Prospectus Dated : August 29, 2008 CHEMCEL BIOTECH LIMITED (Our Company was originally incorporated as “Chemcel Products Limited” on September 29, 1995 under the Companies Act, 1956 in the State of Andhra Pradesh, India. The name of our Company was changed to Chemcel Bio-Tech Limited w.e.f. January 4, 2001) Registered Office: 16-130/12, JRD Tata Industrial Estate, Auto Nagar, Kanuru, Vijayawada - 520007. The registered office of our Company was shifted from Plot No. E-32, 100 Feet Road, Auto Nagar, Vijayawada - 520007 to the present address mentioned above w.e.f. February 17, 1998. Tel: +91-0866-2540355; 2544996. Fax:+91-0866 - 2545437; Email: [email protected]; Website: www.chemcelbiotechltd.com Contact Person: Mr. Shaik Rahmatullah - Company Secretary & Compliance Officer; E-mail: [email protected] ISSUE OF 1,54,00,000 EQUITY SHARES OF Rs. 10/- EACH AT A PRICE OF Rs.16/- PER EQUITY SHARE (INCLUDING A PREMIUM OF Rs.6/- PER EQUITY SHARE) OF CHEMCEL BIOTECH LIMITED (HEREINAFTER REFERRED TO AS THE “COMPANY” OR “ISSUER”) FOR CASH AGGREGATING TO Rs.2464 LAKHS (“ISSUE”). THE ISSUE COMPRISES OF CONTRIBUTION BY PROMOTERS OF 16,00,000 EQUITY SHARES OF Rs. 10/- EACH AT A PRICE OF Rs.16/- PER EQUITY SHARE FOR CASH AGGREGATING TO Rs.256 LAKHS (“PROMOTER’S CONTRIBUTION PORTION”), 10,00,000 EQUITY SHARES OF Rs.10/- EACH RESERVED FOR ELIGIBLE EMPLOYEES OF THE ISSUER COMPANY ON COMPETITIVE BASIS AT A PRICE OF Rs.16/- AGGREGATING TO Rs.160 LAKHS (HEREINAFTER REFERRED TO AS EMPLOYEE RESERVATION PORTION ) AND THE NET ISSUE TO THE PUBLIC OF 1,28,00,000 EQUITY SHARES OF Rs. 10/- EACH AT A PRICE OF Rs.16/- PER EQUITY SHARE FOR CASH AGGREGATING TO Rs.2048 LAKHS (“NET ISSUE TO PUBLIC”) THE NET ISSUE TO THE PUBLIC WOULD CONSTITUTE 49.39% OF THE FULLY DILUTED POST ISSUE PAID UP CAPITAL OF OUR COMPANY. ISSUE PRICE : Rs.16 PER EQUITY SHARE OF FACE VALUE OF Rs.10/- EACH THE ISSUE PRICE IS 1.6 TIMES OF THE FACE VALUE OF EQUITY SHARE RISKS IN RELATION TO THE FIRST ISSUE This being the first issue of the Equity Shares of Chemcel Biotech Limited (“our Company”), there has been no formal market for the Equity Shares of our Company. The Face value of the Equity Shares is Rs.10/- per share and the issue price is 1.6 times of the face value. The Issue price (as has been determined and justified by the Lead Merchant Banker and the issuer Company as stated under “Basis for Issue Price” on page no.40 of the Offer Document) should not be taken to be indicative of the market price of the Equity Shares after the Equity Shares are listed. No assurance can be given regarding active or sustained trading in the shares of Chemcel Biotech Limited or regarding the price at which the Equity Shares will be traded after listing. GENERAL RISK Investments in equity and equity related securities involve a degree of risk and investors should not invest any funds in this Issue unless they can afford to take the risk of losing their investment. Investors are advised to read the risk factors carefully before taking an investment decision in this Issue. For taking an investment decision, investors must rely on their own examination of our Company and the Issue including the risks involved. The Equity Shares offered in the Issue have not been recommended or approved by the Securities and Exchange Board of India (SEBI), nor does SEBI guarantee the accuracy or adequacy of this Prospectus. Specific attention of the investors is invited to the section titled ‘Risk Factors’ beginning on page no. xii of this Prospectus. ISSUER’S ABSOLUTE RESPONSIBILITY Our Company, having made all reasonable inquiries, accepts responsibility for and confirms that this Prospectus contains all information with regard to our Company and the Issue, which is material in the context of the Issue, that the information contained in this Prospectus is true and correct in all material aspects and is not misleading in any material respect, that the opinions and intentions