 37.5
Mcap/Sales (x) 1.6 2.7 2.8
EV/Sales (x) 2.0 3.1 3.2
EV/EBIDTA (x) 11.1 17.0 17.5
EBIDTA/Sales (%) 18.3 18.3 18.3
Net Profit / Sales (%) 7.5 7.5 7.5
Particulars. Camlin Fine
Chemicals
Transpek
Ind.
Omkar Speciality
Chemicals Ltd. (standalone)
CMP (Rs)
TTM Sales (Rs Cr)
M.cap (Rs Cr)
P / E (x)
EV / Sales (x)
EV / EBIDTA (x)
M.cap / Sales (x)
OPM (%)
NPM (%)
68.05
135.86
63.29
14.72
0.74
6.38
0.47
11.62
3.17
167.3
159.91
93.5
5.8
0.9
4.3
0.6
20.9
10.1
95.00
68.35
186.47
36.32
3.11
17.00
2.73
18.31
7.51
98.00
68.35
192.35
37.46
3.20
17.47
2.81
18.31
7.51
Source: Capitaline
Source: RHP
Financials & Valuations:
Omkar Speciality Chemicals Ltd. is currently valued at 36.3x and 37.5x of its FY
10 earnings at lower and upper price band
respectively. The company presently has total outstanding debt of Rs. 26.8 cr. a
s on 31st Mar 2010 with a Debt-Equity ratio of
1:1.68. In addition to above, The company has debtors worth Rs. 23.5 cr. as on 3
0th Sep 2010, out of which Rs. 1.13 cr. is
outstanding for a period of more than 6 months and has contingent liabilities of
Rs. 7.7 cr. While comparing the company
with its peers based on their trailing twelve months earnings, Omkar Speciality
Chemicals Ltd. is available at a slight premium.
Hence, we have a NEUTRAL view.
SBICAP Securities Limited January 21, 2011 5
Omkar Speciality Chemicals Ltd. Chemicals
Corporate Office: SBICAP Securities Limited,191, Maker Towers 'F', Cuffe Parade,
Mumbai 400 005
Tel.: 91-22-30273300 (Board) Fax: (022) 30273420
For any information contact us:
Toll free: 1-800-223345 Tel.: (022) 2436 4059 / (022) 2436 8629 Or E-mail: helpd
esk@sbicapsec.com

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