Shivam Chemicals coming with IPO to raise Rs 20.18 crore

Shivam Chemicals

• Shivam Chemicals is coming out with an initial public offering (IPO) of 45,87,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 44 per equity share. 
• The issue will open for subscription on April 23, 2024 and will close on April 25, 2024.
• The shares will be listed on BSE SME Platform.
• The share is priced at 4.40 times higher to its face value of Rs 10.
• Book running lead manager to the issue is Aryaman Financial Services.
• Compliance Officer for the issue is Rishita Taparia.

Profile of the company

The company is a manufacturer of Hydrated Lime (Calcium Hydroxide) & a distributor of various products such as Poultry feed supplement (MBM), Di-Calcium Phosphate (Feed Grade), Magnesium Oxide, Limestone Powder, etc. With rich experience and knowledge it has built a well-established marketing network across India and it distributes animal feed products for various well renowned manufacture over the years. The Company is engaged in the business of wholesale sale of feed ingredient such as Di Calcium Phosphate and Mono Calcium Phosphate and Chemical Product such as Hydrated Lime (Calcium Hydroxide) and Quick lime (Calcium oxide). The company offers wide range of high-quality feed products. It consists of poultry feed, cattle feed and specialised chemical. The manufacturing activity is carried out by its wholly owned subsidiary Shivam Chemicals and Minerals and is located at Dahej, Gujarat. They are engaged in manufacturing of Hydrated lime (Calcium hydroxide) product.

The company is using complete machinery and technology which is a state-of-the-art with proprietary Italian technology from Cimprogetti Lime Technologies, Italy. y. To cater to Indian Market, they have set up Company in India in the name of Cimprogetti India Pvt. Ltd., Delhi. Due to this technology the company has achieved high production efficiency, superior quality product and reduced cost of production. Use of modern - Cimprogetti technology ensures waste reduction, efficient storage & handling & improved quality allowing it to create a - technological moat. 

Proceed is being used for:

• Funding Working capital requirements. 
• Investment in Subsidiary company Shivam Chemicals & Minerals for financing the augmentation of its working capital capabilities.
• General Corporate Purpose.

Industry overview

India currently represents one of the largest feed producers in the world. Animal feed includes various raw, processed and semi-processed products that are fed to livestock. Some of the most common feeds include pasture grasses, cereal grains, hay and silage crops, and other by-products of food crops, such as brewers’ grains, pineapple bran and sugar beet pulp. These products are carefully formulated with the help of nutritional additives, like vitamins and minerals, to maintain the overall health of animals and improve the quality of various end-products, including eggs, meat and milk. The Indian animal feed market size reached Rs 956.7 Billion in 2022. Looking forward, IMARC Group expects the market to reach Rs 1,578.2 Billion by 2028, exhibiting a growth rate (CAGR) of 8.2% during 2023-2028.

India is the leading producer of Lime globally. The major regions producing almost 80% of limes in India are Gujarat, Madhya Pradesh, Andhra Pradesh, Karnataka, and Odisha. The production of lime in India is continuously increasing due to the growing demand of foods that include lime as an ingredient (including juice, jams, bakery, and confectionery) in India. The growing demand for limes due to health benefits will drive the market during the forecast period. Lime is used as an ingredient in the production of pectin, citric acid, lime oil, lime juice and many other products. This growing markets creates a steady demand for these products throughout the year. Pectin and citric acid are two products that have witnessed a continuous demand during last few decades. India consumes the maximum portion of lime in the Asia-Pacific region.

By the end of financial year 2022, the value of India's limestone production amounted to an estimated 97.4 billion Indian rupees. This figure is estimated to have decreased to around 68.9 billion Indian rupees in financial year 2023. The India production of lime is projected to record a CAGR of 3.2% during the forecast period. According to FAO, lime production accounts for 3.14 million metric tons in 2018 as compared to last year where the production of lime accounts for 2.3 million metric tons. Production of lime is increasing in India due to an increase in the area of production which accounts for 286 thousand hectares in 2018. 

Pros and strengths

In house manufacturing through 100% owned subsidiary: Its subsidiary Shivam Chemicals and Minerals is 100% owned by the company. It is incorporated in 2019, operates a manufacturing unit specializing in hydrated lime production. The unit has a capacity of 60,000 MT per year. Hydrated lime has diverse applications in industries such as metallurgy, sugar refining, water treatment, and more. The subsidiary benefits from a substantial customer base due to these wide-ranging applications. Shivam Chemical, the holding company, has an extensive marketing network with offices throughout India, allowing them to reach a wide range of industrial consumers, dealers, and distributors of chemical products across the country.

