Aether Industries stuck in the upper circuit after being listed at 10% premium

Shares of Aether Industries were stuck in the upper circuit on Friday, after debuting at Rs 706 apiece on the BSE, a 10% premium to its issue price of Rs 642. The stock opened at Rs 704 on the National Stock Exchange (NSE).

As of 10:02 a.m., the shares were 21% above the issue price at Rs 776.75, with only buyers at the counter of the specialty chemical maker. A total of 3.8 million shares changed hands and there are pending buy orders for 1.2 million shares on the NSE and BSE, according to exchange data. By comparison, the S&P BSE Sensex rose 1% to 56,387 points.

The initial public offering (IPO) of Rs 800 crore was subscribed 6.26 times. The Qualified Institutional Buyer (QIB) category was subscribed 17.57 times, the Non-Institutional Investor category was subscribed 2.52 times and the Retail Investor category was subscribed 1.14 times.

Aether plans to use Rs 627 crore of new issue to fund capital expenditure needs of Greenfield projects, repayment of outstanding borrowings and general corporate purposes.

The Gujarat-based company focuses on the production of advanced intermediates and specialty chemicals that involve complex and differentiated chemistry with technology as core competencies. Analysts believe that Aether’s multiple chemistry skills to be used for a wide range of products make it a distinguished market player compared to other chemical companies.

According to Frost & Sullivan, Aether’s revenues for its key products have grown much faster than the industry, pointing to its ability to take market share from competitors, which are mainly in China.

“The company benefits from the relationships established with multinational, regional and local customers. In particular, the company offers to introduce new products with varied applications in all sectors. The company also seeks to connect with existing and potential customers where it can support them with its CRAMS and proprietary contracts/business models,” IIFL Securities had said in an IPO memo.

While the issue was valued at a P/E of 72.30 based on FY22 annualized figures, Aayush Agrawal, Principal Analyst, Swastika Investmart believes the company deserves this premium multiple due to its phenomenal growth prospects. After listing, long-term investors can accumulate the shares, he suggests.

ICICI Securities analysts also said that Aether is a niche player in the specialty chemicals industry and enjoys dominant market share in a few select high-margin products. However, they believe that valuations (~58.9x EV/EBITDA and ~72.4x P/E for 9MFY22 (annualized)) look demanding at the upper price range.

“The company derives a significant portion of its revenue from big-name customers without having long-term contracts with all of these customers. The reliance on certain industries for a significant portion of sales and the reliance on certain incentives to export,” the brokerage firm had said in an IPO memo.

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