Quality Foils coming with an IPO to raise upto Rs 4.52 crore

Quality Foils (India)

• Quality Foils (India) is coming out with an initial public offering (IPO) of 7,54,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 60 per equity share.
• The issue will open for subscription on March 14, 2023 and will close on March 16, 2023 
• The shares will be listed on NSE Emerge Platform.
• The share is priced 6.00 times higher to its face value of Rs 10.
• Book running lead manager to the issue is Khambatta Securities.
• Compliance Officer for the issue is Meenakshi.

Profile of the company

The company is manufacturer and exporter of Cold Rolled Stainless Steel Strips/ Coils and Stainless Steel Flexible Hoses/pipes. The company uses raw material of premium quality i.e. Hot Rolled Stainless Steel Coils/Strips mainly from Jindal Stainless Hissar Limited, Hissar. It sourced its more than 95% of raw material consumed from Jindal Stainless Hissar Limited in last three financial years. It is one of the growing manufacturers and exporters of Cold Rolled Stainless Steel Strips/ Coils and Stainless Steel Flexible hose pipes in India having over thirty years of experience in the manufacturing of stainless-steel products in two broad categories: i. Cold Rolled Stainless Steel Coils/Strips and ii. Stainless Steel Flexible Hose Pipes.

Under its brand name ‘Quality’, it supplies its product i.e. Cold Rolled Stainless Steel Coils/Strips in for manufacture of SS Tube/Pipe, Utensils, Cutlery, Kitchen Sinks, Stainless Steel Flexible Hoses and Automobile components and Flexible Hose pipes to major applications such as high temp & medium pressure for hydraulic oil, hot water, steam & Gas applications, chemical resistant, exhaust systems of steel, power, petrochemical, sugar, automobile and many other heavy engineering sectors.

It has one manufacturing plant which is strategically located at 3, Industrial Development Colony, Hisar, Haryana. (Manufacturing Facility) in close around 3-5 kilometers from its main source of raw material i.e. Jindal Stainless Hisar Limited, that helps it in reducing its logistic costs on procurement of raw materials. Its manufacturing facility has CR Coils and Hose divisions with latest product-specific equipment and machineries including tube mills, hydraulic corrugator, mechanical corrugator, carrier braiding machine, hose joining station, draw benches, swaging machines, pipe-straightening machines, TIG/MIG welding systems, etc. As on date, its Manufacturing Facility have total installed capacity of 12,000 MT per annum for CR stainless steel coils/strips and 2,00,000 meters per annum for SS Hose pipes. Further, it has a sufficient storage facility at its manufacturing facility for the purposes of holding inventories of raw material as well as finished products which ensures stability of operations.

Proceed is being used for:

• Funding capital expenditure requirements towards purchase of machinery
• Meeting the working capital requirements of the company
• General corporate purpose
• Meeting the Issue Expenses

Industry overview

Stainless steel is a generic term for the family of corrosion-resistance alloys. The metal derives its name because it does not stain, rust or corrode. Its properties are enhanced with other elements, molybdenum, nickel and nitrogen. Adding these elements produces a variety of SS grades for use in a range of industries. One of this metal’s unique features is that it can be re-used and re-cycled, making it environment friendly. Over 50% of new stainless steel is made from melted scrap making it a 'Green' metal. SS is dubbed a ‘Wonder Metal’ because of its distinguishing characteristics: low maintenance, weld ability, aesthetic appeal, durability, low life-cycle cost, good erosion- and corrosion-resistance. These make it an ideal material for many applications at various end-user sectors.

India's SS market was $9.67 billion in FY-2020, with an over 6.87% CAGR forecast by FY-2026, due to the metal’s properties of corrosion resistance, tensile strength and durability. Rising demand for from consumer goods, construction and transportation is likely to drive market growth. In addition, properties such as toughness, ductility and low maintenance have resulted in increased utilisation in consumer goods such as cookware, showpieces, and stoves, which in turn are anticipated to push product demand in coming years. Moreover, increasing demand for stainless steel from various end-use industries, such as chemical, oil and gas, plumbing, energy and construction is predicted to drive the demand for stainless steel during the forecast period.

In Q2 FY23, the growth momentum of the first quarter was sustained, and high-frequency indicators (HFIs) did well in July and August 2022. India's comparatively strong position in the external sector reflects the country's generally positive outlook for economic growth and rising employment rates. In foreign direct investment inflows, India ranked fifth among developed and developing nations for the first quarter of 2022.

Pros and strengths

International accreditations and product approvals: The company is one of the growing brands in Cold Rolled stainless steel Coils/Strips & Flexible Hose Pipes having presence in both Cold Rolled Coils and Hose Pipes segment. It follows international standard manufacturing practices and its Manufacturing Facility benefits from the quality benchmarking certifications such as (i) ISO 9001:2015, ISO 45001:2018 from TUV SUD South Asia Private Limited and Quality Research Organisation. Such practices and accreditations, coupled with its technical capabilities and know-how enable it to manufacture products for both domestic and international customers as per ASTM (US), EN (Europe), JIS (Japan) and DIN (Germany) standards, its capabilities and accreditations have enabled it to supply its Products to some of the best companies in the past across sectors, including engineering. Its certifications and industrial expertise favourably position it in servicing client requirements across all segments of the C R Coils/Strip and Hose pipes market. 

