Rite Zone Chemcon coming with an IPO to raise Rs 8.96 crore

Rite Zone Chemcon India

• Rite Zone Chemcon India is coming out with an initial public offering (IPO) of 11,95,200 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 75 per equity share.
• The issue will open for subscription on October 31, 2022 and will close on November 2, 2022.
  
• The shares will be listed on NSE Emerge Platform.
• The share is priced 7.50 times higher to its face value of Rs 10.
• Book running lead manager to the issue is Expert Global Consultant.
• Compliance Officer for the issue is Helly Nilesh Shah.

Profile of the company

Incorporated in 2015, the company is ISO 9001:2015 certified company and deal in range of construction chemicals and concrete products. It offers complete construction solution by supplying a complete range of various chemical products related to civil construction, infrastructure, building & structure including pre-construction or post construction as well supplying all types of concrete required for construction and infrastructure developments. The construction chemicals are chemical compounds used in construction works. They are used to speed up the process or add more sustainability and strength to the structures. The addition of construction chemicals to various building materials during the construction work improves performance, workability, adds functionality, and protects the basic or customized elements of a structure.

The company’s range of products includes concrete admixture, water proofing systems, concrete lubricator, engineering grouts, industrial flooring, concrete repairs, curing compound & mould release agent, surface treatment, tiling & block products. The company also deals in range of concrete products such as slump concrete, flowable concrete, self-compaction concrete (SCC), Light Weight Concrete, Stamp Concrete, Color Concrete, PQC Concrete, Early Strength Concrete, Reinforce Concrete, Shotcrete Concrete, Precast Concrete, Pile Concrete, Air Entrench Concrete, Prestressed Concrete, High Strength Concrete Etc.

Proceed is being used for:

• Meeting working capital requirements.
  
• General Corporate Purposes.
  
• Meeting the issue expenses.

Industry overview

India’s chemicals industry is de-licensed, except for few hazardous chemicals. In the Indian chemical industry, alkali chemicals have the largest share with 69% in the total production; production of polymers accounts for 59% of the total production of basic key petrochemicals in 2019. The chemical industry is expected to contribute $300 billion to India’s GDP by 2025. India holds a strong position in exports and imports of chemicals at a global level and ranks 14th in exports and 8th in imports at global level (excluding pharmaceuticals). The chemicals industry in India covers more than 80,000 commercial products with overall market size standing at $178 billion in 2018-19. The industry is expected to grow at 9.3% to reach $304 billion by 2025 on the back of rising demands in the end-user segments for specialty chemicals and petrochemicals. In July 2021, production volumes of key chemicals stood at 909,310 MT and petrochemicals at 1,867,351 MT. The specialty chemicals sector is expected to reach $40 billion by 2025.

Indian manufacturers have recorded a CAGR of 11% in revenue between FY15 and FY21, increasing India’s share in the global specialty chemicals market to 4% from 3%, according to the Crisil report. A revival in domestic demand and robust exports will spur a 50% YoY increase in the capex of specialty chemicals manufacturers in FY22 to Rs 6,000-6,200 crore ($815-842 million). Revenue growth is likely to be 19-20% YoY in FY22, up from 9-10% in FY21, driven by recovery in domestic demand and higher realisations owing to rising crude oil prices and better exports. The domestic chemicals sector's small and medium enterprises are expected to showcase 18-23% revenue growth in FY22, owing to an improvement in domestic demand and higher realisation due to high prices of chemicals.

The Indian construction chemicals market is estimated to witness a healthy growth, at an estimated CAGR of over 8% in the future. The Indian construction chemicals market follows a slightly different trend than that of the global market. Due to the lack of awareness about the long-term benefits of construction chemicals, the demand for chemicals, such as concrete admixtures, adhesives, sealants, and waterproofing, which have immediate tangible effects, is high. The government is taking various measures to restructure corporate taxes and make them more appealing to foreign investors. The move is anticipated to boost investments in the healthcare, education, housing, transport, and water infrastructure sectors. Investments worth $31,650 billion have been proposed by 99 cities under their smart city plans. 100 smart cities and 500 cities are likely to invite investments worth Rs 2 trillion in the next 5 years.

