Unpacking Anupam Rasayan!
Anupam Rasayan India Ltd's plans to go public has rightfully triggered a frenzied desire to know more about this company. After all a Rs 760 crore IPO is bound to attract investor interest.
To top it off, the Sensex seems to be on steroids. And added to the mix, is the recent success of several speciality chemical companies to provide greater than 20% returns on Day 1 of listing.
So when a relatively unknown Chemical industry player comes out in the open, there is reason for speculation, analysis and frantic search for information on this new entrant.
Dynamics of contract manufacturing in the Indian Chemical industry:
Anupam Rasayan has publicly declared its play in contract manufacturing for several customers including a few marque Japanese and European chemical companies. So it's important to understand how this space operates.
Several mid-sized chemical companies have evolved and stepped up the value chain, via contract manufacturing. This is especially true for off patent products which are in the mid or end of the Product Lifecycle of global MNCs' offerings.
This means the larger players prefer to encash the value from such products without setting up manufacturing in India. And the contract manufacturers promise on cost, quality and flexibility of production volumes, is what drives their success.
When it comes to the Agrochemical sector, where Anupam Rasayan has a big play, the need for all these 3 elements in its contract manufacturing capabilities is vital.
It's also interesting to observe that from the 1st plant to the 6th plant of Anupam Rasayan, the complexity, flexibility and finesse of operations has only evolved.
This augurs well for its operational growth in the future.
Management team makes or breaks the medium to long term play:
Very often it has been seen that home grown companies in India have benefited from the 1st generation entrepreneurs' smart moves and business connections. The next move up either is driven by a progressive set of 2nd generation of family leaders and/or a core setup of professional experts.
The easiest example is PI which has roped in a highly respectable leadership team and increasingly building on their tier 1 and 2 management levels with professionals who understand both chemistry and industry dynamics.
This is yet to be seen in case of Anupam Rasayan, which is still closely held within either the family or long term associates of the founders. The shift to grooming the next generation of family members, who are already in key positions, as well as onboarding of professional managers, will set the tone of the multiples that this company can potentially grow.
Sectoral presence is key to success
The Indian chemical industry is still in the nascent stage of development. The upside is huge in every sector from base chemicals to specialities.
If compared to Pharma, the evolution of small time capsule/tablet manufacturers to mega Indian and in few cases even global Pharma leaders hasn't been without hurdles. But it also illustrates the core strengths of industry players in India, irrespective of which government is at the centre or state level.
Image credits: Wikimedia commons
Similar is the situation of the Agrochemicals industry and several downstream speciality chemical businesses.
So in short, this is an excellent space for headroom growth.
Calculating your bets
When a relatively new player enters the market, both analysts and common public should look at the short term and medium term prospects from 5 main areas:
1. Potential of the industry space: The space that Anupam Rasayan is present in today has significant upside. So this is a definite plus.
2. Management capabilities & vision: This is still work in progress or is an area that needs more transparency that can only be available after listing.
3. Skill sets to succeed in the medium to long term: The impressive growth and manufacturing footprint developed over the years is a clear evidence of potential. The pace of change, given that the company started in the mid 70s to where it is now, is a topic of debate.
4. Ability to scale up: Several other industry players in the contract manufacturing space have demonstrated the ability to grow from few products and few marque clients to step jump in both production and technology capabilities. In the Agrochemical space where the developed markets are moving to traits based product development, a host of off-patent products coming to the developing countries is a huge opportunity for Indian players. Not only can contract manufacturing strike gold for local demand but also serve as a global/regional manufacturing hub for such products.
5. The shift from a marginal player to a central industry player requires significant investment in R&D, skilled manpower, product development successes and a host of other factors. For small and new entrants this is not a cake walk. It requires a complete rewiring, but the journey is still worth participating in.
Overall both the IPO and the industry is an interesting bet. May the best informed player win!
Disclaimer: All the opinions stated above are based on my personal beliefs and experience. I have no current investment or interests in this comapny. Sincere apologies in advance, if it infringes on anyone or any entities' prospects or plans. The contents can be corrected or amended or removed,if required, on request, if relevant and substantive information is provided.
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