Rex Sealing coming with an IPO to raise Rs 8.09 crore

Rex Sealing and Packing Industries

• Rex Sealing and Packing Industries is coming out with an initial public offering (IPO) of 5,99,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 135 per equity share.
• The issue will open on December 30, 2022 and will close on January 04, 2023.
• The shares will be listed on SME Platform of BSE.
• The share is priced 13.50 times higher to its face value of Rs 10.
• Book running lead manager to the issue is Aryaman Financial Services.
• Compliance Officer for the issue is Saloni Patwa.

Profile of the company

The company is a manufacturer and exporter of Sealing packing and Insulation products including Jointing Sheets, Fabric Expansion Joints, Gland packing & Ropes, High Temperature resistant textiles, Ceramic Fiber Product etc. Its business was initiated in the Year 1963 by its founding Promoter, Manjunath Nayak under the name Rex Industries for manufacturing of Gland Packing. Initially, the company started as a manufacturing business at a very small scale. Thereon, in the Year 1997, the business was further expanded by second generation of the family, Niranjan Nayak and later joined by Naresh Nayak in the Year 2001. Further, with a vision to corporatize its business and cater to the organized players in the markets, the company was incorporated in the Year 2005.

The company is an ISO 9001 & 14001 Certified company. It follows British Standard (BS), Deutsches Institut fur Normung (DIN) - German Standard, ASTM (American Standard), and American Standard Soc of Mechanical Engineers (ASME) quality standards for its range of products. The company’s diversified products include four major categories: Compressed Fibre Jointing Sheets / Gaskets; Gland Packing & Ropes; Fabric Expansion Joints; Technical and Heat Resistance Textiles; and Ceramic Fiber Product.

All its products are manufactured in-house at its manufacturing facilities located in Plot No.44, MIDC- Taloja Industrial Area, Palekhurd Panvel, Raigad, which enables it to have an effective control over the manufacturing process and to ensure consistent quality of its products. The company’s manufacturing unit is strategically located at Panvel providing it with strategic and operational advantages and has a well-equipped laboratory, modern technology and testing equipments with supporting environment and facilities, to ensure that the products conform to the pre-determined standards.

Proceed is being used for:

• Funding working capital requirement
• General corporate purpose

Industry Overview

The India industrial gaskets industry is being led by the increasing power generation in the country to meet the increasing power demand. Further, the positive business conditions in the Indian manufacturing sector are boosting the market growth in the country. In addition to this, the Make in India drive is helping India become the hub for hi-tech manufacturing as many global giants have either set up or are in the process of setting up manufacturing plants in India supported by the growing population and an increasing purchasing power. This is predicted to favour the market growth of industrial gaskets. Also, the Government of India is taking several initiatives to promote a healthy environment for the development of the manufacturing sector in the country, consequently boosting the industrial gaskets market in India. The India industrial gaskets market witnessed a healthy growth in the historical period of 2017-2021. The India industrial gaskets industry is expected to grow at a CAGR of 6% in the forecast period of 2022-2027.

Industrial gaskets work as static seals between two non-mobile flat flanges. They are key components of industrial applications tasked to assist seal joints in limiting vibration, enhancing mounting, and preventing leaks. Industrial gaskets are manufactured using materials that can tolerate high rates of compression like rubber, graphite, nitrite, and neoprene. The market growth of the industrial gaskets in India is driven by the robust growth of the refineries segment in recent years. The growth of this segment can be attributed to the growing requirement of sealing products to prevent leakages of hazardous chemicals and toxins into the environment.

In addition, the flourishing automotive industry, along with the growing product utilization in the plumbing and construction sector, is expected to aid the market growth over the forecast period. Further, due to robust industrialisation and rapid urbanisation in the country, the manufacturing plants and factories that use gaskets are increasing - thereby facilitating market growth. The market is further supported by certain factors like the extensive application of industrial gaskets in multiple end-use industries, rising consumption of PTFE gaskets, increasing demand from oil & gas production-related facilities in GCC countries, strict regulations regarding leakage implemented by the Environmental Protection Agency to safeguard against any environmental damage, which are bolstering the market growth. Going forward, India has now been ranked sixth among the world's ten largest manufacturing countries. The petrochemical industry contributes about 30% of raw materials to the chemical industry, which is expected to reach USD 300 billion by 2025. Furthermore, factors such as the growing industrial, electrical, and electronics sectors in the developing economies, including China, India, and ASEAN countries, are further expected to boost the demand for gaskets and seals in the region.

