Uma Converter coming with an IPO to raise Rs 18.41 crore

Uma Converter

• Uma Converter is coming out with an initial public offering (IPO) of 55,80,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 33 per equity share.
• The issue will open for subscription on December 15, 2022 and will close on December 21, 2022.
• The shares will be listed on NSE Emerge Platform.
• The share is priced 3.30 times higher to its face value of Rs 10.
• Book running lead manager to the issue is GYR Capital Advisors.
• Compliance Officer for the issue is Hiral Shah.

Profile of the company

The company was incorporated as a private limited company in 1999, with the business to manufacture flexible packaging material in its manufacturing unit situated at Gandhinagar, Gujarat. The company is engaged in manufacturing flexible packaging material which is multi-functional and caters to the packaging requirements of various industries. The company’s products are crafted out of an extensive range of industry approved materials such as polyethylene terephthalate, biaxially-oriented polypropylene, polythene, cast polypropylene, foil, paper, bio-degradable films, etc. Since, flexible packaging material predominantly consists of plastic as a major raw material, it aims to manufacture its products sustainably by aiming towards “Reuse, Recycle and Upcycle”. In order to ensure that its manufacturing operations remain sustainable, it has executed various memorandums of understanding with third parties for collection, segregation, transportation, recycling and disposal of plastic waste. The company has also executed a service agreement with Ambuja Cements Limited for disposal of plastic waste in an environmentally friendly manner in the cement kiln process at high temperatures and long residence time, while simultaneously manufacturing cement of desired quality. It has obtained necessary licenses and approvals and have made applications seeking approval for using plastic in its manufacturing process in both its manufacturing units.

The company’s product portfolio largely consists of multi-color pouches, stand-up pouches, zip-lock pouches, vacuum pouch, paper bag, e-commerce bag, etc. Over the years, it has offered cost effective and customized flexible packaging solutions in accordance with the standardized sizes, designs of the customer requirements, coherent with the latest technological advances within the industry. It manufactures packaging material suitable for packaging products manufactured in food and beverage industry, e-commerce industry, pharmaceutical industry, hygiene and personal-care industry, household industry and agricultural industry. The company’s customers are mainly manufacturers functioning in the aforementioned industries.

The company’s integrated business model provides all packaging solutions to its customers by researching and developing suitable packaging material, creating designs suitable to the nature of the product and manufacturing the final packaging material. The company’s Research and Development division (R&D Division) is equipped with the necessary facilities to carry out all necessary trials to develop and devise packaging material suitable to the nature of the product and the requirement of the various domestic and international packaging regulations and standards. The company’s team of experts employed in the R&D Division carry out various tests in its in-house R&D laboratory on the nature and reactivity of the packaging material to ensure the quality of its products and compliance with the customer requirements and regulatory standards.

Proceed is being used for:

• Funding the working capital requirements of the company.
• General corporate purposes.

Industry overview

The packaging market in India seems set for the next level of growth. Strong favorable demographics aside, factors such as increasing disposable income levels, rising consumer awareness and demand for processed food, and the multinational giants taking rapid strides in the food, beverages, cosmetics & toiletries and pharmaceuticals space, are expected to be the key drivers of this growth story. These factors are forcing both packaging suppliers and end-user industry to shift from bulk packaging to retail, unit-level and small-sized packaging. In addition, exploding organized retail growth and newly relaxed FDI investment norms in retail and other sectors augur well for packaging market in India.

Packaging is among the high growth industries in India. The Indian Packaging Industry was valued to be $0.073 lakh crore in FY 2020 and is estimated to be $0.084 lakh crore in FY 2021. It is expected to grow from $0.073 lakh crore in FY 2020 to $0.205 lakh crore in FY 2025 with CAGR of 23.05% and becoming a preferred hub for packaging industry. Currently, Retail Market being the 5th largest sector of India's economy, has reported steady growth over past several years and shows high potential for much expansion, particularly in the export market. Costs of processing and packaging food can be 40% lower than of in Europe which, combined with India's resources of skilled labor, make it an attractive venue for investment. A high degree of potential exists for almost all user segments which are expanding appreciably-processed foods, hard and soft drinks, fruit and marine products.

The Indian packaging industry has made a mark with its exports that comprise flattened cans, printed sheets and components, crown cork, lug caps, plastic film laminates, craft paper, paper board and packaging machinery, while the imports include tinplate, coating and lining compounds and others. In India, the fastest growing packaging segments are laminates and flexible packaging, especially PET and woven sacks. Over the last few years Packaging Industry is an important sector driving technology and innovation growth in the country and adding value to the various manufacturing sectors including agriculture and FMCG segments. The global packaging industry is developing and expanding day by day and Indian packaging industry is also growing at rapidly. This growth is primarily driven by factors like growing pharmaceutical, food processing, manufacturing industry, FMCG, healthcare sector and ancillary in the emerging economies like China, India, Brazil, Russia and few other East European countries.

Pros and strengths

Integrated manufacturer of flexible packaging material: The company’s integrated business model enables it to provide end to end capabilities from developing and devising the appropriate packaging material, designing the package based on the nature of the product and lastly manufacturing the final finished packaging material, thereby catering to all packaging related needs of its customers. The company’s R&D Division and Design Division are the major components of its integrated business model. The company’s R&D Division armed and augmented by experienced personnel and niche research skills helps it in understanding the product requirements of its customers and developing packaging material suitable to their needs and the nature of the product, thereby enabling it to provide a customized experience to its customers.

