Sah Polymers coming with an IPO to raise upto Rs 66.30 crore

Sah Polymers

• Sah Polymers is coming out with a 100% book building; initial public offering (IPO) of 1,02,00,000 shares of Rs 10 each in a price band Rs 61-65 per equity share.
• Not more than 75% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 10% for the retail investors.
• The issue will open for subscription on December 30, 2022 and will close on January 04, 2023.
• The shares will be listed on BSE as well as NSE.
• The face value of the share is Rs 10 and is priced 6.10 times of its face value on the lower side and 6.50 times on the higher side.
• Book running lead manager to the issue is Pantomath Capital Advisors.
• Compliance Officer for the issue is Runel Saxena.

Profile of the company

The company is an ISO 9001:2015 certified company, primarily engaged in manufacturing and selling of Polypropylene (PP)/ High Density Polyethylene (HDPE) FIBC Bags, Woven Sacks, HDPE/PP woven fabrics, based products of different weight, sizes and colours as per customers specifications. It offers customised bulk packaging solutions to business-to-business (“B2B”) manufacturers catering to different industries such as Agro Pesticides Industry, Basic Drug Industry, Cement Industry, Chemical Industry, Fertilizer Industry, Food Products Industry, Textile Industry Ceramic Industry and Steel Industry. Besides, the company is a Del Credere Associate cum Consignment Stockist (DCA/ CS) of Indian Oil Corporation Limited and also operates as Dealer Operated Polymer Warehouse (DOPW) of Indian Oil Corporation Limited for their polymer division. It enters into arrangements as third-party manufacturers to manufacture its tape and fabric based on customers’ requirements.

The company has two business divisions (i) domestic sales; and (ii) exports. It has presence in 5 states and 1 union territory for its domestic market based on sales made for the three months ended June 30, 2022 and FY 2022, respectively. Internationally, the company exports its products to 14 countries such as Algeria, Togo, Ghana, Poland, Portugal, France, Italy, Dominican Republic, USA, Australia, UAE, Palestine, UK and Ireland. Presently, the company has one manufacturing facility with installed production capacity of 3960 m.t. p.a. located at Udaipur, Rajasthan. Over the years, it has made investments, from time to time, in its manufacturing infrastructure to support its product portfolio requirements and its reach.

Proceed is being used for:

• Setting up of a new manufacturing facility to manufacture new variant of Flexible Intermediate Bulk Containers (FIBC)
  
• Repayment of certain secured and unsecured borrowings in full availed by the company
  
• Funding the working capital requirements of the company
  
• General corporate purposes

Industry Overview

The Polymers Market size is expected to reach $790 billion by 2027, after growing at a CAGR of 5.5% during the forecast period 2022-2027. Polymers are a broad range of materials produced from small molecules called monomers. They form a long chain after bonding. Plastics are also referred to as polymers as these are manufactured using polymers. Polymers can be classified into natural polymers, semi-synthetic polymers and synthetic polymers. Based on structure, polymers can be categorized into linear polymers, cross-linked polymers and branched-chain polymers. These are extensively used in textiles, packaging, aircraft, bottles, trays, toys and many other applications. According to the US Bureau of Economic Analysis, the output of textile manufacturing in the US in 2019 was $18.79 billion which was 23.8% more than the numbers in 2009. Thus, the growth in such end-use industries is boosting its market growth.

Meanwhile, the India Packaging Market was valued at $50.5 billion in 2019, and it is expected to reach $204.81 billion by 2025, registering a CAGR of 26.7% during the period of 2020-2025. Packaging is among the high growth industries in India and developing at 22-25% per annum and becoming a preferred hub for packaging industry. Currently the 5th largest sector of India's economy, the industry 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 up to 40% lower than parts of Europe which, combined with India's resources of skilled labour, 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.

Pros and strengths

Strong product portfolio: The company’s product mix has evolved over the past several years as it has entered into new product categories. The company’s product portfolio includes FIBC (Flexible Intermediate Bulk Containers), Container bag, PP woven Fabric & HDPE woven fabric, woven sacks, PP fabric, box bags, fabric rolls, bags for flexible packaging. It engages in manufacturing of products based on the orders of its customers to meet their requirements. It trusts that maintaining a variety of products in its business provides it with an opportunity to cater to diverse needs of different customer segment. The company’s products undergo quality check at various levels of production to ensure that any quality defects or product errors are rectified on real time basis.

Customer base across geographies and industries: The company has a customer base across industries and geographies both at domestic and overseas. It follows B2B customer segment catering the packaging requirements of agro pesticides industry, basic drug industry, cement industry, chemical industry, fertilizer industry, food products industry, textile industry, ceramic industry and steel industry. Further domestically it exports its products to 14 countries such as Algeria, Togo, Ghana, Poland, Portugal, France, Italy, Dominican Republic, USA, Australia, UAE, Palestine, UK and Ireland. In addition to direct sales, domestically it also sells its products through commission agents and globally through overseas representatives and merchant exporter. The company’s customer base across various industries and at varied geographies reduces its dependence on any one industry or location and provides a natural hedge against market instability in a particular industry or location.

