Kronox Lab Sciences Limited will be soon launching its Initial Public Offering (IPO) on June 3, 2024, and will be closing on June 5, 2024. The company plans to sell its shares through a book-building process in a secondary IPO. The company aims to achieve the following through this offer to sell up to 95,70,000 equity shares by the promoter selling shareholders and list the equity shares on the Stock Exchanges.

About the company

Kronox Lab Sciences Ltd. (KLSL) manufactures high-purity specialty fine chemicals. Its products are used in various industries, such as pharmaceuticals, nutraceuticals, veterinary, food, biotech, chemical analysis, research, metallurgy, and personal care.

The Company offers over 185 products, including acetates, carbonates, chlorides, citrates, hypophosphates, nitrates, nitrites, phosphates, and sulphates.

These products are used as reacting agents and raw materials in the manufacturing of Active Pharmaceutical Ingredients (APIs), excipients in pharmaceutical formulations, reagents for scientific research, ingredients in nutraceutical formulations, process intermediates in biotech applications, ingredients in agrochemical formulations, ingredients in personal care products, and refining agents in metal refineries, among other uses.

KLSL manufactures products that comply with industry standards and also undertakes custom manufacturing to achieve high levels of purity as specified by the client.

The Company has served more than 592 customers and has a blue-chip customer list that includes Sanofi, Divi’s, Mankind Pharma, Lupin, Dr Reddy’s, Sun Pharma, and Zydus.

The Company’s portfolio comprises over 185 products, with another 122 products in the pipeline. KLSL’s export revenue has grown at a CAGR of 37.46% between Fiscal year 2021 and 2023.

As of December 31, 2023, it had 212 employees (including 155 on a contract basis) on its payroll.

Issue Details

• The company plans to sell its shares through a book-building process in a secondary IPO.

What is a secondary IPO and how it works?

When a company decides to go public and launch an IPO, it sells shares in the primary market to investors for the first time. This allows the company to raise funds.

After the shares are listed on the stock exchange, investors can buy and sell them in the secondary market.

In a secondary offering, the company may sell new shares to raise funds for research programs, debt payments, and other similar purposes. This type of offering refers to selling shares to potential buyers on the secondary market, and the sellers may be existing investors or the company itself.

• They aim to sell 9570000 equity shares at Rs. 10 each to raise Rs. 130.15 crore (at the upper cap). The price range for each share is set between Rs. 129 and Rs. 136. The IPO will be open for subscription from June 3, 2024, to June 5, 2024.
• Investors can apply for a minimum of 110 shares and multiples after that. After the allocation, the shares will be listed on both the BSE and NSE. The IPO represents 25.79% of the company’s post-IPO paid-up capital.
• This is an Offer for Sale (OFS), so the company will not receive any funds. The issue aims to provide some stakeholders with an exit opportunity and gain the benefits of listing.
• The IPO will allocate a maximum of 50% to QIBs, at least 15% to HJNIs, and at least 35% to retail investors. Pantomath Capital Advisors Pvt. Ltd. provides expert guidance for the IPO, and KFin Technologies Ltd. is the registrar for the issue.
• Pentagon Stock Brokers Pvt. Ltd. and Asit C Mehta Investment Intermediates Ltd. are the syndicate members for the IPO. Although the offer document does not include details about the underwriting arrangement, the company is committed to providing transparent information.
• The company initially issued equity shares at par and later issued bonus shares in the ratio of 161 for 1 in August 2022. The promoters/selling stakeholders acquired the shares at an average cost of Rs. 0.07 per share.
• As this is a pure OFS, the company’s paid-up capital will remain unchanged at Rs. 37.10 crore. The company’s stability, along with its strong performance, positions it for future success.
• Based on the upper cap of the IPO price band, the company is targeting a market capitalization of Rs. 504.61 crore, reflecting its potential for growth and value creation.

Financials of the company:

• Over the last three financial years, the company’s total revenue and net profit are as follows:

– FY21: Total revenue of Rs 63.24 crore, net profit of Rs 9.73 crore

– FY22: Total revenue of Rs 83.34 crore, net profit of Rs 1.36 crore

– FY23: Total revenue of Rs 97.5 crore, net profit of Rs 1.66 crore

– FY24 (9M): Total revenue of Rs 68.44 crore, net profit of Rs 1.55 crore

The company has consistently grown revenue and profit during this period.

• The average earnings per share (EPS) over the last three financial years is Rs. 3.71, and the average Return on Net Worth (RoNW) is 35.90%.
• The company’s issue is competitively priced at a price-to-book value (P/BV) of 8.37 based on its Net Asset Value (NAV) of Rs. 16.25 as of December 31, 2023.
• The post-IPO NAV remains the same. However, the IPO advertisement displays a post-IPO NAV of Rs. 12.04 based on the last completed fiscal year (March 31, 2023).
• This results in the issue being priced at a P/BV of 11.30. According to the lead manager, this aligns with revised SEBI guidelines on disclosures.
• If we attribute the annualized FY24 earnings to the post-IPO paid-up capital, the asking price results in a Price-to-earnings (P/E) ratio of 24.46. Based on the company’s financial performance, the issue is fully priced. 
• The market capitalisation of Kronox Lab Sciences Limited IPO is Rs 504.61 Crore
• The following financial information for Kronox Lab Sciences Limited, has been restated.

