Specialty Chemicals Companies to Hike CAPEX by 50% in FY-22
After a lull in capital spending in the midst of the pandemic in 2020, specialty chemical companies will see capital expenditure (capex) rising by 50% yoy to Rs.6,200 crore in FY22. This takes the capex of specialty chemical companies back to pre-COVID levels. Specialty chemicals are specialized chemicals that go into a number of user industries like pharmaceuticals, paints, petrochemicals, metal products etc.
Specialty chemicals companies are seeing solid traction from domestic and export demand. Domestic demand has been rising with revival in most of the user industries back to normal levels of output. The latest IIP numbers reflect that Indian economy is back to pre-COVID levels of output. In the Indian markets, specialty chemical companies have gained from higher demand and better price realizations.
Also Read: Rally in Specialty Chemical Companies
The big shift has happened on the exports front. In last 2 years, the Chinese government clamped down heavily on the Chinese chemical companies that did not comply with environment norms. That drastically reduced the chemical output from China in the global export market.
Additionally, the pandemic highlighted the risks of depending too much on China for the supply chain. Till 2019, most countries relied on China to supply specialty chemicals for various applications. However, the pandemic led to severe supply chain embarrassments forcing global companies to look at India as an alternative.
There were other factors favouring Indian companies. Lower supplies from American hubs due to hurricanes and blockade of Suez Canal impacted global supply chains of specialty chemicals. Since demand was robust, specialty chemical companies could easily pass on higher crude costs via higher prices. This has encouraged a surge in capex this year.
Last year, revenue growth for specialty chemical companies fell to 10% and is expected to revive to 20% in FY22. Apart from the China factors, Western nations are increasingly looking at India, which is already among the top-3 specialty chemicals manufacturers in the world. Higher capacities will just underscore that advantage.
Coal India to Hike Prices by 11% to Cover Cost Spike
In what promises to have cascading inflationary impact on the economy, Coal India is looking to hike coal prices by 10-11%. The chairman, Mr. Pramod Agarwal, confirmed that the need to hike prices had been felt in internal discussions and there was almost a consensus on the subject. However, since the government is the majority owner of Coal India, the final decision will vest on the government.
The current average regulated price of coal is Rs.1,394 per tonne. The last price revision had happened in 2018. However, Coal India management admitted that costs had spiralled on a variety of fronts in the last two years making a strong case for a hike in the price of coal. However, the bigger issue is the wage revision that is due shortly.
In the last wage agreement signed with the employees, Coal India had give a hike of 20% to its employees. The wage revision will again become due this year and this price hike is meant to compensate CIL for that. Coal India has an annual wage bill of Rs.37,000 crore and the wage revision that is due from July will cost the company another Rs.10,000 crore. All these factors need to be compensated for.
The big challenge is the inflationary impact. It is estimated that a 10% spike in coal prices will increase the power cost by 30 paisa per unit. That could have a downstream cascading effect. That would be the contentious issue at a time when the RBI is trying hard to hold inflation under 6%.
The real reason for CIL looking to hike prices is the sharp in global coal prices. This reduces the advantage for most power companies to import coal from other countries. Even with a hiked price, Indian coal can still be competitive. That is what is driving CIL to urge the government for a price hike.
Ami Organics and Vijaya Diagnostics - Grey Market Premium
Grey market premium or GMP may not have much of official value, but as an information indicator it is useful. It gives a quick view on where the stock is expected to list and at what levels it could trade. This is specifically in case of IPOs where the GMP is a good lead indicator of how the stock could list.
GMP signals for Ami Organics
Ami Organics IPO closed on 03-Sep and the issue was subscribed 64.54 times. The issue has been priced at Rs.610 and the discovered price represents the upper end of the IPO price band. Ami Organics is a pharma intermediates manufacturer with a solid franchise of API clients in India and abroad. The stock is slated to list on Tuesday, 14-September.
As of Monday, the GMP was hinting at a premium for Ami Organics. Against the issue price of Rs.610, the GMP was hinting at a listing price of Rs.767, representing a premium of Rs.157 over the issue price. In percentage terms, this is a 25% premium as signalled by the grey market.
