The Hindu Business Line : Gwalior Chemical Industries: Invest at cut-off

Investors with a medium-term perspective can consider subscribing to the initial public offering of Gwalior Chemical Industries. At the upper end of the band, fixed between Rs 71-85, the company is offering shares at 13 times its FY-06 earnings on an expanded equity base. Gwalior Chemical plans to sustain its aggressive growth by focusing on forward integration and overseas markets. A diversified client base and healthy demand from user industries are positive elements .

Gwalior Chemical's growth prospects primarily depend on the agro-chemicals, dyes and flavour and fragrance industries. It also caters to the pharmaceutical industry, which contributes about 10 per cent of its revenues. Benzaldehyde and thionyl chloride contribute the chunk of Gwalior Chemical's revenues. Benzyl alcohol, which generates 20 per cent of its revenues, contributed to a large part of Gwalior Chemical's 25 per cent revenue growth in FY-06.

Aided by a surge in revenues, Gwalior Chemical posted a 20 per cent growth in earnings for FY-06. The company has consistently maintained strong operating margins; however, this is susceptible to fluctuations as prices of toluene — a key feedstock — tends to move in tandem with prices of crude oil.

Gwalior Chemical's high debt-equity ratio is a cause for concern. Its long-term debt repayment schedule and interest coverage ratio, however, provide confidence.

Gwalior Chemical Industries plans to deploy a significant part of the proceeds in expansion and de-bottlenecking of its current product lines. It also proposes to utilise about Rs 16 crore for setting up facilities to manufacture benzyl esters and acid chlorides.

Details of the offer: Gwalior Chemical is offering shares worth Rs 80 crore within a price band of Rs 71-85. JM Morgan Stanley is the manager to the offer and Intime Spectrum the registrar. The offer opens on September 11 and closes on September 14.

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