expressed herein are honestly held and that there are no other facts, the omission of which makes this Prospectus as a whole or any of such information or the expression of any such opinions or intentions misleading in any material respect. LISTING The Equity Shares offered through this Prospectus are proposed to be listed on Bombay Stock Exchange Limited (BSE) (Designated Stock Exchange) The in-principle approval of BSE for the listing of our Equity Shares has been received vide its letter no.DCS/IPO/SI/IPO-IP/ 1823/2007 dated February 8, 2008. IPO GRADING This Issue has been graded by ICRA Ltd and has been assigned the “IPO Grade 1” indicating poor fundamentals, vide its letter ref: ICRA/ CBL/2008-09/2006 dated June 25, 2008 and revalidated for a period of 6 months vide its letter dated ICRA/CBL/2008-09/2208 dated August 22, 2008. For further details please refer to page no. 15 of this Prospectus. LEAD MANAGER TO THE ISSUE REGISTRAR TO THE ISSUE AllBank Finance Ltd B Bigshare Services Private Limited, S (Wholly owned Subsidiary of Allahabad Bank) SEBI Regn.no.INR000001385 S SEBI Regn.no.INM00006609 E-2, Ansa Industrial Estate, Allahabad Bank Building 2nd floor Sakivihar Road,Saki Naka, 37 Mumbai Samachar Marg Andheri East, Mumbai - 400 023. Mumbai - 400 072. Tel : +91 - 22 - 22677552 / 22626283 Tel: +91 - 22 - 40430200 / 28470652 Fax: +91 - 22 - 22677552 Fax: +91 - 22 - 2847 5207 Email: [email protected] Email: [email protected] Website: www.allbankfinance.com Website: www.bigshareonline.com Contact Person : Mr.K.Shiv Shankar/Ms. Padma Contact Person:Mr Ashok Shetty / Mr. N.V.K. Mohan ISSUE SCHEDULE ISSUE OPENS ON : TUESDAY, SEPTEMBER 09, 2008 ISSUE CLOSES ON : FRIDAY, SEPTEMBER 12, 2008 CHEMCEL BIOTECH LIMITED TABLE OF CONTENTS S. NO. PARTICULARS PAGE. NO. I GENERAL i DEFINITIONS, ABBREVIATIONS & TECHNICAL TERMS i II RISK FACTORS x 1. CERTAIN CONVENTIONS; USE OF MARKET DATA x 2. FORWARD LOOKING STATEMENTS xi 3. RISK FACTORS xii III INTRODUCTION 1 1. SUMMARY 1 2. THE ISSUE 7 3. SUMMARY OF FINANCIAL/OPERATING DATA 8 4. GENERAL INFORMATION 12 5. CAPITAL STRUCTURE 19 6. OBJECTS OF THE ISSUE 28 7. BASIC TERMS OF THE ISSUE 38 8. BASIS FOR ISSUE PRICE 40 9. STATEMENT OF TAX BENEFITS 43 IV ABOUT OUR COMPANY 47 1. INDUSTRY OVERVIEW 47 2. OUR BUSINESS 67 3. KEY INDUSTRY REGULATIONS AND POLICIES 85 4. HISTORY AND CERTAIN CORPORATE MATTERS 88 5. MANAGEMENT 92 6. PROMOTERS 102 7. CURRENCY OF PRESENTATION 104 8. RELATED PARTY TRANSACTIONS 105 9. DIVIDEND POLICY 106 V FINANCIAL INFORMATION OF OUR COMPANY 107 1. FINANCIAL STATEMENTS OF OUR COMPANY 107 2. FINANCIAL STATEMENTS OF OUR SUBSIDIARY 121 3. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION& RESULTS OF OPERATIONS 143 VI LEGAL AND OTHER INFORMATION 148 1. OUTSTANDING LITIGATIONS AND MATERIAL DEVELOPMENTS 148 2. GOVERNMENT APPROVALS/LICENSING ARRANGEMENTS 151 VII OTHER REGULATORY AND STATUTORY DISCLOSURES 155 VIII ISSUE RELATED INFORMATION 163 1. TERMS OF THE ISSUE 163 2. ISSUE STRUCTURE 166 3. ISSUE PROCEDURE 168 IX MAIN PROVISIONS OF THE ARTICLES OF ASSOCIATION 189 X MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION 215 XI DECLARATION 217 CHEMCEL BIOTECH LIMITED SECTION - I DEFINITIONS, ABBREVATIONS & TECHNICAL TERMS General terms Term Description Act The Companies Act ,1956 “Chemcel Biotech”, “Company”, Unless the context otherwise requires, refers to Chemcel “CBL”, “Chemcel Biotech Ltd” Bio-Tech Limited, a company incorporated under the Companies Act, 1956 FEMA Foreign Exchange Management Act, 1999, as amended, and the rules and regulations framed thereunder. HUF Hindu Undivided Family NAV Net Asset Value OCB/ Overseas Corporate Bodies Overseas Corporate Body means and includes an entity defined in clause (xi) of Regulation 2 of the Foreign Exchange Management (Withdrawal of General Permission to Overseas Corporate Bodies (OCB’s) Regulations 2003 and which was in existence on the date of the commencement of these Regulations