Pros and strengths

Wide product portfolio with focus on quality: The company has diversified and expanded its range of products to provide one stop solution for all its customer requirements. The company’s products portfolio consists of construction chemicals with good control over concrete admixture made of fine Sulfonated Naphthalene Formaldehyde (Naphtha based) and Polycarboxylate based.

Asset Light business model with low fixed overheads: The company’s business model is such that it relies on its ability & formulas to quality and technically sound products from a suitable manufacturer/Job-workers. It has a long-standing relationship with its suppliers and provide supplier development assistance along with technical and quality support to ensure smooth processes and proactive communication. This arrangement allows it to scale its operations quickly and the products are manufactured as per its specifications at a predetermined cost and as per its quality standards without incurring any capital expenditure on manufacturing facilities.

R&D set up for constant product improvement and new product development: The company has extensive research and development experience. The company focuses on developing cost effective manufacturing processes and cost- efficient products. The company has a dedicated team of research and development personnel which is continuously engaged in developing new products and processes.

Risks and concerns

Dependent on few numbers of customers and suppliers: The company’s top 10 customers contribute to 68.67%, 67.9%, 88.5%, and 71.9% of its revenue from operations for the period ended September 30, 2022, Fiscal 2022, Fiscal 2021, and Fiscal 2020 respectively and its top 10 suppliers delivered 97.36%, 100.0%, 100.0%, and 99.4% of its purchases for the period ended September 30, 2022, Fiscal 2022, Fiscal 2021, and Fiscal 2020 respectively. The loss of a significant client or supplier would have a material adverse effect on its financial results. The company cannot assure that it can maintain the historical levels of business from these clients or that it will be able to replace these clients in case it loses any of them.

Operations are geographically dispersed: The company has a wide base of operations with locations across state boundaries, there is significant risk of failure of supply lines, communication lines or disruption of efficient management due to instability or location specific actors in different states. It is also exposed to multiplicity of diverse state specific laws, regulation or legislation, if any detrimental regulation or legislation is notified, it may be affected in various ways.

High working capital requirement: The company operates in a working capital intense industry therefore its business demands substantial funds towards working capital requirements. In case there are insufficient cash flows to meet its working capital requirement or it is unable to arrange the same from other sources or there are delays in disbursement of arranged funds, or it is unable to procure funds on favorable terms, at a future date, it may result into its inability to finance its working capital needs on a timely basis which may have an adverse effect on its operations, profitability and growth prospects.

Outlook

Rite Zone Chemcon India Limited deals in a range of construction chemicals and concrete products. The company offers complete construction solutions by supplying a complete range of various chemical products related to civil construction, infrastructure, building & structure including pre-construction or post construction as well as supplying all types of concrete required for construction and infrastructure developments. On the concern side, the company is dependent on few numbers of customers and suppliers for sales and purchase from top 10 customers and Top 4 suppliers. Loss of any of these large customer and supplier will significantly affect its revenues and profitability.

The company is coming out with an IPO of 11,95,200 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 75 per equity share to mobilize Rs 8.96 crore. On performance front, the company’s Revenue from Operations increased from Rs 379.74 lakh in year ended March 31, 2021 to Rs 493.33 lakh in year ended March 31, 2022 with a resultant increase of 29.91% in year ended March 31, 2022 due to increase in sales and increase in construction activities post unlock by the government. Net Profit after tax increased from Rs 0.69 lakh in year ended March 31, 2021 to Rs 26.21 lakh in year ended March 31, 2022 with a resultant increase of 3688.41% in year ended March 31, 2022 due to increase in business activities after the opening up of the activities by the government considering reduction in number of Covid19 cases. Going forward, the company operates in Business-to-Business market (B2B) construction chemicals, concrete and concrete products and now it plans to explore in retail segment market products. Retail segment products includes concrete products, bonding chemicals, concrete repairs chemicals, waterproofing chemicals, engineering grout, tiling chemicals, plaster chemicals etc. To explore retail segment market products, the company will sell its products under its own brand to the dealers and retailers in local markets.