Amount in Crores (Rs.)

Period Ended	31-Dec-23	31-Mar-23	31-Mar-22	31-Mar-21
Assets	66.96	54.03	56.79	37.65
Revenue	68.44	97.5	83.34	63.24
Profit After Tax	15.47	16.62	13.63	9.73
Net Worth	60.28	44.68	40.35	26.81
Reserves and Surplus	15.56	7.58	40.11	26.57
Total Borrowing			0.64	0.01

Other Details:

The status of the Kronox Lab Sciences IPO allotment will be available on or around June 6, 2024.

The allotted shares will be credited to the demat account by June 7, 2024. You can check the allotment status on the Kronox Lab Sciences IPO website.

The Kronox Lab Sciences IPO listing date is not yet available. It will be listed on June 10, 2024, at BSE or NSE.

Objectives of the Company for IPO:

The company aims to achieve the following through this offer:

– Sell up to 95,70,000 Equity Shares by the Promoter Selling Shareholders.

– List the Equity Shares on the Stock Exchanges.

It expects this strategic move to:

– Enhance our visibility and brand image.

– Provide liquidity to our existing Shareholders.

– Establish a robust public market for Equity Shares in India.

IPO Details:

1) Kronox Lab Sciences IPO Details

IPO Date	June 3, 2024 to June 5, 2024
Face Value	Rs 10 per share
Price Band	Rs 129 to Rs 136 per share
Lot Size	110 Shares
Total Issue Size (aggregating up to Rs 130.15 Cr)	9,570,000 shares
Offer for Sale (aggregating up to Rs 130.15 Cr)	9,570,000 shares of Rs 10
Issue Type	Book Built Issue IPO
Listing At	BSE, NSE
Share holding pre issue	3,71,04,000
Share holding post issue	3,71,04,000

2) Kronox Lab Sciences IPO Reservation

Investor Category	Shares Offered
QIB Shares Offered	Not more than 50% of the Net Issue
Retail Shares Offered	Not less than 35% of the Net Issue
NII (HNI) Shares Offered	Not less than 15% of the Net Issue

3) Kronox Lab Sciences IPO Lot Size

Application	Lots	Shares	Amount
Retail (Min)	1	110	Rs 14,960
Retail (Max)	13	1430	Rs 194,480
S-HNI (Min)	14	1,540	Rs 209,440
S-HNI (Max)	66	7,260	Rs 987,360
B-HNI (Min)	67	7,370	Rs 1,002,320

4) Kronox Lab Sciences IPO Promoter Holding

Share Holding Pre-Issue	99.98%
Share Holding Post Issue	74.21%

Our Analysis or Verdict

Should Apply

The Kronox Lab Sciences initially filed a Draft Red Herring Prospectus (DRHP) for a combined Initial Public Offering (IPO) consisting of a fresh equity issue worth Rs. 45 crores and an offer for sale (OFS) of 7,800,000 equity shares. However, according to the Lead Manager, the Securities and Exchange Board of India (SEBI) returned this document. SEBI reasoned that the company has strong earnings and does not need additional cash, advising it to opt for the OFS route only. Consequently, the company reapplied for an IPO focusing solely on the OFS.

Financial Position

This Kronox Lab Sciences is debt-free and currently does not require any additional funds, indicating a robust financial position. The primary objective of issuing this IPO is to benefit from being listed on the stock exchanges.

Customer Base and Market Segment

The Kronox Lab Sciences boasts a prestigious list of blue-chip customers in the pharmaceutical industry, including Sanofi, Divis Laboratories, Mankind, Lupin, and Dr. Reddy’s. It operates in the high-purity specialty chemicals segment and enjoys a virtual monopoly in certain products.

Product Portfolio and Industry Outlook

The Kronox Lab Sciences has an extensive product portfolio featuring 185 products, with an additional 122 products in the pipeline. With the growing demand for specialty chemicals globally, particularly in major markets like China and India, the industry is experiencing exponential growth. The company has successfully adapted to changes in the chemical industry and is expanding its range of products accordingly.

Conclusion

Given Kronox Lab Sciences ‘s strong financial health, debt-free status, and strategic positioning in a rapidly growing industry, applying for this IPO could be a worthwhile investment. The company’s impressive list of blue-chip clients, extensive product portfolio, and market leadership in specialty chemicals further reinforce its potential. Thus, potential investors may find this IPO attractive for long-term gains.

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Disclaimer: Investing in the Equity market in India is subject to risks, i.e. the market keeps on fluctuating. This article is purely for educational purposes. The views expressed and data provided here are by Equitypandit’s team. Kindly do not completely depend on the information provided as the risk appetite differs from individual to individual and there are various other factors in the market to determine the factors to invest in the market.