Gem Aromatics IPO subscribed 1.37 times on Day 2 so far; GMP 7%. Should you bid?

In the grey market, the IPO is currently trading at a 7% premium over its issue price of Rs 325 per share, indicating cautious optimism among unofficial market participants.

Gem Aromatics, a specialty ingredients manufacturer, aims to raise approximately Rs 451 crore at the upper end of the price band. The offer comprises a fresh issue of around 53 lakh equity shares, expected to generate Rs 175 crore, along with an offer for sale (OFS) of approximately 85 lakh shares, valued at Rs 276.3 crore.

By 10:45 AM on the second day of bidding, the Gem Aromatics IPO had been subscribed 1.37 times overall. The retail investor segment showed the most enthusiasm, subscribing 1.57 times the shares allocated to them. Non-Institutional Investors (NIIs) followed with a 1.39 times subscription of their reserved portion. Qualified Institutional Buyers (QIBs) also participated steadily, submitting bids for 1.06 times their allotted shares.

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Gem Aromatics’ IPO is showing early signs of interest in the grey market, where it is currently trading at a 7% premium over its issue price of Rs 325 per share. It’s important to note that grey market trading is unofficial and unregulated, and while such a premium suggests positive sentiment and demand, the actual listing performance may still depend on broader market conditions and investor sentiment at the time of debut.

The Gem Aromatics IPO opened for subscription on August 19 and will close on August 21. The specialty ingredients manufacturer is targeting to raise approximately Rs 451.3 crore at the upper end of the price band. This includes a fresh issue of around 53 lakh shares worth Rs 175 crore, and an offer for sale (OFS) of approximately 85 lakh shares, amounting to Rs 276.3 crore.
Each equity share carries a face value of Rs 2, and the lot size is 46 shares, making the minimum investment for retail investors around Rs 14,950 at the highest price band.
At the upper price band, the company’s post-issue market capitalization is projected to be approximately Rs 1,697.7 crore. This translates to a price-to-earnings (P/E) ratio of 31.8x for FY25 and an enterprise value to EBITDA (EV/EBITDA) ratio of 21.6x, reflecting its valuation metrics.

Founded over 20 years ago, Gem Aromatics specializes in the production of essential oils, aroma chemicals, and value-added derivatives used across various sectors such as oral care, personal care, wellness, nutraceuticals, and pharmaceuticals.

The company supplies leading flavor and fragrance houses as well as FMCG brands, offering a portfolio of around 70 products categorized into mint and its derivatives, clove and clove derivatives, phenol, and other synthetic and natural ingredients. It operates three manufacturing plants located in Budaun, Silvassa, and Dahej.

Gem Aromatics is recognized as one of India’s largest processors by volume of clove oil, eugenol, and eucalyptus oil, while also maintaining a strong position in mint-based ingredients.

Exports formed approximately 50.7% of its operating revenue in FY25, with the United States as its biggest international market. The funds raised through the IPO will primarily be used to repay or prepay existing debts and for general corporate purposes.

Financially, the company demonstrated steady growth from FY23 to FY25. Revenue increased from Rs 452.5 crore in FY24 to about Rs 504 crore in FY25, while EBITDA grew to Rs 88.5 crore and net profit after tax reached Rs 53.4 crore.

The EBITDA margin improved to 17.6%, and the PAT margin was 10.6% in FY25, reflecting healthy profitability.

Anand Rathi has given the IPO a “Subscribe – Long Term” rating, acknowledging that while the issue is fully priced, the company’s strong foothold in essential oils and derivatives, diversified product portfolio, solid relationships with reputed clients, and ongoing capacity expansions position it well for future growth.

At a valuation of 31.8 times FY25 earnings, the stock commands a premium relative to many mid-cap chemical peers based on near-term financial metrics. Hence, the investment thesis largely hinges on the company’s ability to successfully execute its growth plans, capture greater market share in the mint and clove value chains, and effectively scale operations at its Dahej facility.

Key risks to consider include high customer concentration—with the top ten clients contributing around 56% of FY25 revenue, notably including a major supply agreement with dōTERRA—dependence on mint derivatives, ongoing land litigation involving the Budaun plant, and reliance on a limited supplier base.

Motilal Oswal Investment Advisors is the book-running lead manager for the IPO, with KFin Technologies acting as the registrar.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)