Essen Speciality Films
- Essen Speciality Films is coming out with a 100% book building; initial public offering (IPO) of 6,199,200 shares of Rs 10 each in a price band Rs 101-107 per equity share.
- The issue will open for subscription on June 23, 2023 and will close on June 27, 2023.
- The shares will be listed on NSE Emerge.
- The face value of the share is Rs 10 and is priced 10.10 times of its face value on the lower side and 10.70 times on the higher side.
- Book running lead manager to the issue is GYR Capital Advisors.
- Compliance Officer for the issue is Romit Ajaykumar Shah.
Profile of the company
The company is a manufacturer and exporter of specialized plastic products in the home improvement and home furnishing industry, to renowned multinational modern trade retailers, such as IKEA, Walmart, Kmart, Bed Bath & Beyond, Rusta, Runsven, Kohl’s, Kroger etc. The company has been recognized as a ‘two star export house’ by Ministry of Commerce & Industry, Government of India. It has also been exclusive global supplier of IKEA for certain of its products, since incorporation. It was awarded with the awards of ‘Best Supplier of the Year’, by IKEA. It operates a fully-integrated, sustainable and technologically advanced manufacturing unit. The company is part of the Rajoo Group, which is headed by its promoter group company and Group Company, Rajoo Engineers Limited (REL). Rajoo Engineers Limited is listed on the BSE Limited since October 24, 1994. The company is promoted by one of the Promoters of REL, namely Khushboo Chandrakant Doshi. REL is global player in plastic extrusion machinery, catering to many countries across the globe. REL designs, manufactures and services mono to seven layer upward and downward blown film line for barrier and non-barrier applications along with extrusion coating and lamination line, mono to five layer sheet extrusion system for barrier and non-barrier sheet along with multi-station thermoforms.
Its product portfolio can broadly be classified into seven categories, namely, bath area, kitchen & dinning, home decor, storage and organization, fitness and lifestyle, outdoor and utility and customized products, which include plastic films, Spa slippers, Baby shower caps, green-house gutter sheet etc. It market and sell its products predominantly under three brands; ‘Draperi’ for shower curtains, ‘Runner’ for shelf liners and ‘Paperi’ for artificial plants and placemats. Owing to the multipurpose nature of its products, its customer base is diversified and spread across various industries, including but not limited to home furnishing, home decor, departmental stores, discount retailers, hypermarkets, hardware and home improvement, office supplies stores, agricultural and medical industry and international importers and wholesale distributors.
Proceed is being used for:
- Prepayment or repayment of all or a portion of certain outstanding borrowings availed by the company.
- Funding the working capital requirements of the company.
- General corporate purposes.
Industry overview
India is gradually progressing on the road to Industry 4.0 through the Government of India’s initiatives like the National Manufacturing Policy which aims to increase the share of manufacturing in GDP to 25 percent by 2025 and the PLI scheme for manufacturing which was launched in 2022 to develop the core manufacturing sector at par with global manufacturing standards.
The Indian plastics industry offers excellent potential in terms of capacity, infrastructure, and skilled manpower. It is supported by many polymer producers, plastic process machinery, and mould manufacturers in the country. Among the industry’s major strengths is the availability of raw materials in the country. Thus, plastic processors do not have to depend on imports. These raw materials, including polypropylene, high-density polyethylene, low density polyethylene, and PVC, are manufactured domestically. The Indian plastics industry produces and exports a wide range of products like plastic moulded extruded goods, packaging, consumer goods, electrical accessories, moulded or soft luggage items, etc.
The PP demand in India grew at a CAGR of around 8.51% during 2015-2019 and is expected to achieve a healthy growth rate in 2022-2030. The Government is taking steps to make the plastic business an Rs 10 lakh crore industry in the next five years. India is a growing market of the plastic industry and by the end of 2030, its use in the country will be 30 million tonnes. 95% plastic producing units in the country are in the MSME sector and the Government is providing assistance to them through different initiatives. There are 3,500 modernized plastic recycling units in the country along with 4,000 unorganized recycling plants. The plastic industry is playing a significant role in the ‘Make in India’ initiative.
Pros and strengths
Wide-spread domestic and international market presence: With the help of its long-standing market presence and integrated business model it has been able to create a wide spread domestic and international market presence of the company, thereby catering to various manufacturers functioning in various industries. It has been able to cater to changing and specific need-based requirements of its customers by being the forerunner in providing sustainable, solution-oriented, customized and specialized plastic products by integrating the efforts of its PPD Division and Quality Division. It has a dedicated team of professionals for managing and overseeing the production, marketing and selling of its products. However, what makes it stand out is its Quality Division, which ensures that it manufactures superior quality products. It forms part of the Rajoo Group which is headed by Rajoo Engineers Limited (REL), one of the most reputed plastic extrusion machine manufacturer and exporter in the industry.
