Alkosign coming with an IPO to raise upto Rs 12.15 crore

Alkosign

• Alkosign is coming out with an initial public offering (IPO) of 27,00,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 45 per equity share.
  
• The issue will open on January 18, 2022 and will close on January 21, 2022. 
  
• The shares will be listed on SME Platform of BSE.
  
• The share is priced 4.50 times higher to its face value of Rs 10.
  
• Book running lead manager to the issue is Shreni Shares.
  
• Compliance Officer for the issue is Poorvi Gattani.
  

Profile of the company

The company is engaged in manufacturing of visual presentation systems namely writing boards/display boards/notice boards of different types along with its associated accessories and stands used for these boards, school benches, desks and their accessories. The company has a manufacturing facility situated at Saravli, Bhiwandi. The company’s manufacturing facility is well equipped with required facilities including machinery, other handling equipments to facilitate smooth manufacturing process and easy logistics.

The company has several designs in its product basket, which are marketed under various trademarks such as “Alkosign”, “Sit and Study”, “Brainee”, “Glassy-BO”, “Ultra- EX”, “Ultra”. It focuses its research and development efforts on developing products which are innovative and in line with the trends. It has introduced a new product, Glass White Boards, under the brand name, “Glassy-BO”. Some of the key features of this product include: 1) Compatible with any marker pen 2) Wipes away easily without staining or ghosting. 3) Lasts as much as life span of the wall.

The company caters to distribute its products vide “Dealer Distribution Network”. It also supplies its products to various educational institutions directly on purchase order basis. Its ability to meet stringent quality and technical specifications, introduce designs to meet evolving customer preferences and state-of-the-art manufacturing facilities, upgrade in-house processes to increase efficiencies have enabled it to establish its brand in the industry.

Proceed is being used for:

• Prepayment/repayment of certain secured borrowings availed by the company.
  
• Funding working capital requirements.
  
• General corporate purposes.
  

Industry overview

Manufacturing has emerged as one of the high growth sectors in India. The government has launched the ‘Make in India’ program to place India on the world map as a manufacturing hub and give global recognition to the Indian economy. Government aims to create 100 million new jobs in the sector by 2022. India has potential to become a global manufacturing hub and by 2030, it can add more than $ 500 billion annually to the global economy. The IHS Markit India Manufacturing Purchasing Managers' Index (PMI) stood at 55.9 in October 2021. As per the survey conducted by the Federation of Indian Chambers of Commerce and Industry (FICCI), capacity utilisation in India’s manufacturing sector stood at 72.0% in the second quarter of FY22, indicating significant recovery in the sector. The government has taken several initiatives to promote a healthy environment for the growth of manufacturing sector in the country. The government approved a PLI scheme for 16 plants for key starting materials (KSMs)/drug intermediates and active pharmaceutical ingredients (APIs). The manufacturing sector of India has the potential to reach $ 1 trillion by 2025. The implementation of the Goods and Services Tax (GST) will make India a common market with a GDP of $ 2.5 trillion along with a population of 1.32 billion people, which will be a big draw for investors.

India holds an important place in the global education industry. India has one of the largest networks of higher education institutions in the world. However, there is still a lot of potential for further development in the education system. With 26.31% of India’s population in the age group of 0-14 years, India’s education sector provides numerous opportunities for growth. India has the world’s largest population of about 500 million in the age bracket of 5-24 years, which provides a great opportunity for the education sector. The education sector in India was estimated at $ 91.7 billion in FY18 and is expected to reach $ 101.1 billion in FY19. Various Government initiatives are being adopted to boost the growth of distance education market besides focusing on new education techniques, such as E-learning and M-learning. Education sector has seen a host of reform and improved financial outlays in recent years that could possibly transform the country into a knowledge haven. With human resource increasingly gaining significance in the overall development of the country, development of education infrastructure is expected to remain the key focus in the current decade. In this scenario, infrastructure investment in the education sector is likely to see a considerable increase in the current decade.

Pros and strengths

Widespread sales and dealers’ network: The company’s marketing model for its operations is majorly conducted through dealer-distribution network. It has PAN India presence (22 states based on sales made during financial year 2021). It has maintained long term relationships with most of its dealers. Its dealer relationships are led primarily by its ability to develop new and trending designs, meet stringent quality and technical specifications and providing better pricing and delivery terms than that of its competitors. Its dealers’ network is aided by its capable in-house sales and marketing team which liaise with the dealers on a regular basis for customer inputs, market demands as well as positioning of its products vis-a-vis products of its competitors.

