Cosmic CRF coming with an IPO to raise upto Rs 60.13 crore

Cosmic CRF

• Cosmic CRF is coming out with a 100% book building; initial public offering (IPO) of 18,22,000 shares of Rs 10 each in a price band Rs 314-330 per equity share.
• The issue will open for subscription on June 14, 2023 and will close on June 16, 2023.
• The shares will be listed on SME Platform of BSE.
• The face value of the share is Rs 10 and is priced 31.4 times of its face value on the lower side and 33.00 times on the higher side.
• Book running lead manager to the issue is Horizon Management.
• Compliance Officer for the issue is Anita Kumari Gupta.

Profile of the company

The company is a qualified and an RDSO approved supplier of cold rolled stainless sections to renowned wagon manufactures such as, Titagarh Wagons, Hindusthan Engineering & Industries, Melbrow Engineering Works, Jindal Rail Infrastructure, Allied Construction Engineers & Fabricators, etc. In addition to this, the company also supplies cold rolled stainless sections to direct orders of the railways through tender procurement. The company’s product portfolio largely consists of cold rolled stainless sections, such as fabricated items for railway, coach & wagons, cold rolled formed items for wagons and coaches, cold rolled formed items for infra companies and EPC projects and products for roadways and national highway. Over the years, it has offered cost effective and customized solutions in accordance with the standardized quality requirements of the customers who work in various sectors such as railway and the infrastructure sectors. 

The company manufactures products which are compliant with the stringent requirements prescribed by Research Design and Standards Organisation, which is an ISO 9001 research and development organization under the Ministry of Railways of the Government of India, which functions as a technical adviser and consultant to the Railway Board, the Zonal Railways, the Railway Production Units, RITES, RailTel and Ircon International in respect of design and standardization of railway equipment and problems related to railway construction, operations and maintenance. Its products are also compliant with the additional quality control standards prescribed by the customers. Further, the company’s business model provides customised solutions to its manufacturers and also manufacture innovate solution oriented products, such as its Research and Development division (“R&D Division”) created new products for proto type wagons, such as CRF Section for bogie covered fly cement wagon and bogie open high sided with air breaks axle load wagon to run faster and made specially to be used in the dedicated freight corridor. Its R&D Division is equipped with the necessary facilities to carry out all necessary trials to develop and devise products suitable to the different types of wagons manufactures by its customers or for catering to the infrastructure needs of its customers. 

Proceed is being used for:

• Funding the expansion of existing manufacturing unit.
• Funding of working capital requirements of Company.
• Prepayment or repayment of all or a portion of certain unsecured loans availed by Company.
• General Corporate Purposes.

Industry overview

The Indian railway system is regarded as the foundation and lifeblood of the economy. Indian railways span over thousands of kilometres practically covering the entire nation, making it the fourth largest in the world after the US, China and Russia. The Railways Board, which has a monopoly over the provision of rail services in India, is in charge of overseeing the whole infrastructure. Due to its low cost and effective operations, railways continues to be the most popular means of transportation for the majority of Indians when travelling long distances. India's railway network is recognised as one of the largest railway systems in the world under single management. The railway network is also ideal for long-distance travel and movement of bulk commodities, apart from being an energy efficient and economic mode of conveyance and transport. Indian Railways is the preferred carrier of automobiles in the country. Government of India has focused on investing in railway infrastructure by making investor-friendly policies. It has moved quickly to enable Foreign Direct Investment (FDI) in railways to improve infrastructure for freight and high-speed trains. At present, several domestic and foreign companies are also looking to invest in Indian rail projects.

India has the fourth largest railway network with over 22,593 operating trains (9141 freight and 13,452 passengers) with a daily passenger count of 24 million passengers and 203.88 million tonnes of freight. In FY22 passenger traffic stood at 3.54 billion as compared to 1.28 billion in FY21. In FY 2021-22, railway freight traffic stood at 1,400 MT. Since August 2020, the Indian Railways has run 450 Kisan Rail services and was able to transport over 1.45 lakh tonnes of agricultural produce & perishables RailTel, a PSU under the Railway Ministry, which provides fast and free Wi-Fi across the In November 2020, India Railways announced that 40% of dedicated freight corridor (DFC) will be opened for traffic by end-FY21, while the entire 2,800 km route will be completed by June 2022. India was among the top 20 exporters of railways globally as of 2017. India’s export of railways has grown at a CAGR of 31.51% during 2010-2018 to $ 507.90 million. Exports of railways in 2019E stood at $ 635 million. Indian Railways is developing and creating technology in areas such as signalling and telecommunication with 15,000 kms being converted into automatic signalling and 37,000 kms to be fitted with ‘KAVACH’, the domestically developed Train Collision Avoidance System.

Pros and strengths

A reputed private sector manufacturer of cold rolled stainless sections in India: The company is primarily engaged in the business of manufacturing cold rolled stainless sections for wagon manufactures and other public sector units. It has also entered into the field of manufacturing and marketing cold rolled stainless sections which are customisable in nature and which are built with a solution oriented technique to suit the varying needs of its customers, such as CRF Section for bogie covered fly cement wagon and bogie open high sided with air breaks axle load wagon to run faster and made specially to be used in the dedicated freight corridor. The company is in an advantageous position to capitalize on the continued potential growth in the manufacturing of cold rolled stainless sections in India.

