Neochem Bio IPO: Rs 45 Cr Fundraise Opens! Key Risks & Valuation Revealed for Smart Investors

Neochem Bio Solutions is entering the primary market with its Initial Public Offering (IPO), aiming to raise approximately Rs 44.97 crore. This offering is entirely a fresh issue of 0.46 crore shares, targeting investors looking for opportunities in the Small and Medium Enterprise (SME) segment of the stock market.

Issue Details

• The IPO bidding period will conclude on December 4th. The company has established a price band for its equity shares, ranging from Rs 93 to Rs 98 per share.
• Allotment of shares is anticipated to be finalised by December 5th, with the company's stocks scheduled to list on the NSE SME platform on December 9th, according to the tentative timeline.

Key Risk Factors

Investors are advised to be aware of several critical risks associated with this IPO:

• Single Manufacturing Unit Dependence: The company's sole manufacturing facility is located in Moraiya, Ahmedabad. Any disruption or shutdown at this crucial unit could significantly hamper business operations. The nature of chemical manufacturing also involves inherent hazards with volatile and flammable materials.
• Substantial Working Capital Requirement: The business model necessitates high working capital due to the time lag between purchasing raw materials and receiving payments from customers. Any failure to secure adequate working capital could impede future growth and affect financial stability.
• Delayed Customer Payments: Neochem Bio Solutions faces the risk of delayed payments from its customers. The company reported trade receivable days of 149 days for the six-month period ending September 30, 2025, indicating a potential liquidity strain.
• Past Negative Cash Flows: The company has experienced negative cash flows from its operating, investing, and financing activities in previous fiscal years, including Rs 34 lakhs in FY23 and Rs 30 lakh in FY24, which could impact its ability to manage working capital needs and debt repayment.

Issue Objectives

The proceeds from the IPO are earmarked for specific purposes:

• A significant portion, Rs 23.90 crore, will be allocated to fund long-term working capital requirements.
• Rs 10 crore will be used for the repayment of certain outstanding borrowings.
• The remaining funds will be utilized for general corporate purposes.

Valuation Metrics

Neochem Bio Solutions has shown a notable increase in net profit ahead of its IPO. The company reported a net profit of Rs 7.75 crore in FY25, a substantial jump from Rs 1.80 crore in FY24 and Rs 1.07 crore in FY23. Key financial metrics include a Return on Equity (ROE) of 48.4% and a Return on Capital Employed (ROCE) of 27.2%. The Earnings Per Share (EPS) has also seen significant growth, rising to Rs 11.61 in FY25.

Comparing its valuation to the specialty chemicals industry, which has an average P/E ratio of 50.20 times, Neochem Bio Solutions appears attractively valued with a P/E ratio of 14.76 times at the upper price band. Competitors like Rossari Biotech trade at a P/E of 26 times, while Indian Emulsifiers trades at 8.83 times.

About Neochem Bio Solutions

Established in 2006, Neochem Bio Solutions is a manufacturer of specialty performance chemicals. Its products are vital across various industries, including textile & garment washing, home & personal care, industrial cleaners, water treatment, paints & coatings, paper & pulp, construction, rubber, and dyes & pigments.

Impact

This IPO provides an opportunity for investors to participate in a growing specialty chemicals company. However, the inherent risks associated with SME IPOs, such as liquidity issues and business-specific vulnerabilities, require careful consideration. The successful deployment of IPO funds towards working capital and debt repayment could strengthen its financial position. The market reaction will depend on investor appetite for risk in the SME segment and the company's ability to mitigate its identified risks.

Impact Rating: 6/10

Difficult Terms Explained

• IPO (Initial Public Offering): The first time a private company offers its shares to the public, becoming a listed entity.
• SME IPO: An IPO specifically for Small and Medium Enterprises, listed on specialized exchanges or segments like NSE SME or BSE SME, often with simpler listing norms but higher risk.
• Fresh Issue: When a company issues new shares to raise capital through an IPO.
• Price Band: The range within which the shares of a company will be offered during an IPO.
• Equity Share: A type of stock that represents ownership in a company, giving the holder voting rights and a claim on assets and earnings.
• Allotment: The process of distributing shares to investors who have successfully applied for them in an IPO.
• Listing: The official admission of a company's shares to be traded on a stock exchange.
• ROE (Return on Equity): A profitability ratio that measures how much profit a company generates with the money shareholders have invested.
• ROCE (Return on Capital Employed): A profitability ratio that measures how efficiently a company is using its capital to generate profits.
• EPS (Earnings Per Share): A company's net profit divided by the number of outstanding shares.
• P/E Ratio (Price-to-Earnings Ratio): A valuation metric that compares a company's share price to its earnings per share. It indicates how much investors are willing to pay for each dollar of earnings.
• Lot Size: The minimum number of shares an investor can apply for or trade in an IPO or on the stock market.
• Book Runner: The investment bank(s) that manage the IPO process, including underwriting and marketing the offering.
• Registrar: An agent appointed to manage share applications, allotments, and other administrative tasks related to an IPO.
• Market Maker: An entity that provides liquidity by quoting both buy and sell prices for a security, ensuring shares can be traded more easily.