Sanstar’s business appeal offset by aggressive pricing

ET Intelligence Group: Ahmedabad-based Sanstar is the fifth-largest manufacturer of maize-based speciality products and ingredient solutions. The company is rolling out a ₹510-crore IPO comprising a fresh issue of ₹397 crore and an offer of sale of ₹113 crore. The public offer represents 29% of the post-IPO paid-up capital of the company. The proceeds of the issue will be used to fund expansion and repay debt.

Business: Set up in 1982, Sanstar is a third-generation family business involved in manufacturing maize starch, dried and liquid glucose, gluten, fibre, and enriched protein. These ingredients have functionality in the packaged foods industry, animal nutrition products, and industrial products. Sanstar is a supplier to leading FMCG companies such as Hindustan Unilever, ITC and Nestle. Nearly 60% of the company’s revenues are earned from the food industry. The company earns over a third of its revenues from exporting to 49 countries. It has an installed capacity of 1,100 tonnes per day through its two manufacturing facilities at Kutch in Gujarat and Dhule in Maharashtra.

Financials & Growth Prospects: The company’s revenues have doubled from ₹504 crore in FY22 to ₹1,067 crore in FY24. Its net profit improved significantly from ₹16 crore to ₹67 crore during the same period. The Ebitda margin improved from 7.9% to 9.2%. Turbine maintenance for around 45 days impacted Sanstar’s revenues and margins in FY23.

The company has undertaken the expansion of its Dhule facility, which will double its capacity by next fiscal year and make it the country’s second-largest manufacturer of its products.

The company has one of the lowest working capital cycles in its industry and is expected to become debt-free within a couple of years.

Valuations: At an implied market cap of over ₹1,730 crore, the IPO values the company at 1.6 times its FY24 revenues and 26 times FY24 earnings. This is aggressive pricing when compared to the company’s size and peers. Sanstar’s larger listed peer, Gujarat Ambuja Exports is trading at a PE of 19 and its market cap is 1.2 times its FY24 revenues. Investors may wait for Sanstar’s post-expansion performance before considering an investment.

Raises ₹153 cr from Anchors

Sanstar raised ₹153 crore from 13 anchor investors on Thursday, ahead of its IPO. The company offered 16.1 million shares at ₹95 apiece. BofA Securities, Societe Generale, Bank of India Mutual Fund and Trust Mutual Fund were among some of the anchor investors.