Ducol Organics coming with an IPO to raise Rs 31.51 crore

Ducol Organics and Colours

• Ducol Organics and Colours is coming out with an initial public offering (IPO) of 40,40,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 78 per equity share.
• The issue will open for subscription on January 09, 2023 and will close on January 11, 2023.
• The shares will be listed on NSE Emerge Platform.
• The share is priced 7.80 times higher to its face value of Rs 10.
• Book running lead manager to the issue is First Overseas Capital.
• Compliance Officer for the issue is Sabina Bee Qureshi.

Profile of the company

The company offers a range of pigment dispersions for various industries like Paints, Inks, Textile, Detergent, Paper, Rubber and Plastics. The company offers color solutions for various industries like paints, ink, textile, rubber, plastic, leather, paper, soaps, detergents and FMCG. The company is engaged in the business of manufacturing and selling of pigment dispersions, preparations, concentrates, paste colorants and master batches.

The company has a pan-India customer base, with integrated operations which involves development, manufacturing, marketing and distribution of a wide range of dispersions & master batches primarily to industries such as paints, ink, textile, rubber, plastic, leather, paper, soaps, detergents and FMCG. The company’s laboratories are well equipped to develop process capabilities and product application techniques. The company’s specialized and dedicated team of professionals and engineers constantly keep abreast with the latest technology and trends as per the requirement of the industry. The company’s development team has a deep understanding of color, color management and dispersion technology.

Currently, the company is operating out of 2 units in Taloja and a third unit at Mahad is in process of getting established with trials currently being conducted. It has adequate infrastructure, production capacities and the required technical support of well-equipped laboratories to cater to its customers’ needs with regards product development, quality assurance and product application support. The company is well placed to offer comprehensive product solutions to its customers.

Proceed is being used for:

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

Industry overview

Covering, more than 80,000 commercial products, India’s chemical industry is extremely diversified and can be broadly classified into bulk chemicals, specialty chemicals, agrochemicals, petrochemicals, polymers and fertilisers. Globally, India is the fourth-largest producer of agrochemicals after the United States, Japan and China. India accounts for 16% of the world production of dyestuffs and dye intermediates. Indian colorants industry has emerged as a key player with a global market share of ~15%. The country’s chemicals industry is de-licensed, except for few hazardous chemicals. 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 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 chemicals industry stood at $178 billion in 2019 and is expected to reach US$ 304 billion by 2025 registering a CAGR of 9.3%. The demand for chemicals is expected to expand by 9% per annum by 2025. The chemical industry is expected to contribute US$ 300 billion to India’s GDP by 2025. An investment of Rs. 8 lakh crore ($107.38 billion) is estimated in the Indian chemicals and petrochemicals sector by 2025. The specialty chemicals constitute 22% of the total chemicals and petrochemicals market in India. The demand for specialty chemicals is expected to rise at a 12% CAGR in 2019-22.

Meanwhile, the Indian Paint Industry is today worth over Rs 62,000 crore and is the fastest-growing major paint economy the world over, with a consistent double-digit growth over the last 2 decades. It has over 3,000 paint manufacturers, with nearly all global majors present in the country. It has a near-75% share of architectural paints and a 25% share of industrial paints, with an equitable fast-paced growth across all segments, from Architectural to Powder, from Automotive to Coil, from High-Performance to General Industrial, from Refinish to Wood, and from Packaging to Plastic. Besides the core Paint/Coatings segment, Paint India also represents the interests of the Printing Inks, Construction Chemicals and Adhesives-Sealants segments from a sourcing and manufacturing viewpoint, since the raw materials, production equipment and supply channels have a significant overlap, and none of these segments have dedicated worldclass events for themselves. Similarly, large and important industry segments like Pigments, Resins, Plastic Master batches and Composites also find valuable sourcing avenues at the show, extending the benefits and customer engagement on offer.

Pros and strengths

Product diversification & wide product offering: The company enjoys a wide product range with diverse applications across various industries and sectors. It possesses multiple manufacturing facilities with the ability to address customer orders with shrinking turnaround time. It has a dedicated team for the development of innovative products. The company has wide range of products enabling it to cater to wide spectrum of applications across the industries and balancing it out from market volatilities. Customization forms the essence of the company. It also offers tailor-make products to meet the customers’ needs & requirements, not deviating from the quality and product performance. Modifying its products on various parameters like Viscosity, Appearance, Moisture Content, pH and application needs as per customer requirements, helps it to deliver value to its customers.

