HP Adhesives Ltd - IPO Note

Specialty Chemicals

HP Adhesives Ltd - IPO Note

Specialty Chemicals

Price range
Rs. 262 to 274
Issue Period:
Dec 15, 2021
Dec 17, 2021
December 15, 2021

Stock Info

CNX Nifty
Face value (Rs.)
Market lot
Issue size
Rs. 126 cr.
Public Issue
0.46 cr. shares
Market cap post IPO
503 cr.
Equity Pre - IPO
14.23 cr.
Equity Post - IPO
18.37 cr.
Issue type
Fresh issue & OFS

Shareholding (Pre IPO)

Source: Ace equity, StockAxis Research

Shareholding (Post IPO)

Source: Ace equity, StockAxis Research

Key Strengths & Strategies

Established brand presence with consistence performance:
Company has grown from a single product to a multi- product adhesives company with sales across India and also in international markets.

Revenue from operations has grown from INR 3.55 Cr in Fiscal 2010 to INR 118.16 Cr in Fiscal 2021, registering a CAGR of 37.5% in last 11 years. Over the years, Company’s brands “HP” and “Strong Weld” in PVC adhesives product category have gained increasing acceptance on account of high product quality and efficient pricing.

Despite Fiscal 2021 being impacted by COVID-19, their revenue from operations have grown by 23.8% between Fiscal 2020 to Fiscal 2021. This brand image has enabled them to introduce newer product categories through the existing distribution network initially and then to a larger customer base with an established goodwill. Increasing acceptance in newer product categories due to high quality and efficient pricing has further established Company’s brand reputation.

Diversified Product Portfolio with multiple SKUs:
Over last few years, the company have expanded the product portfolio to multiple product categories including silicone sealants, synthetic rubber adhesives, PVA adhesives and other sealants. During FY21, PVC, cPVC and uPVC solvent cement generated revenues of Rs. 84 crore which represents about 70.44% of total sales. Silicone sealants, introduced in the year 2019, contributed approximately 7.99% in total revenue. PVA adhesives and synthetic rubber adhesives, introduced in the year 2018, together contributed about 5.33% in total revenue.

Within each product category, they have multiple SKUs in terms of grades, pack sizes for various applications thereby enabling them to meet the needs of diverse customer base. In PVC, cPVC and uPVC solvent cement, they have 295 SKUs. Similarly in silicone sealants, they have 16 SKUs. In PVA adhesives, they have 75 SKUs. With wide range of SKUs from 10 ml tubes to 200 litre drums help them to cover both small jobs as well as project applications.

Wide pan India distribution network with diversified sales:
Company’s distributors cater to retailers who, in turn, make the product available for end-users (typically plumbers, carpenters, masons, glazing contractors, etc). Their sales team services the retail network through the distributors by making regular visits.

For the financial year ended on March 31, 2021 and six months period ended on September 30, 2021, out of total revenue from operations, sales to distributors were about INR 85.73 Cr and INR 52.93 Cr respectively which represents 71.52% and 74.06% respectively of the total sales.

They have more than 750 distributors and no distributor constitutes more than 5% of the total sales in Fiscal 2021. Top 10 distributors contributed not more than 20% of total sales in Fiscal 2021. Their distributors are also spread across the country having presence in 23 states and 4 union territories.


Peer comparison

Particulars (Rs. in Crores) FY21 Revenue CAGR (FY19 - FY21) EBITDAM (%) PATM (%) RoE (%) RoCE (%) EPS PE (x)
HP Adhesives Ltd 16.00% 10.13% 8.51% 79.50% 31.60% 7.74 35.40
Pidilite Industries Ltd 1.51% 23.00% 15.50% 22.50% 29.40% 22.26 89.10


Volatility in raw material prices:
The principle raw material for the company are solvents, resins and other additives that are manufactured using derivatives of crude oil. Prices of these raw materials are subject to changes in the prices of crude oil and other petrochemical intermediates which are linked to international prices and are susceptible to significant volatility from time to time.

Working capital intensive nature:
The company’s operations are working capital intensive with operating cycle in the range of 3-4 months. As a result, it is required to maintain sufficient stock at all times in order to meet manufacturing requirements as well as extend credit period to customers as per the industry practice, thus increasing storage and working capital requirements.

Absence of long term contracts:
The company does not have long- term agreements with suppliers for raw materials, and an inability to procure the desired quality, quantity of raw materials in a timely manner may have a material adverse effect on business.

