Anupam Rasayan, a custom synthesis (CSM) speciality chemicals operator, has returned 70 per cent since listing in March 2021, including a 30 per cent gain over the last one month as the company unveiled its growth plans. It is now trading at a valuation of 36 times FY24 earnings.

Investors can gain from exposure to Anupam Rasayan in the speciality chemicals basket, based on growth in existing business, addition of new business and expansion in fluorine segment. But investors should accumulate on dips of 10-15 per cent, making use of broader market fall to offset any risks arising from a delay in execution by the company. Anupam Rasayan’s valuations are also at a premium compared to SRF and Gujarat Fluoro by 71 and 103 per cent, respectively, on a trailing basis.

The company derives 80 per cent of its revenues from agrochem and other life science clients, including pharma, and 20 per cent from other speciality chemicals. It partners patented innovators, recently off patent manufacturers and generics in the ratio of 30:40:30 per cent and does so mostly without a tech-package from the client (manufacturing knowhow). The 25-30 per cent EBITDA margin range, near zero client loss and periodic contract renewals indicate the value-added segment the company operates in.

Growth levers

Anupam Rasayan expects to sustain its high revenue growth momentum (25 per cent in FY22) in the next three years based on current business, new LOIs/contracts (letter of intent) signed in FY22 and expansion in fluorine chemistries and clients.

The base business centred around agrochemicals is now partnering leading clients, including from Japan, the US and Europe. Validation by clients is done over several years, with Anupam Rasayan clearing the barrier with several multinational clients. With only a few end-users dominating the agrochemicals space internationally, with significantly lower generics threat compared to pharmaceuticals, the company can have healthy revenue visibility from these clients. The company supplies intermediates from product development stage to commercialisation stage based on contracts that allow for price pass-through and healthy margins.

Anupam Rasayan is witnessing a healthy tailwind from ‘Europe plus one’ strategy as clients migrate key vendors to India owing to energy constraints in Europe. This allows the company to drive volume growth in existing products, adding more products per client along with price growth that protects its margins.

In new businesses, the company has signed several LOIs/contracts totalling ₹2,600 crore spread over five years or close to ₹500 crore per year (30 per cent of TTM revenues) at peak utilisation in 2-4 years. It is adding capacity worth ₹250 crore for these contracts, of which four products have already been commercialised from existing facilities. As the full capacity is commercialised in 18-24 months, the full value of the LOIs can be added to revenues. These products should bear the same revenue visibility and margin profile of the base business. This can also be ascribed to an acceleration in ‘Europe plus one’ strategy and Anupam Rasayan, with proven legacy, is bagging the opportunity.

Fluorine-based chemistry is finding wide applications in life sciences, polymers, and pharmaceuticals owing to its binding with carbon. The added complexity in handling chemicals and developing a commercialised manufacturing process is a considerable barrier that a few — namely, SRF, Navin Fluorine and Gujarat Fluorotech — have overcome . Anupam Rasayan generates 15 per cent of revenues based on fluorination currently and its recent backward integration has earned significant potential for it in this space.

Anupam Rasayan acquired (controlling) stake of 25.8 per cent in Tamil Nadu-based Tanfac Industries from Birla Group Holdings for ₹148 crore and is now a co-promoter with Tamil Nadu Industrial Development Corporation Ltd. This allows for supplies of hydrofluoric acid, which is valued over commonly available potassium fluoride. Clients who need supply guarantees of the volatile molecule have also greenlighted several fluorine molecules for development with Anupam Rasayan, post-acquisition last year. In the first leg, the company has earmarked ₹420 crore of capex for two plants, identified 6-7 molecules from a portfolio of 14 molecules for commercialisation, along with the above-mentioned capex plans. At peak utilisation of the facilities in 2-4 years, over the portfolio of products in development, the company can generate $220-250 million ( ₹1,900 crore per year) from this segment.

Valuation, financials and risks

The company raised funds of ₹500 crore through a QIP in October 2022 to fund the capex and is currently fully funded for the capex programme. As of H2FY23 it reported net debt of ₹657 crore (net debt to EBITDA of 1.75 times) and with continuing capex commitment of equal measure, debt levels should be monitored, despite high profitability and improving working capital situation.

The stock, trading at 36 times FY24 earnings, has more than factored the positives of the company and may have ignored the risks. Company-specific risks include developing fluorine molecules with supplies from Tanfac - Tamil Nadu, the commercialisation of the expected LOIs/contracts and full-scale realisation from capacities being developed on ground. We recommend investors accumulate Anupam Rasayan on softening of current price/valuations, which should price in the above-mentioned risks along with broader market risks.