Recognised Products: The company’s products are marketed under various trademarks such as “Alkosign”, “Sit and Study”, “Brainee”, “Glassy-BO”, “Ultra- EX”, “Ultra”. Some of its products are also recognised in the international markets vide design registered such as “Key Box”, “First Aid Box”, “Organizer Box” and “Letter Box”. The products are manufactured under the said-mentioned brand names and are therefore recognised both in Indian and International markets. It focuses its research and development efforts on developing products which are innovative and in line with the trends. It has introduced a new product, Glass White Boards, under the brand name, “Glassy-BO”. Some of the key features of this product include: 1) Compatible with any marker pen 2) Wipes away easily without staining or ghosting. 3) Lasts as much as life span of the wall. It has an inhouse laboratory for quality control purpose.

E-retailing and online distribution network: The company’s distribution model is also based on e-retailing. Such distribution model helps it achieve many competitive advantages such as wider reach to consumers, reduced overheads with lower logistics costs, elimination of dealer margins, increased brand recognition, etc. Further increase in e-commerce activities and growing internet penetration in country shall enhance its business prospects.

Risks and concerns

Geographical constraints: The company’s revenue from operations in Maharashtra contributed 64.51% and 47.49% respectively for the year ended March 31, 2021 and for the period ended November 30, 2021, as per its Restated Financial Statements. Such geographical concentration of its business in these regions heightens its exposure to adverse developments related to competition, as well as economic and demographic changes in these regions which may adversely affect its business prospects, financial conditions and results of operations. It may not be able to leverage its experience in such regions to expand its operations in other parts of India and overseas markets, should it decide to further expand its operations. Factors such as competition, culture, regulatory regimes, business practices and customs, industry needs, transportation, in other markets where it may expand its operations may differ from those in such regions, and its experience in these regions may not be applicable to other markets.

Dependent on third party transportation providers: The company uses third party transportation providers for delivery of its goods. Though its business has not experienced any disruptions due to transportation strikes in the past, any future transportation strikes may have an adverse effect on its business. In addition, goods may be lost or damaged in transit for various reasons including occurrence of accidents or natural disasters. There may also be delay in delivery of products which may also affect its business and results of operation negatively. An increase in the freight costs or unavailability of freight for transportation of its raw materials may have an adverse effect on its business and results of operations.

Requires significant amounts of working capital: The company’s business is working capital intensive. It intends to continue growing by expanding its business operations. This may result in increase in the quantum of its current assets. Its inability to maintain sufficient cash flow, credit facility and other sources of fund, in a timely manner, or at all, to meet the requirement of working capital could adversely affect its financial condition and result of its operations.

Outlook

Alkosign is engaged in the manufacturing of visual presentation systems namely writing boards/display boards/notice boards of different types along with its associated accessories. The company also manufactures stands used for these boards, school benches and desks, and other accessories. The company sells its products under various trademarks such as 'Alkosign', 'Sit and Study', 'Brainee', 'Glassy-BO', 'Ultra- EX', 'Ultra'. The company supplies its products to various educational institutions directly on purchase order basis. Its ability to meet stringent quality and technical specifications, introduce designs to meet evolving customer preferences and state-of-the-art manufacturing facilities, upgrade in-house processes to increase efficiencies have enabled it to establish its brand in the industry. Its dealers’ network is aided by its capable in-house sales and marketing team which liaise with the dealers on a regular basis for customer inputs, market demands as well as positioning of its products vis-a-vis products of its competitors. On the concern side, the company’s business operations are exposed to fluctuations in the performance of the industries in which its significant clients operate. Its clients may also decide to reduce spending on services due to a changing economic environment and other factors relating to the industry in which they operate. The company has obtained insurance coverage in respect of certain risks. it maintains insurance policies in respect of its business and operations covering building, plant and machinery, furniture and fixtures, fittings and other equipment and raw material, stock with an add cover for damage resulting from earthquake.

The company is coming out with a maiden IPO of 2700000 equity shares of Rs 10 each at a fixed price of Rs 45 per equity share to mobilize Rs 12.15 crore. On the performance front, revenue from operation for the year ended March 31, 2021 amounted to Rs 1,324.30 lakh. Profit after tax for the year ended March 31, 2021 amounted to Rs 66.22lakh which is 4.99% of total revenue. The company aims to focus on increasing its penetration in its existing markets by expanding its dealers’ network. As a business strategy, it intends to expand its dealers’ network in Tier-2 cities, Tier-3 cities and rural areas as there are significant untapped opportunities in these cities for it to capitalize to grow its business operations. It aims to appoint more dealers in these states to strengthen its network and increase its business operations.