Diverse customer base: The company caters to clients from diverse industries like paints, ink, textile, rubber, plastic, paper, soaps, detergents etc. Asian Paints Limited and Berger Paints India Limited are two of its major customers from Paints Industry. It has over the years established relationships with various clients across these industries and continue to serve them its product offerings. The diverse customer base acts as a natural hedge against any recessionary environment that may affect a particular industry where it supplies its products.

In- house research & development: The company has the latest technology required in this industry and is continually updated with in-house R&D at its laboratories situated at Unit I & Unit II. Also, its experienced and technically qualified personnel strive to develop and improve upon the product features by incorporating the latest technology, customer feedback, suggestions from staff and developing new specialty and cost-effective products.

Risks and concerns

Substantial revenue comes from limited customers: Revenue from top 5 customers constituted 85.80%, 79.90% and 81.53% of its revenue from operations for the 6 months period ended September 30, 2022, and financial years March 31, 2022 and March 31, 2021 respectively. The company does not have firm commitment supply agreements with most of its customers and instead rely on purchase orders to govern the volume and other terms of its sales of products. The loss of any significant client would have a material effect on its financial results. The company cannot assures 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. While the company is constantly striving to increase its customer base and reduce dependence on any customer, there is no assurance that it will be able to broaden its customer base in any future periods or that its business or results of operations will not be adversely affected by a reduction in demand or cessation of its relationship with any of its major customers.

Geographical constrain: All the company’s manufacturing facilities are based near Mumbai in Maharashtra. As a result, if there is any localised social unrest, natural disaster or breakdown of services and utilities in Maharashtra, it may affect its business adversely. Further, the company’s manufacturing activities are subject to operating risks, such as breakdown or failure of equipment, power supply or processes, performance below expected levels of output or efficiency, obsolescence, labour disputes, strikes, lockouts, continued availability of services of its external contractors, earthquakes and other natural disasters, industrial accidents etc. The company has not experienced any of these operating risks in the past. Although, it has contingency plans to meet most of its operating risks, it cannot assure about the adequacy of such plans will be adequate to meet all of its operating risks.

Dependent on third party transportation: The company uses third party transportation providers for the supply of most of its raw materials and delivery of its products to its domestic customers. Though, the business has not experienced any disruptions due to transportation strikes in the past, any future transportation strikes may have an adverse effect on the supplies from its suppliers and deliveries to its customers. These transportation facilities may not be adequate to support its existing and future operations. In addition, raw materials and products maybe lost or damaged in transit for various reasons including occurrence of accidents or natural disasters. There may also be delay in delivery of raw materials and 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 products to its customers may have an adverse effect on its business and results of operations.

Outlook

Ducol Organics and Colours offers a range of pigment dispersions for various industries. It offers products like Paints, Ink, Textile, Detergent, Paper, Rubber, and Plastics color solutions. It primarily engages in the business of manufacturing and selling of pigment dispersions, preparations, concentrates, paste colorants, and master batches. Having such a broad product display and Pan-India customer base, the company serves a variety of entities and industries including paints, ink, textile, rubber, plastic, leather, paper, soaps, detergents, and FMCG. On the concern side, substantial portion of the company’s revenues has been dependent upon few customers. The loss of any one or more of its major customer would have a material adverse effect on its business, cash flows, results of operations and financial condition.

The company is coming out with an IPO of 40,40,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 78 per equity share to mobilize Rs 31.51 crore. Minimum application is to be made for 1600 shares and in multiples thereon, thereafter. On performance front, total income increased by 12.78% to Rs 8893.61 lakh for Fiscal 2022 from Rs 7885.80 lakh for Fiscal 2021, primarily due to an increase in revenue from operations. Moreover, the company’s net profit for the year increased by 74.11% to Rs 491.11 lakh for the financial year 2022 from Rs 281.43 lakh for the financial year 2021.

Going forward, the growth strategy it looks to increasing product offerings and adding newer categories of products. The company is also always keen to adopt newer and latest available technologies. Technology and product addition and innovation will be core to this effort. Increasing its customer footprints across geographies will also be a simultaneous effort in direction of achieving growth. It has also been building additional infrastructure and capacities on a planned basis to cater to the growing demands in products.