ASTEC LIFESCIENCES LIMITED
IPO Grading
Rating
CARE has assigned a 'CARE IPO Grade 2' to the
proposed IPO (Initial Public Offer) of Astec LifeSciences
Limited (ALSL). CARE IPO Grade 2 indicates below
average fundamentals. CARE assigns IPO grades on a
scale of Grade 5 to Grade 1, with Grade 5 indicating
strong fundamentals and Grade 1 indicating poor
fundamentals. CARE's IPO grading is an opinion on the
relative assessment of the fundamentals of that issuer.
ALSL proposes an IPO of 75 lakh equity shares of face
value of Rs.10 each, at a price which will be determined
through the book building process.
The grading factors in promoters' experience in the agro
chemicals and pharmaceuticals sectors, long track
record in operations, favourable industry scenario for
agro chemicals, diversified presence across markets and
clients, good profitability margins in past financial years
and expected improvement in technical capabilities of
the company post expansion .
However, the grading is constrained by ALSL's relatively
small size of operations, dependence on IPO proceeds
for the proposed project completion, absence of long
term contracts with raw material suppliers and clients,
pre-dominant control by a single family member, various
pending court cases against the company and the
promoter and moderate corporate governance practices.
The grading is also constrained by risks associated with
proposed deployment of funds from the IPO in setting
up new manufacturing units.
Background of the company
ALSL is engaged in the manufacture and sale of
intermediates, active ingredients and formulations in the
off patent-proprietary category with a focus on
agrochemical and pharmaceutical Industry.
The company carries out its manufacturing activities at
two locations in Maharashtra, India, comprising three
units, one unit at Dombivli and two units at Mahad,
Maharashtra.
CREDIT ANALYSIS & RESEARCH LIMITED
CARE IPO Grade 2
ALSL started its first manufacturing unit in August 1994
by acquiring a sick unit in Dombivli, Maharashtra, having
an installed capacity of 120 MT for the manufacture of
Dicap, a pharmaceutical intermediate. To further expand
its operations, the Company entered into an agreement
with Behram Chemicals Private Limited in 2002 for using
and operating their manufacturing facilities on lease
located at Mahad Industrial Area. As on August 2008
the company had a capacity of 2500 MT.
Management
As per the organizational structure of ALSL, the
company is headed by Mr.Ashok Hiremath, Chairman
and Managing Director of the company and is assisted
by a team of senior executives. The team comprises
Mr. D.K. Joshi, Vice President (VP) Operations, Mr.
Javed Sayyed, VP (Marketing), Mr. Ranjan Shastri, VP
(R&D), Ms. Nikita Jain, Company Secretary (CS) and
Mr. Vijay Kumar Jain, Chief Financial officer (CFO).
Corporate Governance
Separation of ownership and management
The company has three Independent - Non-Executive
Directors out of a total number of six Directors on the
Board. The Corporate Governance requirements of
Clause 49 of the Listing Agreement makes it mandatory
to have half of the Board independent, if the Chairman
of the Board is also the executive Director of the
company, which is applicable in this case, with Mr. Ashok
Hiremath holding both the positions. The company also
has an Audit Committee, Shareholders/Investor
Grievance Committee and Remuneration Committee in
place, which were constituted on April 08, 2008.
Pending legal cases & their status
The company has the following cases pending against it:
I. Supply of Agro-chemical product to Nath
Biogene (I) Limited ("NBIL"):
NBIL has filed a filed a legal notice against ALSL
claiming Rs.75 crore as damages/ compensation for
1
alleged supply of spurious material by ALSL. NBIL
lodged an FIR on June 27, 2007 against the Company
and its Promoters/Directors. The Hon'ble High Court by
an order dated March 12, 2008 quashed the FIR filed
by NBIL. NBIL has now appealed before the Supreme
Court of India under Special Leave to Appeal against
the order passed by Bombay High Court and this is still
pending.
II. Other criminal cases filed against ALSL
A) The Government of Maharashtra through
Insecticide Inspector & Divisional Quality Control
Inspector, filed a Complaint against ALSL and its
Manager, Administration and Communication,
before the Court of Judicial Magistrate (First Class)
Kalyan, district Thane under Insecticides Act, 1968
for illegal manufacturing, storage, selling and
distribution of misbranded insecticides and
pesticides without obtaining an appropriate license
from licensing authority. The matter is still pending.
B) The Manpada Police Station had filed a Complaint
against ALSL before the Court of Judicial Magistrate
(First Class) Kalyan, alleging that the out break of
fire at Company's Dombivli unit on May 31, 2004
was due to the negligence of the officials of the
Company which caused death of an employee of
the Company. The matter shall come up on
February 6, 2009 for filing the reply of ALSL.
