Citichem India coming with IPO to raise Rs 12.60 crore

Citichem India

• Citichem India is coming out with an initial public offering (IPO) of 18,00,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 70 per equity share.
• The issue will open on December 27, 2024 and will close on December 31, 2024.
• The shares will be listed on SME Platform of BSE.
• The share is priced 7.00 times higher to its face value of Rs 10.
• Book running lead manager to the issue is Horizon Management.
• Compliance Officer for the issue is Puja Sharma.

Profile of the company

Citichem India is mainly engaged in the buying, procuring, and supplying, of organic and inorganic chemicals, bulk drugs, and, food chemicals to pharmaceutical industry. The traded speciality chemicals and intermediates have a wide application in aluminium, steel, textiles, paper, dairy, paints, dyes & intermediates, soap making, pharma, food and adhesive Industry. The company also supplies food preventives and chemicals under its own brand name which is thereafter converted into sales in their own books by the distribution team who ensures safe delivery of bulk supply. The said works are primarily sourced through its leased Registered Office located at Khand Bazar, Masjid Station, Mandvi, Mumbai.

With the combined experience of its Promoters for over 25 years with their expertise in sourcing, negotiating, procuring, and supplying of organic, and inorganic chemicals to the pharmaceutical industry, and with the existing long-standing clientele, the company aims to further expand, and diversify their procurement sources and achieve growth by multiplying the supply chain of the chemicals to the said industry. Its Promoters have a clear vision about the strong growth prospects with a view of the expanding their market size in India year on year basis. 

Proceed is being used for:

• Capital expenditure for acquisition of property
• Purchasing of transportation vehicles and accessories
• General corporate purposes
• Meeting the issue expenses

Industry Overview

Covering more than 80,000 commercial products, India’s chemical industry is extremely diversified and can be broadly classified into bulk chemicals, specialty chemicals, agrochemicals, petrochemicals, polymers, and fertilisers. India is the 6th largest producer of chemicals in the world and 3rd in Asia, contributing 7% to India’s GDP. India's chemical sector, which was estimated to be worth $220 billion in 2022, is anticipated to grow to $300 billion by 2025 and $1 trillion by 2040. Globally, India is the fourth-largest producer of agrochemicals after the United States, Japan and China. India accounts for 16-18% of the world's production of dyestuffs and dye intermediates. India’s agrochemicals export was estimated to be at $3.12 billion from April 2023 to December 2023. Indian colourants industry has emerged as a key player with a global market share of ~15%. The country’s chemicals industry is de-licensed, except for a few hazardous chemicals. India has traditionally been a world leader in generics and biosimilars and a major Indian vaccine manufacturer, contributing more than 50% of the global vaccine supply. India holds a strong position in exports and imports of chemicals at a global level and ranks 14th in exports and 8th in imports at the global level (excluding pharmaceuticals). From April 2023 to December 2023, India's dye exports (Dyes and Dye Intermediates) totalled $1.69 billion.

India's chemical sector, which was estimated to be worth $220 billion in 2022, is anticipated to grow to $300 billion by 2025 and $1 trillion by 2040. The demand for chemicals is expected to expand by 9% per annum by 2025. The chemical industry is expected to contribute $383 billion to India’s GDP by 2030. India has traditionally been a world leader in generics and biosimilars and major Indian vaccine manufacturers, contributing more than 50% of the global vaccine supply. Chemicals and petrochemicals demand in India is expected to nearly triple and reach $1 trillion by 2040. An investment of Rs 8 lakh crore ($107.38 billion) is estimated in the Indian chemicals and petrochemicals sector by 2025. Specialty chemicals account for 20% of the global chemicals industry's $4 trillion, with India's market expected to increase at a CAGR of 12% to $64 billion by 2025. This gain would be driven by a healthy demand growth (CAGR of 10-20%) in the export/end-user industries.

Despite the pandemic situation, the Indian chemical industry has numerous opportunities considering the supply chain disruption in China and the trade conflict between the US, Europe and China. Anti-pollution measures in China will also create opportunities for the Indian chemical industry in specific segments. Additional support, in terms of fiscal incentives, such as tax breaks and special incentives through PCPIRs or SEZs to encourage downstream units will enhance production and development of the industry. The dedicated integrated manufacturing hubs under the Petroleum, Chemicals and Petrochemicals Investment Regions (PCPIR) policy to attract an investment of Rs. 20 lakh crore ($276.46 billion) by 2035. To bring about structural changes in the working of the domestic chemical industry, future investments should not only focus on the transportation of fuels such as petrol and diesel but also on crude-to-chemicals complexes or refineries set up to cater to the production of chemicals.  