Wide-spread domestic market presence: With the help of its long-standing market presence and integrated business model the company has been able to create a wide spread market presence in India, thereby catering to various manufacturers functioning in various industries. It has been able to cater to changing and specific need-based requirements of its customers by being the forerunner in providing a complete packaging experience by integrating the efforts of its R&D Division, Design Division and its ability to customize the usage of its product in various applications. The company has a dedicated team of professionals for managing and overseeing the production, marketing and selling of its products.

Presence across diverse industry verticals: The company has developed long-term relationships with its customers in various industries including food and beverage, hygiene and personal care, pharmaceutical, household and agricultural. Its business with some of its more recent customers has increased, since it added them to its customer portfolio, reflecting its ability to develop and strengthen relationships with customers. The company attributes the strength of its customer relationships to its integrated business model and its ability to customize its products based on customer specifications and requirements. The company has maintained a track record of consistent delivery of quality and cost-effective products and solutions through its strategic alignment with its key customers’ goals and specifications. The company is engaged in manufacturing flexible packaging material suitable for diverse and multifarious applications in the food and beverage industry, e-commerce industry, hygiene and personal care industry, pharmaceutical industry, household industry and agricultural industry.

Risks and concerns

Maximum revenue comes from limited customers: The company is engaged in the business of manufacturing flexible packaging material for manufacturers working in diverse industries. In period ended September 30, 2022 and Fiscals 2022, 2021 and 2020, 59.35%, 71.68%, %, 84.54% and 84.19% respectively, of its revenue from operations were derived from its top five customers. As of September 30, 2022, based on management estimates, the revenue from food and beverage industry was 93.33%, e-commerce industry was 6.47%, hygiene and personal care industry was 0.13%, household industry was nil and agricultural industry was 0.11% of its revenues. The company’s business operations are highly dependent on its customers, especially from the pharmaceutical industry which it caters to and the loss of any of its customers from any industry which it caters to may adversely affect its sales and consequently on its business and results of operations.

Additional manufacturing unit has very limited history of operations: The company since its incorporation has been carrying on the business of manufacturing flexible packaging material. The company had commenced its business operations in 1999 from its manufacturing unit situated at Santej, Gujarat (Unit  I) and had set up its additional manufacturing unit in 2018 at Timba, Gujarat (Unit - II) to expand its manufacturing operations. Unit-II has been set up to manufacture packaging material in roll and pouch form having better suitability to food sector where the laminates are processed through solvent less process, thereby enabling the company to expand its customer base. This manufacturing unit is also equipped to manufacture three-layer and five-layer co-extruded film and extrusion coating which is experiencing an increase in demand in the packaging industry and therefore is expected to provide a better profitability margin. The additional manufacturing unit was set up in 2018, therefore it has a limited operation history in the said unit, resultantly it may face difficulty and errors in evaluating factors such as historical performance, future prospects, capacity utilization, pliability of its customers towards the location of the unit, etc. The company cannot assure that its estimates and forecasts with respect to market trends, demand and supply patterns, historic and expected capacity utilization would be accurate.

High working capital requirement: The company’s business requires a significant amount of working capital. As per its settled business terms, it requires its customers to pay the full amount of the consideration only after they receive the order, as a result, significant amounts of its working capital are often required to finance the purchase of raw material and execution of manufacturing processes before payment is received from its customers. Further, the company is also required to meet the increasing demand and for achieving the same, adequate stocks are required to be maintained which requires sufficient working capital. In the event, it is unable to source the required amount of working capital for addressing such increased demand of its products, it might not be able to efficiently satisfy the demand of its customers.

Outlook

Uma Converter is engaged in manufacturing flexible packaging material. The company product portfolio includes multi-colour pouches, stand-up pouches, zip-lock pouches, vacuum pouches, paper bags, e-commerce bags, etc. The company is also engaged in manufacturing and carrying out various printing and lamination processes for third parties on a job-work basis. In order to expand the application of its products, the company is equipped with necessary facilities to develop and devise packaging material suitable to the nature of the product and the requirement of customers functioning in various industries. On the concern side, the company depends on a few customers of its products, for a significant portion of its revenue, and any decrease in revenues or sales from any one of its key customers may adversely affect its business and results of operations.

The company is coming out with an IPO of 55,80,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 33 per equity share to mobilize Rs 18.41 crore. On performance front, the total income of the company for fiscal year 2022 was Rs 18,720.79 lakh against Rs 15,911.11 lakh total income in Fiscal year 2021, an increase of 17.66% in total income. This increase was due to increase in production thereby increasing sales, and income from sale of investment. Moreover, the company reported a profit after tax for the fiscal 2022 of Rs 494.96  lakh against profit after tax of Rs 445.09 lakh in fiscal 2021, an increase 11.21%. Going forward, the requirements of the various sectors that the company’s existing customers are currently servicing are continuously evolving, as a consequence of the same, there will be a continuous demand to evolve its existing products and expand its product portfolio to meet these requirements. The company’s emphasis on quality of manufacture and timely delivery of its offerings have been a key factor in its ability to attract new customers and to retain its existing customers. The company intends to draw on its experience, market position and ability to timely deliver quality products to successfully foray into other sectors as well as to other geographies.