Technological competitive advantage: The Company is using complete machinery and technology which is a state-of-the-art with proprietary Italian technology from Cimprogetti Lime Technologies, Italy. To cater to Indian Market, they have set up Company in India in the name of Cimprogetti India, Delhi. Due to this technology the company has achieved high production efficiency, superior quality product and reduced cost of production. Use of modern Cimprogetti technology ensures waste reduction, efficient storage & handling & improved quality allowing it to create a technological moat?.

Logistic efficiency: The Company uses Bulker Truck as a medium of transportation of its products. Current it uses 8 bulker trucks on rent in its factory which has carrying capacity up to 25 tons of product per bulker. The advantage of employing a Bulker truck includes: The adoption of bulkers results in a minimum 10% reduction in operational costs; unloading with bulkers is 75% faster compared to using bags; and directly storing materials in silos effectively minimizes storage costs.

Risks and concerns

Significant working capital requirements: Its business requires significant working capital, including in connection with trading activity as well as in manufacturing activity which is carried out by its subsidiary company. The actual amount of its future working capital requirements may differ from estimates as a result of, among other factors, unanticipated expenses, and fluctuations in traded item prices, economic conditions, changes in the terms of its financing arrangements, changes in the credit terms of customers and suppliers, inventory fluctuations, additional market developments and new opportunities in the animal feed business. Its sources of additional financing, required to meet its working capital needs, may include the incurrence of debt, the issue of equity or debt securities or a combination of both. If it decides to raise additional funds through the incurrence of debt, its interest and debt repayment obligations will increase, which may have a significant effect on its profitability and cash flows.

Dependent on third party transportation providers: It relies on third party transportation providers for the supply of its products to its customer. Strikes / non-availability of transportation could have an adverse effect on its ability to deliver the same to its customer. Increase in transportation costs or unavailability of transportation services for its products, as well the extent and reliability of Indian infrastructure may have an adverse effect on its business, financial condition, results of operations and prospects.

Dependent on a few suppliers: The company is dependent on a few suppliers for procuring the trading items for supply of its products and it currently have long term contracts or exclusive supply arrangements with few of its vendor. For the financial year ended March 31, 2023, its top five suppliers and top ten suppliers accounted for approximately 62.02% and 83.22%. Its quality of purchased items, location advantage, etc. is also some of the major reasons the company prefers to procure these traded item from these supplier Any failure of the supplier to deliver this traded item in the necessary quantities or to adhere to delivery schedules or specified quality standards and technical specifications would adversely affect its business operations and its ability to deliver orders on time and at the desired level of quality. As a result, it may lose customers and incur liabilities for failure to execute orders, which could have a material adverse effect on its business financial condition and results of operations.

Outlook

Shivam Chemicals is a manufacturer of Hydrated Lime (Calcium Hydroxide) & a distributor of various products such as Poultry feed supplement (MBM), Di-Calcium Phosphate (Feed Grade), Magnesium Oxide, Limestone Powder, etc. The company offers wide range of high-quality feed products. It consists of poultry feed, cattle feed and specialised chemical. The manufacturing activity is carried out by its wholly owned subsidiary Shivam Chemicals and Minerals and is located at Dahej, Gujarat. On the concern side, the company is dependent on a few suppliers for procuring the trading items for supply of its products and it currently have long term contracts or exclusive supply arrangements with few of its vendor. Besides, it relies on third party transportation providers for the supply of its products to its customer. Strikes / non-availability of transportation could have an adverse effect on its ability to deliver the same to its customer.

The company is coming out with an IPO of 45,87,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 44 per equity share to mobilize Rs 20.18 crore. On performance front, in fiscal 2023, its revenue from operations decreased by 12.04%, from Rs 17,794.49 lakh in fiscal 2022 to Rs 15,651.68 lakh in fiscal 2023. The decrease in the year 2023 was due to decrease in prices of goods. Profit after Tax decreased by 19.44% lakhs from Rs 443.70 lakh in fiscal 2022 to Rs 357.44 lakh in fiscal 2023. Meanwhile, it aims to focus on deepening its penetration in its existing markets and thereby increase its domestic presence by expanding its customer network. At present, it sells its products in many States like Maharashtra, Uttar Pradesh, Gujarat, Telangana, Haryana, Karnataka, Uttarakhand, Punjab, Madhya Pradesh, Andhra Pradesh, West Bengal, Kerala, Tamil Nadu, Telangana, Orrisa, Bihar, Assam, etc within India. It aims to focus on increasing its customer base by exploring domestic markets other than the above states mentioned.