Strong focus on innovation: The company is a qualified and an RDSO approved supplier of cold rolled stainless sections to renowned wagon manufactures such as, Titagarh Wagons, Hindusthan Engineering & Industries, Melbrow Engineering Works, Jindal Rail Infrastructure, Allied Construction Engineers & Fabricators, etc. In addition to this, the company also supplies cold rolled stainless sections to direct orders of the railways through tender procurement. The company has in-house research and development facilities wherein its R&D Division creates new products for proto type wagons, such as CRF Section for bogie covered fly cement wagon and bogie open high sided with air breaks axle load wagon to run faster and made specially to be used in the dedicated freight corridor. Its R&D Division is equipped with the necessary facilities to carry out all necessary trials to develop and devise products suitable to the different types of wagons manufactures by its customers or for catering to the infrastructure needs of its customers.

Effective Cost Control Management: The company has implemented a cost control system that includes, continuous monitoring and managing of costs of various inputs. Its efforts in cost control have enabled it to manage its costs in the face of increasing pressure from rising raw material prices and other costs, allowing it to maintain its margins. Strong management team with long standing industry experience. It has an experienced senior management team that have decades of experience in the engineering and manufacturing industry. Its management team has successfully managed its business and are primarily responsible for growth in its gross revenues and profitability.

Risks and concerns

Requires significant amount of working capital: The company’s business requires a significant amount of working capital. As per its settled business terms, it majorly require its customers to pay the full amount of the consideration only after they receive the order, as a result, significant amounts of its working capital are often required to finance the purchase of raw material and execution of manufacturing processes before payment is received from its customers. Further, it is also required to meet the increasing demand and for achieving the same, adequate stocks have to be maintained which requires sufficient working capital. In the event, it 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.

Dependent on third party transportation providers: To ensure smooth functioning of the company’s manufacturing operations, it needs to maintain continuous supply and transportation of the raw materials required from the supplier to its manufacturing unit and transportation of its products from its unit to its customers, which may be subject to various uncertainties and risks. It is significantly dependent on third party transportation providers for the delivery of raw materials to it and delivery of its products to its customers. Uncertainties and risks such as transportation strikes or delay in supply of raw materials and products could have an adverse effect on its supplies and deliveries to and from its customers and suppliers. Additionally, raw materials and products may be lost or damaged in transit for various reasons including occurrence of accidents or natural disasters. A failure to maintain a continuous supply of raw materials or to deliver its products to its distribution intermediaries in a timely, efficient and reliable manner could adversely affect its business, results of operations and financial condition.

Operate in a competitive business environment: The railways, engineering and manufacturing industry in India is competitive and it is required to compete both in the domestic and international markets. It may be unable to compete with the prices and products offered by its competitors. It may have to compete with new players in India and abroad who enter the market and are able to offer competing products. Its competitors may have access to greater financial, manufacturing, research and development, marketing, distribution and other resources and more experience in obtaining the relevant regulatory approvals. Increasing competition may result in pricing pressures and decreasing profit margins or loss of market share or failure to improve its market position, any of which could substantially harm its business and results of operations.

Outlook

Incorporated in 2021, Cosmic CRF supplies cold-rolled stainless sections to manufacturing companies. The company's client list includes Titagarh Wagons, Hindusthan Engineering & Industries, Melbrow Engineering Works, Jindal Rail Infrastructure, Allied Construction Engineers & Fabricators, etc. The company also supplies cold rolled stainless sections to direct orders of the railways through tender procurement. Under the Business Transfer Agreement dated January 19, 2022, the company acquired the CRF unit of Cosmic Ferro Alloys Limited. The purchase included a manufacturing unit in West Bengal spread over an area of approximately 3.82 acres together with plant, machinery, assets, and liabilities. The unit manufactures a range of cold-rolled stainless sections, such as fabricated items for railway, coach & wagons, cold-rolled formed items for wagons and coaches, cold-rolled formed items for infra companies and EPC projects, and products for roadways and national highways. On the concern side, the company’s manufacturing units are located in West Bengal. As a result, any local social unrest, natural disaster or breakdown of services and utilities in these areas could have material adverse effect on the business, financial position and results of its operations. 

The company is coming out with an IPO of 18,22,000 equity shares of face value of Rs 10 each. The issue has been offered in a price band of Rs 314-330 per equity share. The aggregate size of the offer is around Rs 57.21 crore to Rs 60.13 crore based on lower and upper price band respectively. On performance front, total income stood at Rs 12,149.31 lakh in FY23. The company reported restated profit after tax stood at Rs 641.20 lakh in FY23. Meanwhile, the company intends to continue to focus on increasing its capacity and performance in order to increase its market share in both Indian Railways and the private sector by leveraging on its strengths and providing total customer satisfaction. The company plans to continue to increase offerings in its current business segments as well as diversify into new products by tapping into segments which in the view of its management have attractive growth prospects.