Company Description

HP Adhesives Ltd (HPAL), is a consumer adhesives and sealants company. It is among the leading manufacturing companies in India in PVC solvent cement adhesives. It manufactures a wide range of products such as PVC, (Poly Vinyl Chloride) cPVC and uPVC solvent cement, synthetic rubber adhesive, PVA adhesives, silicone sealant, acrylic sealant, gasket shellac, other sealants and PVC pipe lubricant which are sold across India.

The company also manufactures products for select large PVC pipe manufacturing companies under co-branding or private label on order basis. They also sell ancillary products like ball valves, thread seals and other tapes, products for drainage and architectural solutions through its distribution network.

Adhesives and sealant products have applications in multiple industries such as plumbing and sanitary, drainage and water distribution, general purpose building/ construction and interior operations as well as for glazing operations, woodwork, footwear, automotive, foam-furnishing and other varied industries. As of September 30, 2021, their distribution network comprised 4 depots situated in Delhi, Kolkata, Bengaluru and Indore and more than 750 distributors who cater to more than 50,000 dealers in India.


The consumer adhesives industry clocked in 8-10% CAGR between FY15-20. In FY21, the market was valued at Rs 53-55bn and it de-grew by 1-2% due to the pandemic-led reduced construction activity. However, it is expected to recover strongly in H2FY22 driven by a pickup in infrastructure and construction activity and rising demand from end-user industries such as packaging, electronics and woodworking.

Going forward, company intends to continue to introduce new product categories, expand manufacturing facilities as well as increase distribution network. On the financial front, the company’s performance has been decent. At the upper price band of Rs 274, the PE works out to be 35.4x to its FY21 earnings. On TTM EPS on post-issue equity of Rs 18.37 crore works out to Rs 5.6. At the upper price band of Rs 274, P/E works out to 49.2. Listed industry peer of the company is Pidilite Industries. As of 9 December 2021, Pidilite Industries trades at TTM P/E of 85.7. However, this company is not truly comparable on an apple-to-apple basis.

We believe the company will benefit from industry tailwinds given its multi-product portfolio, strong distribution network and diversified customer base in both domestic as well as international markets. We recommend SUBSCRIBE to the IPO.

Key Information

Use of Proceeds:
Company is doing Fresh issue and Offer for sale. The issue of Rs 125 cr comprise of fresh issue & offer for sale of Rs 113 cr and Rs 12 cr respectively.

The Issue will be utilized for:

  • CAPEX for proposed expansion (Rs 25.51 crore)
  • Working capital requirements (Rs 54 crore).
  • Balance towards general corporate purposes

Book running lead managers:
Unistone Capital Pvt Ltd

Karan Haresh Motwani currently holds the position of Managing Director of the Company. He has completed Bachelor of Management Studies from Narsee Monjee Institute of Management Studies, Mumbai and the Post Graduate Programme in Management from S.P. Jain Institute of Management & Research, Mumbai. Anjana Haresh Motwani, with over 40 years of experience in the adhesive industry, currently designated as the Executive Director and Chairperson of the Company.

Financial Statement

Profit & Loss Statement:- (Consolidated)

Particulars (Rs. in Crores) FY19 FY20 FY21
Revenue from Operations 87.42 95.48 118.16
COGS 57.12 62.19 81.22
Gross Profit 30.30 33.29 36.94
Gross Margin (%) 34.66% 34.87% 31.26%
Employee Benefit Expenses 9.38 12.69 14.74
Other Expenses 12.77 16.11 10.23
EBITDA 8.14 4.49 11.97
EBITDA Margin (%) 9.32% 4.70% 10.13%
Depreciation 0.74 1.90 1.90
EBIT 7.41 2.60 10.07
EBIT Margin (%) 8.48% 2.72% 8.52%
Finance Cost 3.91 2.95 2.55
Oher Income 0.56 2.43 5.72
Profit Before Exceptional Items & Tax 4.06 2.08 13.23
Exceptional Items - 7.44 -
Profit Before Tax 4.06 -5.36 13.23
Tax 0.06 -0.69 3.17
Effective Tax Rate (%) 1.44% 12.87% 23.96%
Profit After Tax 4.00 -4.67 10.06
PAT Margin (%) 4.58% -4.89% 8.51%
Earnings Per Share (Rs.) 3.08 -3.59 7.74