Specialised production of Cold Rolled Stainless Steel Coils/Strips and Hose Pipes: The company is a C R Stainless Steel Coils/Strips and Hose pipes manufacturer with the sole focus on manufacturing of CR Coils in a single metal category, i.e., stainless steel. As it has been catering to customers (both domestic and international) in only one metal segment since its inception, over the years it has built expertise in terms of production process, inventory management and marketing of products in the Cold Rolled Stainless Steel Strips and Hose Pipes segment. This gives it the benefit of segment expertise thereby placing it in a position of advantage vis-à-vis its competitors in accurately assessing and responding to customer preferences in this segment. This focus has well positioned us in attracting and retaining customers with requirements for specialised stainless steel strips and hose pipes including continued client interest from emerging sectors like engineering sector.

Customer diversification: The company sells its products both in the domestic as well as the international markets. In the domestic market, it sells its products to the end customers as well as manufacturers & traders while in the international market it supplies its products to the manufacturers & traders and through certain marketing representatives in the European Union market. It started exporting its products in the year 2005 and as on January 09, 2023 it have exported to morethan seven countries including Germany, UK, Philippines, Sri Lanka, Turkey, Poland and Bogota Colombia.

Risks and concerns

Major revenue comes from few customers: Although, it has long-term relationships with some of its customers, it has not entered into long-term agreements with them and the success of its business is significantly dependent on it maintaining good relationships with its customers. The actual sales by the company may differ from the management estimates and the loss of one or more of these significant or key customers or a reduction in the amount of business it obtains from them could have an adverse effect on its business, results of operations, financial condition and cash flows. There can be no assurance that it shall be able to maintain historic levels of business and/or negotiate and execute long-term contracts on terms that are commercially viable with its significant customers or that it shall be able to significantly reduce customer concentration in the future.

No long-term agreements with most of its suppliers or customers: it does not have any long-term supply contracts with any of its suppliers with respect to its raw material requirements and typically place orders with them in advance of its anticipated requirements. Efficient inventory management is a key component of the success of its business, results of operations and profitability and to that end it maintain a reasonable level of inventory of raw materials, work in progress and finished goods at its manufacturing facility. While it forecasts the demand and price for its products and accordingly, plan its production volumes, any error in its forecast due to inter alia the domestic scale of its operations and demand for its products, could result in a reduction in its profit margins and surplus stock, which may result in additional storage cost and such surplus stock may not be sold in a timely manner, or at all.

High working capital requirements: Its business is working capital intensive and hence, trade receivables form a substantial part of its current assets and net worth. Its trade receivables as on September 30, 2022 & March 31, 2022 were Rs 3,297.74 lakh and 3,356.75 Lakh respectively and inventories were Rs 1,339.72 lakh & Rs.1,922.37 Lakh. Thus, major portion of its working capital is utilized towards debtors and inventory.

Outlook

Quality Foils (India) is manufacturers and exporters of Cold Rolled Stainless Steel Strips/ Coils and Stainless Steel Flexible Hoses/pipes. The company uses raw material of premium quality i.e. Hot Rolled Stainless Steel Coils/Strips mainly from Jindal Stainless Hissar Limited, Hissar. On the concern side, it does not have any long-term supply contracts with any of its suppliers with respect to its raw material requirements and typically place orders with them in advance of its anticipated requirements. Moreover, Although, it has long-term relationships with some of its customers, it has not entered into long-term agreements with them and the success of its business is significantly dependent on it maintaining good relationships with its customers. The actual sales by the company may differ from the management estimates and the loss of one or more of these significant or key customers or a reduction in the amount of business it obtains from them could have an adverse effect on its business, results of operations, financial condition and cash flows.

The company is coming out with a IPO of 7,54,000 equity shares of Rs 10 each at a fixed price of Rs 60 per share to mobilize Rs 4.52 crore. On performance front, the revenue from operations increased by Rs 5,580.21 lakh or 45.01% to Rs 17,978.58 lakh for Fiscal 2022 as compared to Rs 12,398.37 lakh for Fiscal 2021. This increase in revenue from operations was primarily due to increased sales of its products resulting from a robust growth of domestic and export demand. Going forward, the company intends to invest significantly in research and development in order to meet and adapt to the latest technologies. The company intends to invest in the same so to meet the ongoing demand of increasing and diversifying the product portfolio and meeting the quality standards as required. Moreover, it continues to further develop its technology systems to increase asset productivity, operating efficiencies and strengthen its competitive position. Its in-house technology capabilities will continue to play a key role in effectively managing and expanding its operations, maintain strict operational and fiscal controls and continue to enhance customer service levels. It intends to continue to invest in its in-house technology capabilities to develop customized systems and processes to ensure effective management control. It continues to focus on further strengthening its operational and fiscal controls.