C) The State Government of Maharashtra through the
Deputy Director of Industrial Safety & Health, had
filed a complaint before the Court of Chief Judicial
Magistrate, Aligad, Raigad against ALSL's an Ex-
Employee, work Manager for contravention of the
provisions of rule of the Maharashtra Factories
Rules, 1963 alleging the non submission of written
report in relation to flashing of bromine on two
workers causing serious injuries within 12 hours at
the office of Industrial Safety and Health. The matter
shall come up for hearing in due course.
III. Cases filed against ALSL's Subsidiary Company
A) Behram Chemicals Private Limited ("BCPL"), the
subsidiary of ALSL, has filed an Appeal before the
Sales Tax Tribunal, Mumbai against the order of
the Assistant/ Deputy/ Additional Commissioner of
Sales Tax for the assessment years 1996-1997,
1997-1998, 1998-1999 and 1999-2000 aggregating
2 CAREVIEW
to Rs.28.65 lakh. The matter was supposed to come
up for hearing on August 25, 2008. BCPL has also
filed a stay application with the Sales Tax Tribunal
for pre-deposit of the demand raised for filing
Second Appeal.
B) The Sales Tax Officer, Raigad Division has issued
a notice for default in filing the Sales Tax returns
for the assessment years 2006-2007, 2007-08 and
2008-2009 within the prescribed time. BCPL has
filed an application with the Sales Tax Officer,
Raigad division for extension of time for filing the
reply to said notice.
IV. Other Miscellaneous Proceedings
ALSL and its Directors have filed one application under
the Companies Act, 1956 with the Registrar of
Companies, Maharashtra at Mumbai, for compounding
of non compliance by ALSL for non-transfer of unclaimed
dividend amount to a Special Dividend Account. The
applications are pending with the Regional Director
Operations of the Company
ALSL is primarily involved in the production of active
ingredients and intermediates for agrochemicals and
pharmaceutical segment. Hexaconazole, Tebuconazole,
Metalaxyl and Propiconazole are some of the key
products in agrochemical segment, which are generally
used in crop protection and Dicap is one of the key
Pharmaceutical intermediate which is used in
manufacture of antifungal agents.
ALSL currently exports its products to East Asia, Europe,
Middle East, and USA. The total exports constituted
25.32% of total revenue during FY 2008. ALSL has
established an R&D centre at Dombivli, Maharashtra,
which is recognized by Department of Science and
Industrial Research. The Company has a team of 10
chemists who are engaged in research and development
activities.
The company has been granted ISO 9001:2000
Certificate of Assessment by International Standards
Certification Pty limited, Australia for "Design,
development, manufacture and supply of organic
chemicals and intermediates for Pharmaceutical and
Agrochemical industry". This certificate is valid till March
22, 2011.
IPO Issue Details
Size of the Issue
ALSL is proposing to make an Initial Public Offer (IPO)
of 75,00,000 equity shares of face value of Rs.10 each
for cash at a premium to be determined through a book
building process. Out of these, the company is
considering upto 1,00,000 shares for subscription by
eligible employees.
Terms of the issue
Not more than 50% of the net issue to public shall be
available for allocation on a proportionate basis to
Qualified Institutional Buyers (QIBs). 5% of the QIB
Portion shall be available for allocation on a
proportionate basis to mutual funds only and the
remainder shall be available for allotment on a
proportionate basis to QIBs and mutual funds. Further,
not less than 15% of the net issue to public shall be
available for allocation on a proportionate basis to Non
Institutional Bidders and not less than 35% of the net
issue to public shall be available for allocation on a
proportionate basis to Retail Individual Bidders.
Purpose of the issue
The company plans to expand the existing
manufacturing facilities at Mahad, Maharashtra which
will be a 100% Export Oriented Unit so as to increase
its operational and technical capabilities and the land
for expansion has already been acquired on lease from
MIDC for a period of 95 years with effect from March,
2005. Also, the Company plans to use the proceeds of
the IPO for augmenting the existing Research and
Development facility at Dombivli, Maharashtra, meeting
registration expenses, meeting long-term working capital
requirements, for meeting general corporate purposes
and issue expenses.
Industry outlook
Agrochemical Industry
With the current trend in population growth and
agricultural productivity, industry experts feel that the
agricultural sector needs to double food production by
2025 and triple it by 2050 that too on lower per capita
land, with less water and under increasingly challenging
environmental conditions. Also, with growing income
levels, food consumption patterns are changing as
CREDIT ANALYSIS & RESEARCH LIMITED
evidenced by higher intake of fruits, vegetables, pulses,
etc. Amongst agrochemicals, fungicides and herbicides
will continue to witness a higher growth rate as
compared to Insecticides as these products are mainly
used in fruits and vegetable cultivation. In the years to
come, the consumption pattern of insecticides,
herbicides and fungicides is likely to mirror the global
consumption pattern. Exports, as in the past, will
continue to grow at healthy rates. Globally, the growth
in agrochemical industry will be driven by growth in
biofuels, increase in cropping area in Latin America, and
higher commodity prices.
Pharmaceutical Industry
Domestic Market: Due to huge domestic pool of
prospective customers, the Indian market remains a
focus area for the pharmaceutical companies.
