Kaka Industries coming with an IPO to raise Rs 21.23 crore

Kaka Industries

• Kaka Industries is coming out with a 100% book building; initial public offering (IPO) of 36,60,000 shares of Rs 10 each in a price band Rs 55-58 per equity share
• The issue will open for subscription on July 10, 2023 and will close on July 12, 2023.
• The shares will be listed on BSE SME.
• The face value of the share is Rs 10 and is priced 5.50 times of its face value on the lower side and 5.80 times on the higher side.
• Book running lead manager to the issue is Hem Securities.
• Compliance Officer for the issue is Vandana Arun Baldi. 

Profile of the company

The company is a PVC profile brand, focused primarily on manufacturing of polymer-based profiles which finds application in doors, windows, partitions, false ceilings, wall paneling, kitchen cabinets & other interior and exterior works. Its product portfolio has over 1200 SKU’s covering PVC Profile, uPVC door & window profile, WPC Profile & sheet in various sizes, specifications and colours. It is also engaged in fabrication of factory-made PVC & Solid PVC doors. Except for WPC (Wood-polymer composite) profile and doors, all its products are non-wood based, which substitute wood-products and results in saving of trees.

The company markets its products through an extensive network of 300 dealers spread across over 20 States and Union Territories of India. Its distribution network comprises of 3 depots situated in Gagilapur (Telangana), Dadri (Uttar Pradesh) and Surat (Gujarat). It has brands in the name of Kaka, Poly Plast, Jinwin, Nice Plast and Barbarika under which it sells its products. For the Fiscal 2023, it derived major portion of its revenue from the state of Gujarat (i.e. 63.73%), followed by Telangana (8.67%), Maharashtra (7.49%), Karnataka (4.61%) and remaining 15.50% were from other 19 states & union territories. It is also empaneled as ‘Approved Vendor’ in two of the Government Organizations namely, Gujarat State Police Housing Nigam Limited and Military Engineer Services (Lucknow & Ahmedabad).

Proceed is being used for:

• Meeting Working Capital requirements.
• Repayment and/or pre-payment, in full or part, of certain borrowings availed by the company.
• General Corporate Purpose.

Industry overview

Indian plastic industry market is one of the leading sectors in the country’s economy. The history of the plastic industry in India dates to 1957 with the production of polystyrene. Since then, the industry has made substantial progress and has grown rapidly. The industry is present across the country and has more than 2,000 exporters. It employs more than 4 million people in the country and constitutes 30,000 processing units; among these, 85-90%belong to small and medium enterprises. India manufactures various products such as plastics and linoleum, houseware products, cordage, fishnets, floorcoverings, medical items, packaging items, plastic films, pipes, raw material, etc. The country majorly exports plastic raw materials, films, sheets, woven sacks, fabrics, and tarpaulin. The Government of India intends to take the plastic industry from a current level of Rs 3 lakh crore ($ 37.8billion) of economic activity to Rs 10 lakh crore ($ 126 billion) in 4-5 years. Ten Plastic Parks have been approved in the country by The Department of Chemicals and Petrochemicals. Among these, 6 plastic parks have received final approval from the following states – Madhya Pradesh (2 parks), Assam (1park), Tamil Nadu (1 park), Odisha (1 park) and Jharkhand (1 park). These parks are intended to boost employment and attain environmentally sustainable growth. 

Real estate sector in India is expected to reach $ 1 trillion by 2030, up from $ 200 billion in 2021. By 2025, it will contribute 13% to the country’s GDP. Rapid urbanization bodes well for the sector. The number of Indians living in urban areas is expected to reach 542.7 million by 2025 and 675.5 million by 2035. Construction is the third-largest sector in terms of FDI inflow. FDI in the sector (including construction development & activities) stood at $ 55.18 billion from April 2000-September 2022. Government of India’s ‘Housing for All’ initiative is expected to bring $ 1.3 trillion investment in the housing sector by 2025. The Government has allowed FDI of up to 100% for townships and settlements development projects. The demand for residential space expected to grow sharply. Key drivers (a) Rapid urbanisation. (b) Growth in population (c) Rise in the number of nuclear families (d) Easy availability of finance (e) Repatriation of NRIs and HNIs and (f) Rise in disposable income.

Pros and strengths

Extensive network of dealers covering major parts of India: The growth in the company’s business operations have been made possible by its wide dealer network covering major parts of India. It sells its products through a network of 300 dealers spread across over 20 states and Union Territories in India. As of date of this Red Herring Prospectus, its distribution network comprises of 3 depots situated in Gagilapur (Telangana), Ghaziabad (Uttar Pradesh) and Surat (Gujarat). It works with various dealers depending on their geographical reach, market knowledge, product and customer awareness as well as understanding of PVC profile industry. Its sales & distribution network is aided by its capable in-house sales and marketing team of 16 employees, which liaise with the dealers on a regular basis for customer inputs, market demands as well as positioning of its products vis-a-vis products of its competitors. 