and immediately prior to such commencement was eligible to undertake transactions pursuant to the general permission granted under the Regulations. OCBs are not allowed to invest in this Issue. PAN Permanent Account Number PAT Profit After Tax RONW Return on Net worth SCRR Securities Contracts (Regulations) Rules, 1957 as amended SSI Small Scale Industry SEBI Securities and Exchange Board of India constituted under the SEBI Act SEBI Act Securities and Exchange Board of India Act, 1992 as amended SEBI (DIP )Guidelines SEBI (Disclosure and Investor Protection) Guidelines, 2000 issued by SEBI on January 27, 2000, as amended, including instructions and clarifications issued by SEBI from time to time Issue related terms Term Description Allotment Unless the context otherwise requires, issue of equity shares pursuant to this issue Allottee The successful applicant to whom the Equity Shares are being / or have been issued or transferred Applicant Any prospective investor who makes an application pursuant to the terms of this Prospectus Articles/Articles of Association/AoA Articles of Association of Chemcel Biotech Limited i CHEMCEL BIOTECH LIMITED Application Form The form in terms of which the Investors shall apply for equity shares of our Company Auditors The Statutory Auditors of our Company, Mr.T.Nehru, Chartered Accountant, Vijayawada. Bankers to the Issue Standard Chartered Bank, HDFC Bank Ltd , and Axis Bank Limited Board/Board of Directors The Board of Directors of Chemcel Biotech Limited or a committee thereof BSE Bombay Stock Exchange Limited , Mumbai CDSL Central Depository Services (India) Limited Co-Lead Manager Ashika Capital Limited, Mumbai. Compliance Officer Mr. Shaik Rahmatullah, Company Secretary Depositories Act Depositories Act, 1996 as amended Depository A Depository registered with SEBI under the SEBI (Depositories & Participant) Regulations, 1996 as amended Depository Participant Depository Participant as defined under the Depositories Act Designated Stock Exchange Bombay Stock Exchange Limited, Mumbai Director(s) Director(s) of Chemcel Biotech Ltd unless otherwise specified Eligible Employee Permanent employees of our Company who are Indian nationals based in India as of August 29,2008 and are present in India on the date of submission of the Application Form. A director of our Company, whether a whole time director, except any Promoters or members of the Promoter group, part- time director or otherwise as of August 29,2008 and based and present in India as on the date of submission of Application Form. Employee Reservation portion The portion of the issue being a maximum of 10,00,000 Equity Shares available for allotment to eligible employees of our Company on competitive basis. Equity Shares Equity Shares of our Company face value of Rs.10/- each unless otherwise specified in the context thereof Equity Shareholders Persons holding equity shares of our Company unless otherwise specified in the context thereof First Applicant The applicant whose name appears first in the Application Form Foreign Institutional Investors Foreign Institutional Investor (as defined under FEMA (Transfer or Offer of Security by a Person Resident outside India) Regulations, 2000) registered with SEBI under applicable laws in India Financial year/FY Period of twelve months ended 31st March of that particular year GIR General Index Registry Number GAAP Generally Accepted Accounting Practices ii CHEMCEL BIOTECH LIMITED ICRA ICRA Limited, with its registered office located at 1105, Kailash Building Eleventh Floor, 26,Kasturba Gandhi Marg, New Delhi 110 001, being the IPO grading agency appointed pursuant to Clause 2.5A of the SEBI DIP Guidelines Issue price The issue price of Rs 16 per equity share of face value of Rs 10 each at which Equity Shares will be issued and allotted in terms of the Prospectus. The Issue Price has been decided by the Company in consultation with the LeadManagers