GMP signals for Vijaya Diagnostics
Vijaya Diagnostics IPO closed on 03-Sep and the issue was subscribed 4.54 times. The issue has been priced at Rs.531 and the discovered price represents the upper end of the IPO price band. Vijaya Diagnostics is a specialized diagnostics and testing company with a solid franchise of direct customers. The stock is slated to list on Tuesday, 14-September.
As of Monday, GMP was hinting at a discount for Vijaya Diagnostics. Against the issue price of Rs.531, the GMP was hinting at a listing price of Rs.522, representing a discount of Rs.9 over the issue price. In percentage terms, this is a 2.26% discount as signalled by the grey market.
It must be noted that GMP prices are unofficial and hence must be taken as purely indicative and not as conclusive indicators of listing price.
Ami Organics IPO Listing
Ami Organics had a solid listing on 14 September as it listed at a much better premium than indicated by the GMP and held on to the gains. Ami Organics listed at a premium of 49.18% and traded through the day in a range of Rs.100. The stock closed the day, well above the listing price. With overall subscription of over 64.54X, listing response was in line with the solid subscription. Here is the Ami Organics listing story on 14 September.
AMI Organics IPO price was fixed at the upper end of the band at Rs.610 after the 64.44X subscription. On 14 Sep, the stock of Ami Organics listed on the NSE at a price of Rs.910, a premium of 49.18% over the issue price. On the BSE, the stock listed at a price of Rs.902, a listing premium of 47.87%.
On the NSE, Ami Organics closed at Rs.934.50, a first day closing premium of 53.19% on the issue price. On the BSE, the stock closed at Rs.934.55, a first day closing premium of 53.20% on the issue price.
On Day-1 of listing, Ami Organics touched a high of Rs.966.70 on the NSE and a low of Rs.841. On Day-1, the Ami Organics stock traded a total of 112.15 lakh shares on NSE amounting to value of Rs.1,026.10 crore. On Day-1, Ami Organics was the sixth most liquid stock on the NSE by trading value.
On the BSE, Ami Organics touched a high of Rs.967.25 and a low of Rs.841.20. On BSE, the stock traded a total of 19.46 lakh shares amounting to value of Rs.177.70 crore. At the close of Day-1, Ami Organics had a market capitalization of Rs.3,405 crore with free-float market cap of just Rs.613 crore.
BTST Trading Tips for Today: 14th September, 2021
5paisa analysts bring the best intraday ideas, short-term ideas and long-term ideas for you. In the morning we provide best momentum stocks to buy today, while in the last trading hour we provide buy today sell tomorrow (BTST) ideas.
BTST Trading Ideas for Today
1. HCLTECH SEP FUT (HCTTECH)
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- Current Market Price: 1,465
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3. Orient Electric (ORIENTELEC)
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Freshworks Plans $912 million IPO in the US Stock Markets
India’s own home-made rival to Salesforce, Freshworks, will shortly launch a $912 million IPO in the US markets, Freshworks will be targeting an overall valuation of $9 billion for the business. Freshworks started its journey in India, but is currently based out of California, the seat of the technology and digital revolution.
Freshworks raised its last round of financing almost 2 years back in November 2019. At that time, the company was valued at nearly $3.5 billion. The current valuation sought is nearly 2.6 times its 2019 valuation. However, the pandemic has made technology a lot more integral to business and such kind of value accretion is justified.
Freshworks counts a number of important PE players as its core investors. The list includes Sequoia Capital, Accel Partners and Tiger Global; all marquee investors in the digital space. Freshworks offers a broad range of business software tools that range from customer relationship management (CRM) to help-desk software. It has also built a SAAS (Software as a service) platform for some of its core customers.
As part of the IPO, Freshworks plans to offer a total of 28.5 million shares at a price range of $28 to $32. At the upper end of the price band, the IPO size works out to $912 million. For the first six months of 2021, Freshworks reported revenues of $169 million and a net loss of $9.8 million. However, the net loss has sharply narrowed from $57 million in the corresponding period last year.
What justifies this steep valuation then? One is the size of the opportunity. As per IDC, the addressable market for Freshworks is close to $120 billion so the headroom is huge. Secondly, it serves over 50,000 customers so the potential to deepen customer ROI is also substantial. Freshworks was co-founded by Girish Mathrubhootham.
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