ICRA has assigned an IPO Grade 1 to the proposed initial public offering of Chemcel Biotech Limited (CBL), indicating poor fundamentals. ICRA assigns IPO gradings on a scale of IPO Grade 5 to IPO Grade 1, with Grade 5 indicating strong fundamentals and Grade 1 indicating poor fundamentals. The IPO Grade 1 assigned by ICRA reflects CBL's small scale of operations, the high intensity of competition in the fragmented agrochemicals industry, the company's extremely high working capital intensity, the vulnerability of its earnings to agro-climatic conditions and development of pest resistant GM crops, the uncertainty over the viability of the biodiesel venture because of issues relating to availability and price of the feedstock and it's below average corporate governance practices. However, ICRA also believes that CBL benefits from its proximity to the large pesticides market in AP and the considerable experience of its promoters in the agrochemicals business.
Company Profile:
Chemcel Biotech Limited (CBL) was set up in 1995 by Mr. Kanuparthi Balakrishna Rao and Mr. K.T.Vijaya Kumar, to manufacture agrochemical formulations (pesticides). The company operates in coastal AP, largely a paddy growing region. The company's crop exposure stands at 40% paddy, 40% cotton & chillies, and 20% pulses. CBL plans to set up a biodiesel plant at Kondapalli, which is expected to be partly funded by the IPO proceeds. It will also utilise a part of the IPO proceeds to meet its working capital requirements for agrochemicals and to repay working capital loan taken from Union Bank of India.
