Global Surfaces coming with an IPO to raise upto Rs 154.98 crore

Global Surfaces

• Global Surfaces is coming out with a 100% book building; initial public offering (IPO) of 1,10,70,000 shares of Rs 10 each in a price band Rs 133-140 per equity share.
• Not less than 50% 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 35% for the retail investors.
• The issue will open for subscription on March 13, 2023 and will close on March 15, 2023.
• The shares will be listed on BSE as well as NSE.
• The face value of the share is Rs 10 and is priced 13.30 times of its face value on the lower side and 14.00 times on the higher side.
• Book running lead manager to the issue is Unistone Capital.
• Compliance Officer for the issue is Aseem Sehgal.

Profile of the company

The company is engaged in the business of processing natural stones and manufacturing engineered quartz. Natural stones are produced by complex geological processes and include a number of products such as granite, limestone, marble, slate, quartzite, onyx, sandstone, travertine, and others that are quarried from the earth. Natural stones are widely known for their uniqueness, aesthetic appeal, texture, color, and composition as no two natural stones are the same. Engineered quartz on the other hand, is an example of engineered stone used in the countertop industry, which is a composite material made up of crushed stone bonded by an adhesive. For instance, for countertops, the slabs are made from quartz crystals bonded with a resin binder.

The company has two units, one located at RIICO Industrial Area, Bagru Extn, Bagru, Jaipur, Rajasthan and the other at Mahindra World City SEZ, Jaipur, Rajasthan for processing and manufacturing of its products. The company’s Unit I which is admeasuring 20,488 sq. mtrs. or thereabouts is located at Bagru, Jaipur, Rajasthan. This Unit was acquired by the company as a stressed asset under the Recovery of the Debt Due to Banks and Financial Institutions Act, 1993 in 2004 and is exclusively dedicated to processing natural stones such as marble, granite and quartzite.

The company’s products have application in the flooring, wall cladding, countertops, cut-to size and other items. Its products are used in both commercial and residential industry and are sold within and outside India. Majority of its operational revenues comprise of export sales. Around 99% of its revenues from operations have been derived from exports during the Fiscals 2020, 2021 and 2022 and around 98% of its revenues from operations have been derived from exports during the period ended September 30, 2022. The company is focused on exporting its products and have exported to the United States of America, Canada, Australia and Middle East.

Proceed is being used for:

• Investment in its wholly owned subsidiary, Global Surfaces FZE for part-financing its capital expenditure requirements in relation to the setting up of manufacturing facility for engineered quartz at The Jebel Ali Free Zone, Dubai, United Arab Emirates (“UAE”) (Proposed Facility).
• General corporate purposes.

Industry overview

The market for natural stones in India is expected to grow considerably in the coming few years. India has rich reserves of stones due to its diverse geographical location. India holds 3rd place in the global production of natural stones, and holds nearly 11% share of the global natural stone market. Rajasthan is the most important and a major contributor to country’s mining business and holds nearly 90% share in India’s sandstone sector. Natural stone deposits in Rajasthan can be widely observed in Kota, Bharatpur, Tonk, and Sawai Madhopur, among others. India has rich mineral deposits and has one of the largest granite reserves in the world. It accounts for over 20% of the global granite reserves. The granite production mainly takes place in and around the states of Andhra Pradesh, Telangana, Rajasthan, Karnataka, Tamil Nadu, Uttar Pradesh, Odisha, Madhya Pradesh, and Gujarat among others.

Meanwhile, Engineered quartz was declared as a minor mineral by the Government of India in 2015. More than half of quartz in India comes from the state of Andhra Pradesh. Other states where quartz is available are Chhattisgarh, Gujarat, Rajasthan, West Bengal, Karnataka and Jharkhand. The industry manly consists of unorganized players. Besides catering to the Indian market, India is a major exporter of engineered or quartz stones in countries like the U.S, Europe and U.A.E. The demand for engineered stones has increased tremendously owing to its wide range of applications, cost effectiveness, and many other characteristics such as strength, durability, and availability in various color pellets. The Indian engineered stone market is estimated to be valued at $3,643 million in 2022. The industry is expected to grow at a CAGR of 7-8% in the projected years between 2022 to 2027. By the year 2032, the Indian engineered stone market is expected to reach $ 7,355 million.

The Indian engineered stone industry is estimated to be valued at $3,643 million in 2022 and is expected to grow at a CAGR of 8-9% between 2022-2027 to reach $5,410 million in 2027. The outlook for the natural segment is stable with a positive upside in the medium term. Like natural stones, the engineered stone industry is also linked to commercial and residential real estate industries. Going forward, with hybrid working environment, design specifications for homes are likely to be altered as there will be higher demand for flexible homes that are capable of functioning as offices and classrooms if required. This would result in increased penetration of engineered stones to be used in interior designing.

