Omkar Speciality After Public Issue

Omkar Speciality Chemicals


Q1 results good

Omkar Speciality Chemicals has produced good results for the quarter ended 30.06.11 as compared to the quarter ended 31.03.11. Revenue has increased sizeably from Rs.31.14 crore to Rs.42.56 crore. Revenue for the whole year 2010-11 was at Rs.106.76 crore. Net profit has jumped from Rs.2.97 crore to Rs.4.02 crore. Net profit for the year 2010-11 was at Rs.10.14 crore. Operating profit margin was maintained at 21%. Net profit margin was also almost at the same level of 9.5%. The company is engaged in the manufacture of speciality chemicals. The shares of Omkar Speciality Chemicals are traded in the Indian stock markets at Rs.65.45 now (09.11.11). The highest price recorded by the shares of the company during the last one year was at Rs.101 on 10.02.11 and the lowest price was at Rs.26.65 on 22.03.11.

Share price plummets on listing

The company’s shares plummeted by nearly 53% from the issue price on listing in the Bombay Stock Exchange. The issue price range was Rs.95 – Rs.98. The company collected Rs.79 crore from its IPO. Those who had invested in the company’s public issue would have lost heavily now. Omkar Speciality Chemicals plans to utilise the proceeds of the public issue to set up a new manufacturing facility at Badlapur, Maharashtra State in India. The company is also planning to expand its existing production facility. It will also utilise part of the proceeds of the public issue to augment its working capital. Omkar Speciality Chemicals has allotted 50% of the issue to qualified institutional investors (QIBs), 35% to public retailers and the remaining 15% to non institutional investors.

Weakening of rupee will affect the company

At its production facility Badlapur MIDC, the company has three production units. Omkar Speciality Chemicals manufactures niche value added inorganic and organic chemicals. The company produces pharmaceutical intermediate chemicals like the derivatives of iodine, selenium, molybdenum, tartaric acid and cobalt. The speciality chemicals produced by the company caters not only to the pharma sector, but also to various other segments like glass, chemicals, pigments, cosmetics and ceramics. The company depends on imports for its raw materials. But it sells its products in the domestic Indian market. Therefore the weakening of the rupee against the dollar will impact on the company much more. The company derives nearly one third of its sales by supplying its speciality chemicals to Dr. Reddy’s Laboratories. It also supplies to other important pharmaceutical companies like Ranbaxy, Cipla and Glenmark among others.

Capacity expansion

Before the public issue, Omkar Speciality Chemicals had a production capacity of 750 tonnes per annum. The company wants to augment its production capacity to 3650 tonnes per annum in the next 20 months. Out of this, 200 tonnes per annum capacity addition was planned by March 2011 and the rest before September 2012. During the last five years, Omkar Speciality Chemicals grew at a CAGR (Compounded Annual Growth Rate) of nearly 30% in terms of sales turnover. Net profit grew even more impressively by around 40%. The company’s debt equity ratio was high before the public issue. After the public issue, it has come down. Omkar Speciality Chemicals enjoys a monopoly status in most of its products.

Fit only for medium to long term investment

At the present market price of Rs.65, one can enter the company’s shares only for investment for medium to long term. This is because the company’s capacity expansion will take place by September 2012 if there is no time delay. After this, stability of its operations will take time. However, if one is patient and prepared to wait for two to three years, the investment at the current market price offers decent returns.

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