FIrst of all, we are not quite sure why Ambani Organics is called Ambani Organics considering its promoters are Mr. Rakesh and Mrs. Apooni Shah. But they have decided to call it that and we must say it has indeed got a nice ring to it.
Ambani Organics Limited is a manufacturer, processor, importer, supplier and exporter of water based speciality chemicals used in Paper Industry, Paint Industry, Textile Industry, Carpet Industry, Adhesive Industry, etc. Now, what are specialty chemicals? Well, these are special chemicals used in paints, papers and adhesives. They started operations back in 1987 and have been in business for quite some time.
But today, the company admits that there is intense competition from both the organized and the unorganized sector. What this means is that, the company cannot dictate terms to its customers and suppliers and as such will have to offer better credit periods to its customers to get more business.
This in turn puts pressure on meeting its working capital requirement and the company will have to raise more money to scale up their business. This is where your money will go if you were to invest in the IPO. The company will use most of the proceeds to fund its working capital for the next year.
|Particulars||Holding Levels (FY 17-18)||Estimated Holding Levels (FY 17-18)|
|Inventories||70 days||79 days|
|Trade Receivables||102 days||112 days|
|Trade Payabales||119 days||105 days|
Since we have already spoken about the company’s pursuit for top line growth, let us talk about their financials. The company’s top line has in fact been growing for the past few years. Their profits too have followed the same path although margins have largely remained very slim. They did make losses in the financial year ending 2015 and 2016. This, the company says was due to a fire in the facility that affected business operations and hence, a one-off phenomenon.
The DRHP doesn’t provide us with details on how the promoter expects to improve margins except asserting that the company has started to focus on high margin low volume products off late. This, they say is also the reason why the company hasn’t been able to utilize their capacity fully. Here is a chart describing the company’s capacity utilization, it continues to hover around 50%, and the promoters expect it to stay that way.
The company says it does. Considering it’s a manufacturer of specialty chemicals, the company can charge a premium if it offers a better alternative to existing options. The only way to achieve this is however is through research or collaborations that will yield similar results.
Now we poured through the DRHP and we couldn’t find how much money they had allocated to research. We checked if research was clubbed together with Other Expenses and the DRHP explicitly states that other expenses include fuel charges, electricity expense, Terminal Handling & Vassal Charges, packing expenses, carriage inward etc. No mention of research again. So, even if the company is spending on research we can’t really say how much.