Pros and strengths

Focusing on multiple end - user industries: The company over the last few years introduced new product categories which have diverse end- use applications. Initially, the company started with manufacturing Gland Packing product. Subsequently, it started manufacturing Compressed Jointing Sheets and Gaskets, Fabric Expansion Joints etc. which has helped it to diversify into more end-user industries such as Petrochemical, Power, Cement, Steel, Pharmaceutical industries. This expansion has facilitated a diversified product portfolio and helped it to create a demand for its products across various industries. A diversified portfolio enables it to achieve significant scale of production and help it to increase its market penetration. The company’s approach of presenting a large portfolio of products for diversified customer applications has helped it to enhance its growth and will continue to increase its brand loyalty among its customers.

Long Term relationship with clients and repeat business: The company enjoys a good reputation and despite increase in competition, have received repeat orders from several of its prominent clients. The company’s clients are spread across the country and overseas and have been associated with it for a long term period. The company constantly try to address its clients’ requirements which help it to maintain a long-term working relationship with its clients and improve its retention strategy. The portfolio of its existing clients gives it a competitive advantage in gaining new clients and increasing its business.

In house R&D for innovation and cost improvements: The company is a quality and research driven company with continuous efforts focused on quality checks, analysis and developing latest process improvements and production cost efficiencies. The company’s Manufacturing facility has a dedicated R&D laboratory for testing the raw materials employed in the manufacturing process and the finished products so manufactured. There are multiple checks at different levels of production to make sure quality of the products is not compromised. The product and process innovations will be key factor going forward and its continued investment in R&D will better prepare it to take advantage of any future opportunities.

Risks and concerns

Substantial revenue comes from limited customers: The company’s business from customers is dependent on its continuing relationship with such customers, the quality of its products and its ability to deliver on their orders, and there can be no assurance that such customers will continue to do business with it in the future on commercially acceptable terms or at all. The company’s customers include large corporate houses. For the financial year ended June 30, 2022 March 31, 2022, March 31, 2021 and March 31, 2020, the company’s top ten clients accounted for around 67.77%, 65.55%, 65.82% and 52.43% of its revenue from operations. However the loss of any significant client would have a material effect on its financial results. The loss of any significant client would have a material effect on its financial results.

No long-term agreement with suppliers for raw materials: The company is dependent on a number of suppliers within India and abroad, for procurement of raw materials required for manufacturing its products. In June 2022 and Fiscals 2022, 2021 and 2020, its cost of material consumed amounted to 53.30%, 64.41%, 61.31% and 63.65% of its total revenue respectively. It has not entered into long term contracts with its suppliers and prices for raw materials are normally based on the quotes it receives from various suppliers. Inadequate and timely unavailability substandard quality of the raw materials used in the manufacture of its products, could have a material adverse effect its business.

High working capital requirements: The company’s business requires significant amount of working capital. Major Portion of its working capital is utilized towards debtors and inventory. The company has been sanctioned working capital of ? 4 50 lakh from the existing bankers. Further, it 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, the company 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. Even if the company is able to source the required amount of funds, it cannot assure that such funds would be sufficient to meet its cost estimates and that any increase in the expenses will not affect the price of its products.

Outlook

Rex Sealing and Packing Industries is a manufacturer and exporter of Sealing packing and Insulation products including Jointing Sheets, Fabric Expansion Joints, Gland packing & Ropes, High-Temperature resistant textiles, Ceramic Fiber Products, etc. The company is in the process of setting up an additional manufacturing facility at Anand Nagar, MIDC Ambernath, admeasuring 4000. Sq meter for expansion of business and manufacture of all types of “Asbestos Free” Gaskets sheets for Automotive, Steel and other process unit. On the concern side, substantial portion of the company’s revenues has been dependent upon few clients. The loss of any one or more of its major clients would have a material effect on its business operations and profitability. Moreover, the company does not have long term agreement with suppliers for supply of raw material. Its inability to obtain raw material in a timely manner, in sufficient quantities could adversely affect its operations, financial condition and/or profitability.

The company is coming out with an IPO of 5,99,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 135 per equity share. Minimum application is to be made for 1000 shares and in multiples thereon, thereafter. On performance front, the company’s total income increased 22.56% at Rs 2,115.68 lakh in fiscal 2022 as compared to Rs 1,726.30 lakh in fiscal 2021. The increase in the year 2022 was due to increase in demand of its products as compared to last year. Moreover, the company’s Profit after Tax increased 48.41% to Rs 54.62 lakh in fiscal 2022 from Rs 36.81 lakh in fiscal 2021.

Going forward, continuous innovation in its manufacturing process, technology upgrades and cost improvement is a norm at the company. The company’s qualified and technical teams try and ensure minimal wastage and extract out maximum from the resources it has at its disposal, be it the raw materials, be it the energy or the premises it operates in, optimum utilisation is what helps the company in innovating process improvements, thereby reducing costs. Additionally, the company uses the latest technology and machinery to ensure best quality and competitive product output and regularly upgrade its technology and machineries used in the manufacturing process in order to keep up market standards.