Initial public offering of HP Adhesives hit the primary market on Wednesday to raise Rs 126 crore. The company is a fast-growing multi-product, multi-category consumer adhesives and sealants company. HP Adhesives has fixed a price band of Rs 262-274 for the initial share sale. The public offer will close on December 17.
The ongoing public offer received bids for 30,95,200 shares on the first day till 10.48 am (IST) against 25,28,500 shares offered by the company, indicating an oversubscription by 1.22 times. The objective of the offer is to fund the working capital requirements and capital expenditure for the expansion of production capacity at the existing manufacturing facility and to meet general corporate purposes.
Brokerages hold a mixed view on the IPO. Religare Broking believes that the company will benefit from industry tailwinds given its multi-product portfolio, strong distribution network and diversified customer base in both domestic and international markets.
“On the financial front, the company’s performance has been decent. As compared to its peers, the company’s valuation is at a discount. From a long-term perspective, we have a positive view on the company,” Religare Broking said in a report.
HP Adhesives reported strong growth in the past couple of years on a low base. During the last decade, its revenue and net profit clocked a CAGR of 38 per cent and 56 per cent, respectively. Over FY19-21, the company’s revenue and profit after tax clocked 16 per cent and 59 per cent CAGR, respectively, while the average RoCE stood at around 16 per cent.
On the other hand, Reliance Securities added that on FY22 annualised financials, the IPO is valued at 51.7 times EV/EBITDA, 3.8 times EV/sales and 64 times P/E, which is lower compared to the peer group average of 62.2 times EV/EBITDA, 11.2 times EV/sales and 94 times P/E, respectively.
However, the brokerage firm highlighted that HP Adhesives’ (HPA) margins and return ratios are much lower compared to peers, along with its smaller business size. Moreover, HPA’s brand equity is much lower compared to key peers in the Indian market.
“Going ahead, HP Adhesives expects to tap new product segments by leveraging its product quality and longstanding track record in the distributors’ network. Though the company’s long-term prospects look good with a strong business model, we believe the current valuation captures all positives and leaves hardly any meaningful upside for investors with stretched valuation,” Reliance Securities said.
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