Wide Range of Products: The company offers over 1200 SKU’s covering PVC Profile, uPVC door & window profile, WPC Profile & sheet in various sizes, specifications and colours. It is also engaged in fabrication of factory-made PVC & Solid PVC doors. Having a wide portfolio of product categories enables it to cross-sell to a large customer base (which, in its case, are majorly dealers) who in-turn reach out to large number of retail counters for serving the fabricators and eventually end-consumer. Having a wide product portfolio also enables the company to efficiently compete with larger profile players in the market who also have a wide product offering. Within each product category, it has multiple SKUs in terms of grades, pack sizes for various applications thereby enabling it to meet the needs of diverse customer base. Its constant efforts are focused towards continuously identifying market demands and introducing relevant products with high quality.

Stringent quality control mechanism ensuring standardized product quality: The company employs an extensive and stringent quality control mechanism during the manufacturing of all its profile products which includes tests such as ash content testing, moisture, shrinkage & heat ageing testing, density testing, cold impact testing, colour testing, strength testing, thickness testing etc. that are required to ensure that its finished product conforms with the standard quality. It has implemented internal procedures to ensure quality control at various stages of production, from procurement of raw material, production to inventory storage. Its manufacturing facility has personnel responsible for monitoring the parameters of equipment, stability of materials, reporting any irregularities in the manufacturing process and making adjustments accordingly. These levels of quality checks ensure maintenance of its brand value for quality of products.

Risks and concerns

Dependent on single business segment i.e. polymer based profiles: Majority of the company’s revenue is dependent on single business segment i.e. polymer based profiles. Its continued reliance on single business segment for substantial portion of its revenue exposes it to risks, including but not limited to, reduction in the demand of the products in the particular segment in the future; increased competition from regional and national players; the invention of superior and cost- effective technology; fluctuations in the price and availability of the raw materials; changes in regulations and import duties and the general economic conditions. Any occurrences of such event could significantly reduce its revenues, thereby materially adversely affecting its results of operations and financial condition.  

Face competition: The company faces increasing competition from its existing and potential competitors in India and in overseas markets that may have substantially greater brand recognition, longer operating histories, greater financial, product development, sales, marketing, more experienced management, access to a cheaper cost of capital and other resources than it does. Some of its significant competitors in the organized segment includes Dhabriya Polywood Limited, Sintex Plastics Technology and Fenesta Building Systems- (A division of DCM Shriram). Its competitors may have lower costs, or be able to offer lower prices and a larger variety of products in order to gain market share. Its competitors may also make acquisitions or establish cooperative or other strategic relationships, among themselves or with third parties, including dealers of its products, thereby increasing their ability to address the needs of its targeted customers and offering lower cost products than it do which may have a negative effect on its sales. 

Dependent upon few key suppliers: One of the company’s primary raw materials comprises PVC resin, which is derived from crude oil by-products. Crude oil prices are volatile and any major upward movement in the price of crude oil leads to increases in the prices of the PVC resin. The prices of these raw materials may also fluctuate based on exchange rate, customs & duties levied on imports or changes in government policies with respect to these materials or the countries supplying the same. It may be unable to make adequate provisions for the price fluctuations and, consequently, any adverse fluctuations that it has not factored in or provided for may adversely affect the results of its operations and financial conditions.

Outlook

Incorporated in 2019, Kaka Industries manufactures polymer-based profiles for application in doors, windows, partitions, false ceilings, wall paneling, kitchen cabinets & other interior and exterior works. The company's product portfolio has over 1200 SKUs covering PVC Profile, uPVC door & window profile, WPC Profile & sheets in various sizes, specifications, and colors. It is also engaged in the fabrication of factory-made PVC & Solid PVC doors. Except for WPC (Wood-polymer composite) profile and doors, all the products are non-wood based, which substitutes wood products and results in the saving of trees. Kaka Industries has three manufacturing units in village Zak, Gandhinagar district, Gujarat, which has a combined installed capacity of 15,425 MT for manufacturing PVC profile, 2,995 MT for WPC profile & sheet, 2,022 MT for uPVC door & window profile. It also has a well-equipped laboratory, modern technology, and testing equipment with supporting environment and facilities, to ensure that the products conform with the desired quality. The company's distribution network comprises 3 depots situated in Gagilapur (Telangana), Dadri (Uttar Pradesh), and Surat (Gujarat). On the concern side, the company requires certain statutory and regulatory permits, licenses and approvals to operate its business. Though it has obtained those permits and licenses which are adequate to run its business, it cannot assure that there is no other statutory/regulatory requirement which it is required to comply with.

The company is coming out with an IPO of 36,60,000 equity shares of face value of Rs 10 each. The issue has been offered in a price band of Rs 55-58 per equity share. The aggregate size of the offer is around Rs 20.13 crore to Rs 21.23 crore based on lower and upper price band respectively.  On performance front, total income for the financial year 2022-23 stood at Rs 15,887.70 lakh whereas in Financial Year 2021-22 the same stood at Rs 11,709.70 lakh representing significant increase of 35.68%. For financial year 2022-23, restated profit after tax (PAT) stood at Rs 718.50 lakh in comparison to Rs 497.66 lakh in the financial year 2021-22, representing an increase of 44.38%. Meanwhile, going forward, the company will strive to further bolster its brand image by undertaking marketing initiatives which will not only increase the visibility in the market but also create a strong brand recall. Further, as it looks to expand its consumer base, it intends to have additional sales and marketing team focused primarily on penetrating the untapped market.