Issue Size Issue of 1,54,00,000 equity shares of Rs. 10/- each at a price of Rs.16/- per equity share (including a premium of Rs.6/- per equity share) of Chemcel Biotech limited (hereinafter referred to as “our Company” or “Issuer”) for cash aggregating to Rs. 2464 Lakhs (“Issue”). The issue comprises a contribution by Promoters, of 16,00,000 equity shares of Rs. 10/- each at a price of Rs.16/- per equity share for cash aggregating to Rs. 256 Lakhs (“Promoter’s Contribution Portion”), 10,00,000 equity shares of Rs. 10 each reserved for Eligible Employees on competitive basis at a price of Rs. 16/- ( hereinafter referred to as employee reservation portion ) and the net issue to the public of 128,00,000 equity shares of Rs. 10/- each at a price of Rs. 16/- per equity share for cash aggregating to Rs.2048 Lakhs (“Net Issue to Public”) The Net Issue to the Public would constitute 49.39% of the fully diluted post issue paid up capital of our Company . The issue price is 1.6 times of the face value of the equity share. Issue Opening date The date on which the Issue opens for subscription Issue closing date The date on which the Issue closes for subscription Issue Period The period between the Issue opening & Issue closing date and includes both these dates Issuer Chemcel Biotech Limited I T Act The Income Tax Act, 1961, as amended Lead Manager Allbank Finance Limited , Mumbai Memorandum/Memorandum of Association/MOA The Memorandum of Association of Chemcel Biotech Ltd. Net Issue to the Public The Issue less the Promoters Contribution and Employee Reservation Portion NRI/Non-Resident Indian Non-Resident Indian, is a person resident outside India, as defined under FEMA and who is a citizen of India or a Person of Indian Origin under FEMA (Transfer or Offer of Security by a Person Resident Outside India) Regulations, 2000 NSDL National Securities Depository Limited PAN Permanent Account Number Prospectus Refers to this document, in terms of which the present Issue of Equity Shares is proposed Promoters Mr. Kanuparthi Balakrishna Rao, Mr. Kanuparthi Trinadha Vijaya Kumar and Mr. Kanuparthi Chandra Shekar Prasad QCD Quality Control Department iii CHEMCEL BIOTECH LIMITED Qualified Institutional Buyers or QIBs Qualified Institutional Buyers: a. Public financial institution as defined in section 4A of the Companies Act, 1956;b. Scheduled Commercial banks;c. Mutual funds;d. Foreign Institutional Investor registered with SEBI;e. Multilateral and Bilateral development financial institutions;f. Venture Capital funds registered with SEBI;g. Foreign Venture Capital investors registered with SEBI;h. State Industrial Development Corporations;i. Insurance Companies registered with the Insurance Regulatory and Development Authority (IRDA);j. Provident Funds with minimum corpus of Rs. 2500 lakhsk. Pension Funds with minimum corpus of Rs. 2500 lakhsl. National Investment Fund set up by Resolution F.NO. 2/3/ 2005 DD 11 Dated Nov.23,2005 RBI Reserve Bank of India Registered Office of our Company 16-130/12, JRD Tata Industrial Estate, 3rd Cross Road Extension, Kanuru, Vijayawada 520007 Registrar/Registrar to the Issue Bigshare Services Pvt. Limited RoC Registrar of Companies, Andhra Pradesh, 2nd Floor, Kendriya Sadan, Sultan Bazar, Hyderabad 500195 Retail Applicants/Retail Individual Applicants Retail Individual Applicants (including HUFs) applying through their karta) who have applied for Equity Shares for an amount less than or equal to Rs.100,000 in any of the application in the Issue. Stock Exchange BSE US GAAP Generally Accepted Accounting Practices of United States of America Company/Industry-related terms Term Description Agrochemicals Chemicals used in agriculture for combating pests Bio-Diesel Oil extracted from the seeds CIB Central Insecticide Board Formulations Mixture of various chemicals as defined by the CIB IEM Industrial Entrepreneur Memorandum PCB Pollution Control Board TPD Tons Per Day