Considering that the domestic market is expected to
retain its pace of growth at a CAGR of 10-12% till 2015,
it offers ample opportunities for Indian companies/
foreign MNCs.
Export Market: Though countries like India, China, and
Brazil are driving the growth, it is still the markets of
USA, Europe and Japan which are largest in value
terms. Depending on adherence to patent laws, the
export markets can be broadly classified into regulated,
semi regulated and un-regulated. The US market is a
regulated market and the generics sold in these markets
are unbranded. EU is regulated/semi-regulated market
and the generics sold in these markets are branded. As
the generic penetration in some of these markets is quite
low, the market potential remains high. With increasing
pressure on the Governments of USA, Europe and
Japan to reduce the healthcare cost, generic opportunity
in these markets will remain lucrative. The total world
generic market is expected to register a CAGR of 12%
in value terms in the period 2007-2011.
Over the four year period from FY'05 to FY'08, there
have been regular capacity additions in plant and
machinery and factory buildings year on year. With
enhancement in the manufacturing facility, the total
operating income has shown a CARG of 42.03% for the
period FY'05 to FY'08. The agrochemical products have
dominated the overall sales of the company with their
share being 82.03% in FY'08. Out of the total revenue,
domestic sales accounted for 74.66% of total sales in
FY'08. The interest charges for the company have also
3
Financial Results
For period ended/
As on 31 March 2005 2006 2007
Working results
Total Operating Income 2,130.00 3,039.00 3,353.00 6,103.00
PBILDT 261.00 510.00 651.00 1,571.00
Depreciation 24.00 63.00 141.00 224.00
Interest 54.00 62.00 100.00 419.00
Operating Profit 183.00 384.00 411.00 928.00
PAT (Before Defd. Tax) 148.00 367.00 389.00 820.00
PAT (After Defd. Tax) 141.00 348.00 368.00 794.00
Gross/Net Cash Accruals 159.00 418.00 533.00 1,045.00
Financial position
Gross Fixed Assets 699.01
1,444.15 2,442.66
Net Fixed Assets 614.64
1,296.60 2,154.17
Equity Share Capital 53.11 53.11 85.72
Net worth 604.43
1,051.17 1,535.45
Total Capital Employed 1,112.69
2,638.65 3,876.60
PBILDT Margin 12.26 16.78 19.42
PAT Margin 6.64 11.39 10.98
ROCE 24.69 15.76
RONW 42.02 28.49
EPS 266.15 654.89 429.82
increased for the period due to the increase in working
capital borrowings on account of increased scale of
operations over the years and term debt, to fund capacity
(Rs. lakh) additions over the past four years. PBILDT margins for
the Company have shown an increasing trend over the
2008 past four year period on account of improved efficiencies
and cost control measures adopted by the Company.
The net worth of the company has shown a consistent
increase on account of increasing operations and
generation of revenue through increased turnover.
Earnings per share have shown a drastic decrease in
FY'08 on account of issue of bonus shares. RONW had
shown a drop in FY'07 on account of reduced profitability
and infusion of equity to the tune of Rs.0.32 crore. In
FY'08, the RONW has shown a considerable
improvement on account of increased sales to the tune
of 75% over the previous year.
3,791.00 Prospects
3,279.00
Future growth prospects of the company mainly depend
943.00
on the successful completion of the IPO. The expected
2,319.00
increase in usage of agrochemicals in India coupled with
5,638.00
increasing export opportunities is likely to provide good
25.73
growth prospects for the company. Post IPO the
12.98 Company is expected to meet the increased export
28.63 demand and focus on R&D activities so as to develop
41.22 improved process efficiencies and new products. In
8.42 times of downturn in demand, the company will be more
adversely affected because of its relatively small size.
Also, the outcome of the pending legal cases may have
an impact on its future operations.

For Further details please contact at : September 2008

CREDIT ANALYSIS & RESEARCH LIMITED
4th floor, Godrej Coliseum, Somaiya Hospital Road, Off Eastern Express Highway, Sion (E), Mumbai - 400 022.
Tel.: (022) 6754 3456
Fax : (022) 6754 3457
E-mail : care@careratings.com

Disclaimer
CARE's IPO grading is a one time assessment and the analysis draws heavily from the information provided by the issuer
as well as information obtained from sources believed by CARE to be accurate and reliable. However, CARE, does not
guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions
or for the results obtained from the use of such information. CARE's IPO grading does not take cognizance of the price of
the security and it is not a recommendation to buy, sell or hold shares/securities. It is also not a comment on the offer
price or the listed price of the scrip. It does not imply that CARE performs an audit function or forensic exercise to detect
fraud. It is also not a forecast of the future market performance and the earnings prospects of the issuer; also it does not
indicate compliance/violation of various statutory requirements. CARE shall not be liable for any losses incurred by users
from any use of the IPO grading.

4 CAREVIEW