Prevest Denpro coming with an IPO to raise upto Rs 27 crore

Prevest Denpro

• Prevest Denpro is coming out with a 100% book building; initial public offering (IPO) of 31,68,000 shares of Rs 10 each in a price band Rs 82-84 per equity share.
• The issue will open for subscription on September 15, 2021 and will close on September 17, 2021.
• The shares will be listed on SME Platform of BSE.
• The face value of the share is Rs 10 and is priced 8.20 times of its face value on the lower side and 8.40 times on the higher side.
• Book running lead manager to the issue is Hem Securities.
• Compliance Officer for the issue is Komal Mehra.
  

Profile of the company

The company develops, manufacture and market a comprehensive portfolio of dental materials for diagnosing, treating and preventing dental conditions as well as improving the aesthetics of the human smile. The breadth and depth of its product offerings address majority of the dentists’ clinical needs for consumable dental materials. Its product portfolio covers a wide spectrum of materials for endodontics, prosthodontics, orthodontics, periodontics, restorative dentistry, aesthetic dentistry and laboratory consumables. Its products are sold in over 75 countries in the regions of Europe, Asia, South America, Middle East and Africa. Its manufacturing facility is located at Kartholi, Samba (Jammu & Kashmir), comprising of over 27,000 sq. ft. area and has an installed capacity of 200 MT p.a. for manufacturing of dental materials.

Further, as per its diversification plans, the company is currently expanding its existing manufacturing unit by setting up another manufacturing facility in over 16,000 sq. ft. area adjacent to its existing unit for manufacturing new line of products that will include hygiene products (sanitizers and disinfectants), oral hygiene products (mouth washes and mouth rinses), oral care products(medicated ointments, gels and creams for dental treatment) and biomaterials (i.e. bone augmentation materials). The proposed facility will be well-equipped with latest machineries and will be commissioned in Fiscal 2022.

Proceed is being used for:

• Purchase of machineries, equipments and utilities for manufacturing of proposed additional line of products, R&D unit and existing manufacturing operations.
• General corporate purpose.
• Meeting issue expenses. 
  

Industry overview

The dental material market in India was valued at $736.8 Million in the year 2020 and is projected to reach value of $1372.4 Million by 2028, registering a CAGR of 9.3% over the forecast period. Indian Dental Association (IDA) drafted the National Oral Health Program to address the burden of dental disease in an effective manner for bringing about 'optimal oral health' for all by 2020. As per their survey in India 60-65% population lives in rural areas. Where there is no oral health care system with the dentist: population ratio of about 1:2. Oral health services exist at district, subdivision, and tehsil level. 60-90% of school children and nearly 85-90% of adults have dental cavities, often leading to pain and discomfort. There is no paradental infrastructure at village level and the primary health care center level. At community health care center level only 25% community health centers are having posting of dental surgeons but have inadequate instruments, equipment, and dental materials.

The most common oral diseases are dental cavities, periodontal (gum) disease, oral cancer, oral infectious diseases, trauma from injuries, and hereditary lesions. Gum disease could also be a sign of diabetes. As per IDA 2020 Diabetics are prone to have periodontal disease, if their condition is not under control Periodontal diseases, dental caries, malocclusion, and oral cancer are the major dental problems effecting people in India. The overall prevalence of periodontal diseases was high in India. As India is one of the countries consuming maximum tobacco, a leading cause of oral cancer, the problem has only aggravated in recent past also India occupies the third position in the world with an annual production of about 800 million kgs of the different types grown, flue- cured tobacco, country tobacco, burley, bidi. 34.6% of adults in India are consuming tobacco in any form; 47.9% of ales and 20.3% of females. Thus, increasing tobacco consumption, oral diseases and awareness among the individual will drive the market for dental material in near future.

Pros and strengths

Wide sales and distribution network: The growth in company’s business operations have been made possible by its wide sales and distribution network with whom it enjoys long-standing relationships. It sell its products through a network of 53 dealers spread over 16 states and 2 Union Territories in India and through 91 overseas agents spread over 75 countries. It primarily follow a business-to-business model for all its dental products. Further, it has started selling certain of its products to direct consumers on digital market platforms such as Amazon and its own web-platform i.e. prevestdirect.com. It has recently purchased an office in Gurugram, Haryana which will be used for marketing of its products to the customers in the North Indian region. It work with different dealers and overseas agents depending on their geographical reach, market knowledge, product and customer awareness as well as understanding of dental industry.

Comprehensive product portfolio: In the last two decades of operations, the company has been successful in establishing a comprehensive portfolio of over 100 dental products covering endodontics, orthodontics, composites, impression materials, finishing & polishing materials, auxiliaries’ materials, haemostatic materials, temporary materials, lab materials, adhesives, cement & liners and tooth whitening. The breadth and depth of its product offerings address a majority of the dentists’ clinical needs for consumable dental materials and also enable it to be a preferred vendor for many dental practitioners, dental laboratories and dealers. In addition, the vast array of products demonstrates technical quality as well as its ability to innovate and instills in its customers the confidence of entrusting it with the manufacture of newer products that it proposes to manufacture. Further, its products are certified with EU mark, which makes it eligible to market products in European Union.

