HP Adhesives IPO to open today: Should you subscribe? Here's what brokerages recommend

The company will use the proceeds for working capital requirements and capacity expansion at its manufacturing facility at Raigad, Maharashtra. The company will also expand installed capacities at existing product lines and add products to its portfolio.

Brokerage firm Marwadi Shares and Finance Ltd has assigned a 'subscribe' rating to the IPO citing reasonable valuation.

"Considering the TTM (Sept-2021) adjusted EPS of Rs.5.57 on post-issue basis, the company is going to list at a P/E of 49.23 with a market cap of Rs 5, 035 million, while its peer namely Pidilite Industries Limited is trading at P/E of 89.75," the brokerage noted.

"It is a fast-growing adhesives and sealants company with an established brand presence. It is also available at reasonable valuation compared to its peers."

Choice Equity Broking assigned a “subscribe with caution” rating to the issue. "At a higher price band of Rs. 274, the company is demanding a TTM P/E multiple of 49.2x, which seems to be at a premium considering the small business size," the brokerage said.

Capital Market has a 'neutral' rating for the company's IPO. The brokerage said that HP Adhesives 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 and at reasonable costs. This may have a material adverse effect on business, results of operations, financial condition, and cash flows.

It added, however, that the company is a leading manufacturing company for its largest product category PVC solvent cement in India in the consumer/ bazaar segment of the adhesive industry.

TopShareBrokers.com said the growth of the consumer adhesive industry is expected to be moderate at a CAGR of 8 percent for the next 3-4 years.  The factors of concern are volatility in profitability margins and sustainability of margins in the future of the Issuer. The financials of the company need to be tracked for one or more years. Considering all these factors, one may look at a better entry point later and avoid this IPO.