Abbreviations A/C Account AGM Annual General Meeting AS Accounting Standards as issued by the Institute of Chartered Accountants of India ALLBANK AllBank Finance Limited, Mumbai , Lead Manager to the issue ASHIKA Ashika Capital Limited, Co-Lead Managers to the Issue iv CHEMCEL BIOTECH LIMITED APSRTC Andhra Pradesh State Road Transport Corporation AY Assessment Year BIS Bureau of Indian Standards BSE Bombay Stock Exchange Limited BSS Bigshare Services Private Limited, Registrar to the Issue BPCL Bharat Petroleum Corporation Limited BPLR Bank Prime Lending Rate CAGR Compounded Annual Growth Rate CDSL Central Depository Services(India) Limited CIN Company Identification Number CSIR Council of Scientific & Industrial Research CSMCRI Central Salt and Marine Chemicals Research Institute, Bhavnagar DBT Department of Biotechnology DDT Dichloro-Diphenyl-Trichloroethane DIN Director’s Identification Number EBITD Earnings before interest, tax and depreciation EC Emulsifiable Concentrate / European community /European Commission EGM Extra-ordinary General Meeting EU European union EPS Earnings Per Share FIIs Foreign Institutional Investors registered with SEBI under applicable laws FY Financial year ended 31st March GDP Gross Domestic Product GIR Number General Index Registry Number HDPE High Density Poly Ethylene HPCL Hindustan Petroleum Corporation Limited HSD High Speed Diesel HUF Hindu Undivided Family IIP Indian Institute of Petroleum , Dehradun IITs Indian Institutes of Technology IPO Initial Public Offering IOC Indian Oil Corporation INR/Rs. Indian Rupees Mb/d Million Barrels per day MMT Million Metric Tons v CHEMCEL BIOTECH LIMITED MMSCMD Million Metric Standard Cubic Meter Per Day MOU Memorandum of Understanding N.A Not applicable NBB National Biodiesel Board NBC National Biofuel Centre NBRI National Botanical Research Institute NGO Non- Government Organisation NOVODB National Oilseeds and Vegetable Oils Development Board NRE Account Non-Resident External Account NRI Non-Resident Indian NSDL National Securities Depository Ltd. OECD Organization for Economic Co-operation and Development PAN Permanent Account Number PAT Profit After Tax PBT Profit Before Tax PBDIT Profit before Depreciation, Interest and Tax PBIT Profit before Interest and Tax PCRA Petroleum Conservation Research Association P/E Ratio Price/Earnings Ratio PRI Panchayati Raj Institutions QIB Qualified Institutional Buyer R&D Research and Development RBI Reserve Bank of India Sec Section TBO Tree Borne Oilseeds TNW Tangible net worth TPD Tons per day UNFCCC United Nations Framework Convention on Climate Change USA United States of America USAID US Agency for International Development VAT Value Added Tax WDP Water Dispersible Powder vi CHEMCEL BIOTECH LIMITED Glossary used in Bio Diesel Industry Algae Algae are primitive plants, usually aquatic, capable of synthesising their own food by photosynthesis. Algae is currently being investigated as a possible feedstock for producing biodiesel B100. B100 is another name for pure biodiesel Biobutanol Biobutanol is an advantaged biofuel that offers a number of benefits over conventional biofuels. For example, biobutanol has an energy content closer to that of petroleum so consumers face less of a compromise on fuel economy. It can easily be added to conventional petrol due to low vapour pressure and can be blended at higher concentrations than bioethanol for use in standard vehicle engines. DuPont and BP are working together on a major project to produce biobutanol Biodiesel Biodiesel is a biofuel produced from various feedstocks including vegetable oils (such as oilseed Biofuel The term biofuel applies to any solid Biomass Biomass is biological material Bioreactor A bioreactor is a vessel in which a chemical process occurs. This usually involves organisms or biochemically active substances derived from such organisms BTL BTL, or biomass-to-liquid,is a multi-step process which converts