Proven track record of robust financial performance: The company’s focus on functional and operational excellence has contributed to its track record of robust financial performance. In the Fiscal 2021, Fiscal 2020 and Fiscal 2019, it generated total revenue of Rs 2951.35 lakh, Rs 2455.97 lakh and Rs 1977.08 lakh respectively, EBITDA of Rs 1002.03 lakh, Rs 689.22 lakh and Rs 430.92 lakh respectively and net profit after tax of Rs 743.96 lakh, Rs 500.87 lakh and Rs. 299.38 lakh respectively. It has reported Return on Net Worth of 32.71%, 32.72% and 29.07% for the Fiscal 2021, Fiscal 2020 and Fiscal 2019, respectively. The company has been able to manage its sustained growth without compromising on profit margins of its products, without any external equity funding from strategic investors or private equity funds and without any high leverage from lenders. Its ability to fund its capital expenditure from its internal accruals, its efficient sweating of assets which has led to a high asset turn-over and its efficient working capital management are testament to its efficient and prudent financial management.

Risks and concerns

Depends on sale of products to key customers: The company’s top ten customers (dealers and international agents) accounted for 40.12% and 42.4% of its revenue from operations in F.Y. 2020-21 and F.Y. 2019-20 respectively. As it is dependent on its key customers for a significant portion of its sales, the loss of such customers may materially affect its business, cash flows and results of operations. Further, the volume of sales to its customers may vary due to its customers’ attempts to manage their inventory, market demand, product and supply pricing trends, change in customer preferences, change in customer perception towards cosmetic dentistry, among others, which may result in a decrease in demand or lack of commercial success of products of which it is a major supplier, which could reduce its sales and materially adversely affect its business, cash flows, results of operations and financial condition.

Rely on third-party dealers and international agent: The company relies on third-party dealers and international agents for its sales in India and countries outside India. It also utilizes online marketplaces and e-commerce systems to increase its products market penetration and reach. As on March 31, 2021, its distribution network consists of 53dealers spread over 16 states and 2 Union Territories in India and 91 overseas agents spread over 75 countries in the regions of Europe, Asia, South America, Middle East and Africa. It typically do not have firm commitments in the form of long-term supply agreements with its dealers and overseas agents, consequently, there is no commitment on the part of its dealers and overseas agents to continue to place new purchase orders with it and as a result, its cash flow and consequent revenue may fluctuate significantly from time to time. However, it secure intent letters from its key dealers and international agents which contain an estimated amount of purchase that such dealer/international agent intends to do during the year.

Success of new products depends on number of factors: The success of company’s new products i.e. hygiene products (sanitizers and disinfectants), oral hygiene products (mouth washes and mouth rinses), oral care products(medicated ointments, gels and creams for dental treatment) and bio-materials (bone grafting materials and membranes), which it proposes to develop, may depend on a number of factors including anticipating and effectively addressing consumer preferences and demand, the success of its sales and marketing efforts, innovation and timely and successful research and development, obtaining necessary regulatory clearances, anticipating and responding to competing products and technological innovations, adequately protecting its intellectual property rights, effective forecasting and management of product demand, effective management of manufacturing and supply costs, the quality of its products and timely launch of products in the market. There can be no assurance that it will be able to successfully develop and introduce new products.

Outlook

Incorporated in 1999, Prevest Denpro manufactures and markets a range of dental materials for diagnosing, treating, and preventing dental conditions and improving the aesthetics of the human smile. The company’s product portfolio includes materials for endodontics, prosthodontics, orthodontics, periodontics, restorative dentistry, aesthetic dentistry, and laboratory consumables. Its products are certified with ISO 13485:2016 and EU CE mark, which makes it eligible to market its products in European Union and many other countries which have adopted EU medical devices directives. It is also certified by Breakthrough Management Quality Registrar (BMQR) for Good Manufacturing Practices for the manufacture and sale of dental materials. On the concern side, the company competes with a number of foreign and domestic companies that market dental materials. The marketplace is highly fragmented and very competitive. It expects that the rapid technological changes occurring in the dental care industry could lead to the entry of new competitors. Further, there are significant costs and risks inherent in conducting business in international markets. If it expand, or attempt to expand, into additional foreign markets, it will be subject to new business risks, in addition to regulatory risks.

The issue has been offered in a price band of Rs 82-84 per equity share. The aggregate size of the offer is around Rs 25.98 crore to Rs 26.61 crore based on lower and upper price band respectively. On performance front, the total income for the financial year ended March 31, 2021 was Rs 2951.35 lakh whereas for F.Y. ended Mar. 31, 2020, the same stood at Rs 2455.97 lakh. The restated net profit for F.Y. 2020-21 was Rs.743.96 lakh representing 25.21% of the total revenue of the company v.s. Rs. 500.87 lakh in F.Y. 2019-20 representing 20.45% of total income. The company seeks to capitalize on the growth opportunities in the hygiene, oral care, oral hygiene and bio-materials segment based on its well positioned operations, network of dealers & agents and being led by an experienced management team. As part of its strategy, it intends to set up a dedicated R&D unit for dental materials and new line of products at the proposed facility. Going forward, it seeks to allocate portion of its resources to increase the brand awareness of its dental products.