Experienced management team: Asad Daud, the Managing Director, and Hakim Sadiq Ali Tidiwala, Whole Time Director, has been instrumental in managing its expanding operations, implementing strategic marketing and business initiatives, and focusing on financial performance. The company’s management team has experience in key areas such as production, sales and marketing, and finance. In particular, they have led the process through which it has created value through operational growth, building brand recognition and loyalty and identified new business opportunities by diversifying the customer base. As of March 31, 2022, the company is supported by 97 committed staff base on its payroll.

Risks and concerns

Significant revenue comes from limited customers: The company is dependent on a limited number of customers for a significant portion of its revenues. Revenues generated from sales to its top 10 customers was Rs 1757.56 lakh , Rs 5391.72 lakh, Rs 3,44.08 lakh and Rs 3,680.15 lakh which represented 61.72%, 65.83%, 66.57%, and 79.06% of its revenue from operations during the three months period ended June 30,2022 Fiscal 2022, Fiscal 2021 and Fiscal 2020 respectively. The company’s Subsidiary viz. Fibcorp Polyweave Private Limited is one of its prevalent customer with a turnover aggregating to Rs 522.22 lakh, Rs 1260.75 lakh, Rs 288.42 lakh and Rs 395.40 lakh constituting 18.34%, 15.39%, 5.24% and 8.05% of its revenue from operations for three months period ended June 30, 2022 for fiscal 2022, 2021 and 2020, respectively. Hence, the loss of one or more of its significant customers or a reduction in the amount of business it obtains from them could have an adverse effect on the business, results of operations, financial condition and cash flows.

Geographical constrain: All the company’s facilities like registered office, manufacturing unit and processing unit is located in Rajasthan and it proposes to set up its new facility in Rajasthan as well, which exposes it to risks of concentration. The company’s success depends on its ability to successfully manufacture and deliver its products to meet its customer demand. Although in the past the company has not experienced instances of operating risks, however its manufacturing facilities are susceptible to damage or interruption or operating risk. If the company experiences delays in production or shutdowns at its facility due to any reason, including disruptions caused by disputes with its workforce or any external factors, the company’s operations will be significantly affected, which in turn would have a material adverse effect on its business, financial condition and results of operations.

Significant working capital requirement: The company’s business requires significant working capital, such as to finance the purchase of raw materials, consumables, stores & spares and payments for operating expenses before it receives payment from its customers. In addition, the actual amount of its future capital requirements may differ from estimates as a result of, among other factors, cost overruns, unanticipated expenses, regulatory changes, economic conditions, additional market developments and new opportunities in the industry. The company’s inventories as a percentage of total current assets as on June 30, 2022, March 31, 2022, March 31, 2021, and 2020 were 35.95%, 37.88%, 22.21%, and 24.84% respectively. It has to maintain adequate inventories of raw materials, stores, spares & consumables, work-in-progress and finished goods to meet its day to day requirements and avoid situations like stock-outs. If its management misjudges expected customer demand, it could adversely impact the results by causing either a shortage of products or an accumulation of excess inventory.

Outlook

Sah Polymers is primarily engaged in manufacturing and selling of Polypropylene (PP)/High-Density Polyethylene (HDPE) FIBC Bags, Woven Sacks, HDPE/PP woven fabrics and woven polymer. The company offers customised bulk packaging solutions to business-to-business (' B2B') manufacturers catering to different industries such as Agro Pesticides Industry, Basic Drug Industry, Cement Industry, Chemical Industry, Fertilizer Industry, Food Products Industry, Textile Industry Ceramic Industry and Steel Industry. On the concern side, the company’s existing and proposed manufacturing facility are concentrated in a single region i.e., Rajasthan and the inability to operate and grow its business in this particular region may have an adverse effect on its business, financial condition, results of operations, cash flows and future business prospects.

The issue has been offered in a price band of Rs 61-65 per equity share. The aggregate size of the offer is around Rs 62.22 crore to Rs 66.30 crore based on lower and upper price band respectively. Minimum application is to be made for 230 shares and in multiples thereon, thereafter. On performance front, the company’s total revenue on consolidated basis amounted to Rs 8,123.45 lakh for the financial year 2021-22. The company’s total expenses, excluding tax amounted to Rs 7,574.20 lakh for the financial year 2021-22 representing 93.24% of its total revenue. Moreover, the company’s profit after tax was Rs 437.54 lakh representing 5.39% of its total revenue for the financial year 2021-22. Going forward, the company intends to, and are in the process of, expanding its manufacturing capacities for existing products that it is are in the process of developing and commercializing, to cater to the growing demand from its existing customers and to meet requirements of new customers. Moreover, the company aims to focus on deepening its penetration in its existing markets and thereby increase its domestic presence by expanding its customer network. The company intends to expand its customer network in the untapped opportunities in these cities for it to capitalise to grow its business operations.