Quality assurance and quality control of products. It is committed towards quality of its products. Its determination towards quality is demonstrated by well-defined quality and safety procedures at various stages of its manufacturing process from procurement of raw material to distribution of its products. Owing to the expertise of its experienced and trained team forming part of its Quality Division all its products are manufactured strictly as per the regulatory standards. All its manufacturing facilities have a fully equipped Quality Division with experienced and qualified staff to carry out quality checks and inspections at all the stages of its manufacturing process. It has in-house laboratories and necessary infrastructure to test its raw materials and finished products to match the quality standards as specified by the relevant customers. It’s Quality Division and in-house laboratories are well-equipped for ensuring the quality and compliance with international standards.
Comprehensive product portfolio: It is engaged in the home improvement and home furnishing industry and therefore are able to manufacture multi-purpose, customizable, diversified, technologically advanced and solution oriented specialized plastic products. Further, its products in their respective categories are priced at entry level retail price point, which makes them affordable in all market conditions, and therefore assures a positive outlook for its products even during an economic downturn. its product portfolio can broadly be classified into seven categories, namely, a) bath area, b) kitchen & dinning, c) home decor, d) storage and organization, e) fitness and lifestyle, f) outdoor and utility and g) customized products, which include plastic films, spa slippers, Baby shower caps, green-house gutter sheet etc. It market and sell its products predominantly under three brands; ‘Draperi’ for shower curtains, ‘Runner’ for shelf liners and ‘Paperi’ for artificial plants and placemats.
Risks and concerns
Operate in competitive markets: The home improvement and home furnishing industry in India is competitive with both organized and unorganized markets. However, 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 (local as well as international). 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, design, 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. It cannot assure that it will be able to compete with its existing as well as future competitors as well as the products prices and payment terms offered by them. In addition, its customers may enter into contract manufacturing arrangements with third parties, for products that they are presently purchasing from it. Its failure to successfully face existing and future competition may have an adverse impact on its business, growth and development.
Highly depend on key raw material: The company is engaged in the business of manufacturing specialized plastic products for the home improvement and home furnishing industry for renowned modern multi-national retailers. It mainly use following raw materials 1. Low Density Poly Ethylene (LDPE), 2. Poly Propylene (PP), 3. Ethylene Vinyl Acetate (EVA), 4. High Density Poly Ethylene (HDPE), 5. Thermo Plastic Elastomer (TPE), 6. Thermoplastic Poly Olefin (TPO), which it procure domestically and also import from countries such as, China, Taiwan or Middle East. Therefore, it is highly dependent on these raw materials and they form an important and primary components of its manufacturing process. Thus, if it experiences significant increase in demand, or need to replace an existing supplier, it cannot assure that it will be able to meet such demand or find suitable substitutes, in a timely manner and at reasonable costs, or at all.
Depends on top five customers: The company is engaged in the business of manufacturing specialized plastic products for the home improvement and home furnishing industry for renowned modern multi-national retailers. In the Fiscals 2023, 2022 and 2021, 72.82%, 78.72% and 91.73%, respectively, of its revenue from operations were derived from its top five customers. Its business operations are highly dependent on its customers, and the loss of any of its customers from any industry which it cater to may adversely affect its sales and consequently on its business and results of operations.
Outlook
Incorporated in 2002, the company is a manufacturer and exporter of specialized plastic products in the home improvement and home furnishing industry, to renowned multinational modern trade retailers, such as IKEA, Walmart, Kmart, Bed Bath & Beyond, Rusta, Runsven, Kohl’s, Kroger etc. The company has been recognized as a ‘two star export house’ by Ministry of Commerce & Industry, Government of India. On the concern side, revenue from operations were derived from its top five customers. Its business operations are highly dependent on its customers, and the loss of any of its customers from any industry which it caters to may adversely affect its sales and consequently on its business and results of operations.
The company is coming out with an IPO of 6,199,200 equity shares of face value of Rs 10 each. The issue has been offered in a price band of Rs 101-107 per equity share. The aggregate size of the offer is around Rs 62.61 crore to Rs 66.33 crore based on lower and upper price band respectively. On performance front, the total income of the company was Rs 12,048.09 lakh for Fiscal year 2023 against fiscal year 2022 was Rs 11,857.17 lakh. An increase of 1.61% in total income. This was due to increase in business from new customers viz. Wallmart (USA), Shurtape (USA), K-Mart (Australia) etc. in addition to IKEA. Profit after tax for the Fiscal 2023 was at Rs 1,337.23 lakh against profit after tax of Rs 516.90 lakh in fiscal 2022, an increase of 158.70%.
Going forward, it continues to enhance its business operations by ensuring that its customer base increases through its marketing efforts. It intends to horizontally deploy its products in its customer base by marketing products from its product portfolio, which a particular customer does not purchase. Moreover, it intends to further diversify into products with prospects for increased growth and profitability. it 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.