Pros and strengths

Scalable business model: The company has a scalable business model as its business model is customer centric and order driven, and requires optimum utilization of its existing resources, assuring quality supply and achieving consequent economies of scale. The business scale generation is basically due to development of new markets and products in the domestic markets by exploring customer needs, marketing expertise and by consistent product quality.

Focus on quality and innovation: Its strength and success factor has been its constant focus on quality and innovation. To keep sailing unit, it stresses on, and it constantly strive to deal in only quality products procured from credible suppliers. As part of its quality management practice, it only delivers the products which have been quality certified.

Cordial Relationships with its suppliers: The company has a cordial relationship with its suppliers for supply of specialty chemicals, which provides it with the competitive advantage of effective and timely sourcing. Moreover, effective sourcing ensures timely delivery of its products to its customers, thereby enhancing the value provided to its customers.

Risks and concerns  

Majority revenue comes from limited customers: The company Majority of its revenues are dependent on few customers. The company has garnered 95.05%, 77.31% and 79.17% of its total revenue from its top 5 customers in FY24, FY23 and FY22 respectively. The company does not have any long - standing relationships with its customers, there can be no assurance that it may continue to be so in the future. In addition, as a consequence of its reliance on these customers, any adverse change in their financial condition may also have an adverse effect on its cash flows and business prospects. Such concentration of its business on few customers may adversely affect it in case it loses one or more contracts with these customers. Significant revenue from few customers increases the potential volatility of its results and exposes it to risks which may have an adverse effect on financial performance of its business.

Dependent on limited Suppliers for supply of raw materials and finished goods: The company is dependent on limited suppliers for supply of raw material and finished goods. The company procured 100.00%, 97.48% and 66.06% of its raw material and finished goods from top 5 suppliers. There can be no assurance that strong demand, capacity limitations or other problems experienced by its suppliers will not result in occasional shortages or delays in their supply. In the absence of long-term supply contracts, it cannot assure that a particular supplier will continue to supply to it in future. Any change in the supplying pattern can adversely affect its business, results of operations, financial condition and cash flows.

Significant amounts of working capital required for continued growth: The company’s business is working capital intensive and requires significant portion of working capital and major portion of which is utilized towards trade receivables and trade payables. Further, the company intends to continue growing by reaching out to newer clients/ customers and also increasing the sales in the existing customers base. Its growing scale and expansion may result in increase in the quantum of current assets. Its inability to maintain sufficient cash flow, credit facility and other sources of fund, in a timely manner, or at all, to meet the requirement of working capital or pay out of debts, could adversely affect its financial condition and result of its operations.

Outlook

Citichem India is engaged in buying and supplying organic and inorganic chemicals, bulk drugs, and food chemicals to the pharmaceutical industry. The company focuses on the direct supply of specialty chemicals, bulk drugs, and intermediate products. The company focuses on quality and innovation and has cordial relationships with suppliers & customers. On the concern side, majority of the company’s revenues are dependent on few customers and the loss of, or a significant reduction in purchases by such customers could adversely affect its financial performance. Moreover, the company is dependent on various kinds of Suppliers for the supply of raw materials and finished goods. Any change in the supplying pattern can adversely affect its business, results of operations, financial condition and cash flows.

The company is coming out with an IPO of 18,00,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 70 per equity share to mobilize Rs 12.60 crore. On performance front, total revenue from operations has decreased by 6.37% from Rs 2094.07 lakh in the fiscal year ended on March 31, 2023, to Rs 1960.58 lakh for the fiscal year ended on March 31, 2024. The company had consciously decided to concentrate on value added and high margin chemical products and move away from commodity chemicals which were low margin. This led to a reduction in overall revenues for the company. Moreover, profit for the period has increased by 208.42% from profit of Rs 36.26 lakh in the fiscal year ended March 31, 2023, to profit of Rs 111.83 lakh for the year ended March 31, 2024. Profit for the year increased due to decrease in expenses of the company.

The company’s vision is to grow in existing and new markets by ensuring supply of quality products. It intends to strengthen its position in India and further expand its operations internationally in regulated and semi-regulated markets in order to achieve long-term sustainable growth, increase brand value, achieve operational excellence, strengthening existing services, customer satisfaction, innovation and marketing etc. As part of its growth strategy, it intends to target regulated markets as well as enhance its presence in existing geographies. The company will continue to evaluate additional markets and product opportunities, including potential acquisitions and relationships which will be beneficial to increase its presence in Domestic Markets.