A1 Acid IPO Review

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A1 Acid IPO

6.6

Company Background

7.0/10

Price Band

7.0/10

Financial Health

5.0/10

Industry Situation

6.5/10

IPO Proceeds Usage

7.5/10

Pros

  • Long Supplier Relations
  • Strong Team
  • Strategies in Place for Business Expansion

Cons

  • No Long Term Contracts
  • Unsecured Loans
  • Low Labour Set Up

A1 Acid Limited Basic Details

 

A1 Acid Limited Background

The company, incorporated on April 22, 2004, at Ahmedabad in Gujarat, is engaged in trading of high-quality industrial acid and chemicals. A wide range of products is offered by the company which are used in diverse sectors like chemical, textile, steel, aluminium and pesticides.

Transportation facilities are also provided by the company to their customers through a fleet of tankers owned by A1 Acid Limited. Some other sectors catered by the company include defence, metals and petro-refineries.

The company has two godowns/warehouses located in Gujarat and a branch office in Rajasthan.

The business is coming up with a small SME sized IPO worth ₹18 Crore.

A1 Acid IPO Data Points

A1 Acid IPO will open on 25th September 2018 and close for subscription on 1st October 2018.

The IPO size will be of 30 lakh Equity shares and the face value of each share will be ₹10.

Here is the segregation of all the opened equity shares for retail bidding:

  • Out of these 30 lakh equity shares, 1.56 lakh equity shares, aggregating up to ₹93.6 lakh equity shares will be reserved for market makers and;
  • Rest 28.44 lakh shares, aggregating up to ₹1706.4 lakh will be issued to the public.
  • Out of these 28.44 lakh equity shares, 14.22 lakh equity shares aggregating up to ₹853.2 lakh will be available for allocation to retail individual investors.

The price band range has been set at a fixed price of ₹60 per share. The offer price includes a share premium of ₹50 and is 6 times the face value of the equity shares.

The IPO size is expected to be up to ₹1800 lakhs or ₹18 Crore. The market lot size is of 2000 equity shares and the shares will be listed on the SME platform of the Bombay Stock Exchange (BSE SME).

Pursuant to a resolution passed on January 20, 2018, the issue has been authorised by the Board of Directors and pursuant to a special resolution of the shareholders at the extraordinary general meeting which was held on February 15, 2018, the offer had been approved by them.

A1 Acid Limited Financial Performance

The total assets of the company have been increasing over the last 3 financial years.

 

The revenues from operations of the company for the financial year ended March 31, 2018, decreased by 10.51% to 9459.91 Lakhs as compared to 10570.73 Lakhs in the financial year ended March 31, 2017.

For the same period, profit after tax decreased by 17.38% from ₹300.04 lakhs to ₹247.88 lakhs. The ‘Return on net worth (RoNW)’ numbers of the company for the fiscal years ended March 31, 2016, 2017 and 2018 are 11.14%, 26.54% and 17.98% respectively.

A1 Acid IPO Objectives

The main objectives of the A1 Acid IPO are as follows:

  • For funding of the working capital requirements of the company
  • For meeting expenses related to the  general corporate operations
  • For meeting expenses related to the IPO

Other than the above-mentioned objectives, through A1 Acid IPO the company will also benefit in terms of enhanced corporate image, brand name and increased visibility.

To give you an even more detailed idea, the working capital requirement requires an amount in the range of ₹13 Crores, the general corporate expenses will be around ₹3.52 Crore while rest of the proceedings will go towards IPO expenses (around ₹1.48 Crore).

A1 Acid IPO Events

A1 Acid filed the Draft Red Herring Prospectus (DRHP) with the Securities and Exchange Board of India (SEBI) on August 17, 2018 for the Fixed Price IPO.

The offer will open on 25th September 2018 and close on 1st October 2018. The finalisation of basis of allotment is expected to happen by 4th October 2018 and the initiation of refunds is expected to start by 5th October 2018. The transfer of shares to demat accounts is expected to start on 8th October 2018 and the expected listing date will be 9th October 2018.

A1 Acid IPO Recommendation

Let us now discuss some of the key strengths and risks related to the business of the company.

One of the biggest strength of the company is its highly experienced promoters who have been trying to grow the business in size as well as geographically.

Quality assurance and standards related to the products manufactured by them is another strength of the company. Also, they share good and long relationships with their suppliers which can help in increasing the future profitability of the company.

The company also has strategies in place to improve the results of the operations of the business like improving operational efficiencies, expand in new geographies, etc.

Now, let us look at some of the risks related to the company.

The company, group companies, promoters, Directors, etc. are involved in certain legal proceedings and any adverse ruling in them may pose a risk to the overall profitability of the company.

An office premise and the godowns are not owned by the company and has been taken on Leave and License basis which poses a risk of increasing operating costs in case of termination of the agreement.

As of March 31, 2018, the number of employees working for the company is only 8 and the labours are temporary and causal (around 70 in number) due to which the business may not be able to achieve a scalable operation of a business.

Due to the non-existence of any long-term contracts with the customers, the company may not be able to get future orders from them which will affect the profitability of the company.

The business runs the risk of fluctuation in the prices or unavailability of traded goods.

The company has shown negative cash flows many times in the last three fiscal years and if it continues to do so, it may affect the business of the operations adversely because the business is subject to high working capital requirements.

The company has unsecured loans by promoters of around ₹5.95 lakhs which is repayable on demand. Any demand of repayment may cause liquidity issues in the company and affect the business negatively.

Changes in preferences of customers may affect the financial health of the company as it would render the old stock obsolete.

From financial point of view, the company has not shown increasing profits in the last fiscal year. The revenues and profit after tax declined by some amount in fiscal 2018 as compared to fiscal 2017.

Investors should remain cautious and go through the Draft Red Herring Prospectus for any further details about the company. Investors may choose to avoid the A1 Acid IPO. However, if you have a reasonable risk appetite, then you may go ahead and invest in this IPO for a long-term return expectation.

In case you are looking to invest in A1 Acid IPO, let us assist you in taking the next steps forward. Just fill in some basic details in the form below:

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A1 Acid Limited Management Information

Currently, there are 7 Directors on the Board of A1 Acid Limited.

Harashadkumar Patel is the Promoter, Chairman and Managing Director of the company. He holds a Diploma in Mechanical Engineering from B & B Polytechnic, Vallabh Vidhya Nagar, Gujarat and possesses an experience of about 25 years and is responsible for acquisition of materials, marketing, management, and finance functions of A1 Acid Limited.

He has also been handed over the responsibility of growing the business in terms of size and geographies.

A1 Acid IPO Advisors Information

Guinness Corporate Advisors Private Limited is acting as Book Running Lead Manager to the issue. Cameo Corporate Services Limited is acting as the Registrar for the A1 Acid IPO.

Summary
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A1 Acid IPO
Overall Rating
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