Aether Industries IPO Fundamental Analysis (May Apply)

Aether IPO Review

Incorporated in Gujarat in the year 2013, Aether Industries Limited (the Issuer) is a speciality chemical manufacturer focused on producing advanced intermediates and speciality chemicals involving complex and differentiated chemistry and technology core competencies. The Issuer has three business models which involves: (i) manufacturing of intermediates and speciality chemicals; (ii) contract research and manufacturing services (“CRAMS”) and (iii) contract/exclusive manufacturing.
The products manufactured have applicationin the pharmaceuticals industry including hypertension, anti-platelet, anti-psychotic, anti-histamine and nonsteroidal anti-inflammatory drugs. The products are also used in other industries like agrochemicals, material science, coatings, high performance photography, additives, and oil & gas.
The advanced intermediates and speciality chemicals product portfolio were developed for the first time in India and constitute 100% import substitution, thus furthering the “Make in India” campaigns of the Government. The Issuer has export exposurewith 18 countries including Italy, Spain, Germany, the United States, and other parts of the world.
Revenue from exports (including deemed exports) have grown at a CAGR of 58.56% from Rs 100 crore in FY19 to Rs 251.7 crore in FY21 and it was ?280.4 crore for 9MFY22.
The Issuer has two manufacturing sites at Sachin in Surat. Manufacturing Facility 1 is 3500 sqmt which includes R&D Facilities, analytical sciences laboratories, pilot Plant, CRAMS facility and hydrogenation facility. Manufacturing Facility 2 spans across 10,500 sqmt and acts as a large-scale manufacturing facility with an installed capacity of 6,096 MT per annum.
During 9MFY22 and FY21, largest customer contributed 13.52% and 19.38%, respectively; top 10 customers contributed approximately 55.76% and 56.23%, respectively; and top 20 customers contributed 72.93% and 73.50%, respectively.
The Issuer operates under three business models-

Manufacturing of own products and R&D.
Contract research and manufacturing services (CRAMS)- It includes research and technology services that customers outsource and includes contract research, pilot scale-up services, contract manufacturing, FTE services, technology development and process development and optimization.CRAMS customers include Adama Group (Israel), Altana AG (Germany), Aramco Performance Materials LLC (US/Saudi Arabia), Austin Chemical Company, Inc. (USA), Avient Corporation (UK), BYK Chemie GmbH (Germany), Connect Chemicals (Germany), Milliken & Co. (USA), Polaroid Film BV (Netherlands), and Tosoh FineChem Corporation (Japan). Revenues from CRAMS business constituted 7.44% (9MFY22), 7.98% (FY21), 9.10% (FY20) respectively.
Contractual/exclusive Supply Agreements- Products are manufactured under customer contracts which are both short-term and long-term and involve both exclusive and non-exclusive arrangements. Revenues from this model contributed 21.85% (9MFY22), 19.38% (FY21), 7.39% (FY20) respectively.The clients includeAdama Group (Israel), Altana AG (Germany), BYK Chemie (Germany), Divis Laboratories Limited (India), Dr. Reddy’s Laboratories Limited (India), MoehsIberica SL (Spain) and UPL Limited (India).

Promoters of the Issuer are Ashwin Jayantilal Desai, Purnima Ashwin Desai, Rohan Ashwin Desai and Dr. Aman Ashvin Desai.

Financial Review

Aetherposted total revenues of Rs 449.32 crore for period ending 9MFY22 and PAT of Rs 82.91 crore for the same period. The total revenues increased by 49.38% to Rs 453.79 crore for FY21 as against Rs 303.78 crore in FY20. It posted PAT of Rs 71.12 crore in FY21 compared to Rs 39.96 crore in FY20. Profitability margins are strong throughout all the three years ranging between 25%-30% as can be seen in the table.

Return on net worth was 23,01%, 40.79%, 51.04% and 60.54% for 9MFY22, FY21, FY20 and DY19 respectively.

Debt is at a higher side of 0.65x equity for period ending 9MFY22 and it was 1.19x and 2.18x for period ending FY21 and FY20.

Table 1 - Financials and Ratios (Amount in Rs Crore)
Particulars	9MFY22	FY2021	FY2020	FY2019
Total Revenue	449.32	453.79	303.78	203.28
Revenue from operations	442.54	449.82	301.81	201.18
PAT	82.91	71.12	39.96	23.33
EBITDA	132.77	116.14	73.74	49.61
Total Assets	709.56	452.94	300.47	206.67
Cash flow from operating activities	2.4	23.2	17.7	22.74
EBITDA Margin	30.00%	25.82%	24.43%	24.66%
Net Margin	18.45%	15.67%	13.15%	11.48%

Valuation and peer comparison

The Issue is pricedat 64x its annualized earnings of 9.93 for 9MFY22 calculated at upper price band of Rs 642 per share. If FY21 earnings are considered the IPO is valued at P/E of 87x. P/BV is 20.08x with NAV of 31.97 for 9MFY22.The peer average P/E is 83x which indicates that the Issue is fully priced. NavinFlourine, Vinita Organics, Clean Science and Technology, PI Ind and Fine Organics are the listed peers as per the RHP. Detailed comparison can be seen from the peer comparison table below.

Table 2 - Listed Peer Comparison
Particulars	Clean Science	NavinFlourine	Vinati Organics	PI Ind	Fine Organic	Aether
Face Value/share	1	2	1	1	5	10
Total Income for FY21 (Cr)	538.05	1258.44	980.1	4701.9	1150.3	453.8
EPS (FY21)	18.68	52.03	26.2	49.89	39.25	7.36
NAV per share	50.84	330.06	150.16	352.13	238.55	15.69
Return on net worth	36.74%	15.76%	17.45%	13.82%	16.45%	40.79%
P/E (FY21)	100.08	73.96	74.96	55.62	112.10	NA

Conclusion and Investment Strategy

Aether Industries offers a wide array of products which caters to niche and advanced intermediate requirements of a wider range of end-products and applications.As of March 31, 2022, the Issuer’s product portfolio comprised over 25 products. The Issuer is the sole manufacturer in India of 4MEP, MMBC, T2E, OTBN, NODG, DVL and Bifenthrin Alcohol.

The Issuer has satisfactory financial performance with rising profitability margins. However, debt is on a higher side currently, but the management stated that the company would be debt free in the coming years. The company has a majority clients in the pharma sector and is focused on diversifying its presence in other sectors as well.The Issue appears to be fully priced when compared to its peers and a minimal is left on the table for the investors. Hence, considering all the factors one may apply to the Issue.An investor shall consider the volatile conditions prevailing in the market and may also analyse other options in the secondary market like its peers which might be available with similar valuations.

Reviewer recommends May Apply to the issue.

Review By CA Priyanka Choudhary on 18th May 2022

Review Author

About CA Priyanka Choudhary

CA Priyanka Choudhary, a freelance chartered accountant

Priyanka Choudhary Jain is a Chartered Accountant and an experienced credit analyst. She has worked with CRISIL as Senior Credit Analyst on ratings assignments including business and financial analysis in Corporates as well as the Public Finance Sector.

Email: [email protected]

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk. Investors should bear in mind that any investment in stock markets are subject to unpredictable market related risks. Above information is based on RHP and other documents available as of date coupled with market perception. Author has no plans to invest in this offer.