Pros and strengths

Consistent growth: The company has grown from a single category to multi-category stone manufacturing company. Its revenue from operations has grown from Rs 232.89 million in Fiscal 2011 to Rs 1903.13 million in Fiscal 2022, registering a CAGR of 21.04% in last 11 years. Despite Fiscal 2021 being impacted by COVID-19, the company’s revenue from operations has grown by 7.40% between Fiscal 2020 to Fiscal 2021. The recognition of its product quality and established goodwill has enabled it to penetrate the engineered quartz market and cater to new customers in addition to the company’s existing customer network. Increased acceptance of newer product categories due to improved designs and efficient pricing has further established the company’s reputation.

Wide product portfolio and multiple designs: The company had started its business activities with processing of natural stones and has since branched out to manufacturing engineered quartz which has enabled it to diversify its product portfolio manifold. Having a wide range of products not only enables it to meet the trends and ever changing demands of its customers but also gives the company an edge to efficiently compete with big players in the industry. The company’s constant efforts are focused towards identifying new market trends and introducing high quality products which are in demand. For the Fiscal 2021-22, engineered quartz generated revenues of Rs 1574.83 million which represents about 82.75% of its operating revenue.

Established presence in international markets: The company’s philosophy has always been to manufacture and process quality products which in turn has helped it to build a sustainable export business. As on date, various regions of the USA are its primary focus in international markets. The company’s exports business constitutes 99.13% of operating revenue in the Fiscal 2021-22 and has grown at 21.60% CAGR over last 11 years. It has in the recent past sold its products in the United States of America, Canada, Australia and Middle East.

Risks and concerns

Major revenue comes from few customers: The company’s sales are concentrated to a few customers with its top 3 customers contributing 67.38%, 73.08%, 65.41% and 60.11% respectively and its top 10 customers contributing 83.63%, 86.04%, 82.77% and 83.14% respectively, of its revenues during the Fiscal 2020, 2021 and 2022 and the period ended September 30, 2022, respectively. However, there is no direct/ indirect relationship between such entities and the company, its Promoter, Directors and Promoter Group members. The company presently does not have any long-term or exclusive arrangements with any of its customers and it cannot assure that it will be able to sell the quantities it has historically supplied to such customers. Any failure to continue its existing arrangements with customers could adversely affect its business and results of operations.

Major portion of revenues derived from exports to the USA: The company has historically derived a significant portion of its revenues from exports to the United States of America. In Fiscal 2022 and period ended September 30, 2022, the revenue generated from exports to the USA represented 99.13% and 94.85% respectively of its operating revenue. Accordingly, any materially adverse social, political or economic development, natural calamities, civil disruptions, regulatory developments or changes in the policies of the government in the USA could adversely affect its manufacturing and distribution activities, result in modification of its business strategy or require it to incur significant capital expenditure, which will in turn have a material adverse effect on its business, financial condition, results of operations and cash flows.

Rely only one port for the majority of its exports: Majority of the company’s exports are from the Mundra Port located in Gujarat. In the event of any disruption at the Mundra port, due to natural or man-made disasters, workforce disruptions, delay in regulatory approvals, fire, failure of machinery, changes in the policies of the states or local government or authorities or any significant social, political or economic disturbances or civil disruptions in and around the port could seriously hamper its ability to export its products. This may obstruct the exports temporarily or for a long period, which may adversely affect its operations and financial performance.

Outlook

Global Surfaces is engaged in processing natural stones and manufacturing engineered quartz. The company has two units, one located at RIICO Industrial Area, Bagru Extn, Bagru, Jaipur, Rajasthan, and the other at Mahindra World City SEZ, Jaipur, Rajasthan. Both units engage in the processing and manufacturing of the products. On the concern side, the company is dependent on a few customers for a major part of its revenues. Further, it does not enter into long-term arrangements with its customers and any failure to continue its existing arrangements could adversely affect its business and results of operations.

The company is coming out with an IPO of 1,10,70,000 equity shares of face value of Rs 10 each. The issue has been offered in a price band of Rs 133-140 per equity share. The aggregate size of the offer is around Rs 147.23 crore to Rs 154.98 crore based on lower and upper price band respectively. Minimum application is to be made for 100 shares and in multiples thereon, thereafter. On performance front, the company’s revenue from operations increased 8.52% from Rs 1753.71 million in FY21 to Rs 1903.13 million in FY22. This increase was primarily driven by volume increase and also better realizations on engineered quartz products. Moreover, the company reported an increase of 5.02% in net profit to Rs 356.34 million in FY22 from Rs 339.32 million in FY21.

In a bid to further diversify its customer base and increase its market share, the company intends to augment its sales in the markets where it sells its products as well as expand into new geographies. Over the last several years, the company has consistently expanded the customer network across the North American continent and this continues to be one of the core strategies of the company for the future. Having a wider product portfolio and an established brand presence in existing products provides confidence to new customers to engage with the company. Going forward, the company will continue to focus its efforts in the select geographies such as United States of America and establish a greater presence there.