biomass into liquid biofuels. BTL is also referred to as second generation biodiesel production. There are many different methods of BTL, but many processes include Fischer-Tropsch, hydrogenation or pyrolysis. By-product A by-product is a substance, other than the principal product, generated as a consequence of creating a biofuel. For example, a by-product of biodiesel production is glycerine and a by-product of bioethanol production is DDGS Catalyst A catalyst is a substance that increases the rate of a chemical reaction, without being consumed or produced by the reaction. Enzymes are catalysts for many biochemical reactions. Cetane number The cetane number is a measure of biodiesel’s combustion quality Conventional biofuels Conventional biofuels such as bioethanol and biodiesel are typically made from corn, sugarcane and beet, wheat or oilseed crops such as soy and rape. Emissions : Emissions are classed as any waste substances released into the air or water. Enzyme : An enzyme is a protein or protein-based molecule that speeds up chemical reactions occurring in living things. Enzymes act as catalysts for a single reaction, converting a specific set of reactants into specific products. vii CHEMCEL BIOTECH LIMITED FAME FAME, or fatty acid methyl ester can be created by a catalysed reaction between fatty acids and methanol. The molecules in biodiesel are primarily FAMEs, usually obtained from vegetable oils by transesterification. Fatty acid: A fatty acid is a carboxylic acid (an acid with a -COOH group) with long hydrocarbon side chains. Feedstocks are first converted to fatty acids and then to biodiesel Feedstock A feedstock is any biomass resource destined for conversion to energy or biofuel. For example, corn is a feedstock for ethanol production, soybean oil may be a feedstock for biodiesel and cellulosic biomass has the potential to be a significant feedstock source for biofuels. Fischer-Tropsch Fischer-Tropsch is one method of producing biodiesel, from natural gas or syngas from gasified coal or biomass Fuel A fuel is described as any material with one type of energy that can be converted to another usable energy. Glycerine Glycerine is a liquid by-product of biodiesel production. Glycerine is used in the manufacture of dynamite, cosmetics, liquid soaps, inks, and lubricants. GTL GTL, or gas to liquid, is a refinery process which converts natural gas into longer-chain hydrocarbons. Gas can be converted to liquid fuels via a direct conversion or using a process such as Fischer-Tropsch. Jatropha Jatropha is a non-edible evergreen shrub found in Asia, Africa and the West Indies. Its seeds contain a high proportion of oil which can be used for making biodiesel. Methanol Methanol is an alcohol containing one carbon atom per molecule, generally made from natural gas, with about half the energy density of petroleum. Methanol is used as a component in the transesterification of triglycerides to give a form of biodiesel. MTBE MTBE, or methyl tertiary-butyl ether, is created from methanol and can increase octane and decrease the volatility of petroleum. It is often used as a petroleum additive because it raises the oxygen content of the fuel. Nitrogen Oxides Nitrogen Oxides (NOx) are a product of photochemical reactions of nitric oxide in ambient air, and are one type of emission produces from fuels. Palm oil Palm oil is a form of vegetable oil obtained from the fruit of the oil palm tree. It is a widely used feedstock The palm oil and palm kernel oil are composed of fatty acids, esterified with glycerol just like any ordinary fat. Palm oil is a widely used feedstock for traditional biodiesel production. Petroleum Petroleum refers to any petroleum-based substance comprising of a complex blend of hydrocarbons derived from crude oil through the process of separation, conversion, upgrading, and finishing, including motor fuel, jet oil, lubricants, petroleum solvents, and used oil. viii