Goyal Salt coming with IPO to raise upto Rs 18.63 crore

Goyal Salt

• Goyal Salt is coming out with an initial public offering (IPO) of 49,02,000 shares of Rs 10 each in a price band Rs 36-38 per equity share. 
• The issue will open for subscription on September 26, 2023 and will close on September 29, 2023.
• The shares will be listed on NSE Emerge.
• The face value of the share is Rs 10 and is priced 3.60 times of its face value on the lower side and 3.80 times on the higher side.
• Book running lead manager to the issue is Holani Consultants.
• Compliance Officer for the issue is Jayanti Jha Roda.

Profile of the company

The company is primarily engaged in the business of refining of raw salts procured from sub soil brine in the state of Rajasthan for useable as industrial salts and edible salts. The company refines and supplies pure, refined and quality range of triple refined free flow iodized salt, industrial salt, double fortified salt and triple refined half dry salt. Its refining process does not involve any adulteration from chemical and harmful substances. It has well equipped refinery at Nawa City, adjacent to famous Sambhar Lake. In addition to refinery, it also has lease rights to harvest raw salt over 18.66 Hectare of land issued by Government of Rajasthan in the vicinity of salt producing area of Nawa City in Rajasthan. Its refinery complex area is situated in Nawa and have dedicated space for the refining of salts, storage of raw salts procured from sub soil brine and packaging of refined salts. It has a team of well qualified and dedicated technical man power for quality control, production, efficiency, maintenance, research and maintenance, finance and accounting. 

The raw material required to process refined salt is raw salt itself. The company sources its raw material mainly from the open market purchases which is around 75% of the total requirement of raw salt required by it for all its products which are Refined Free Flow Iodized Salt, Refined Free Flow Industrial Salt, Double Fortified Salt and Refined Half Dry Salt. The Company also produces/supplies industrial salt. Industrial salt are in high demand due to the diversity of applications in the soap and detergent industries, textile and dyeing industries to industries producing glass, polyester, plastics, rubber and leather and as well as in the chemical industry. Salt assists in cleaning gas and oil wells and is an essential component in the manufacture of paper, tires, brass, bleach and case-hardened steel.

Proceed is being used for:

• Capital expenditure for quality enhancement.
• Brand creation and marketing expenses.
• Funding the working capital requirements of the company.
• General corporate purposes.

Industry overview

Salt, a crucial element of life, is manufactured as a seasoning for human consumption as well as used in chemical industries. The most prominent use for salt is as a feedstock for the production of industrial chemicals. The worldwide market for salt production was valued at over 29 billion U.S. dollars in 2021, with 290 million metric tons of salt produced that year. China, the United States and India are the top three countries for salt production and altogether produced a combined total of over 130 million metric tons of salt in 2021.

There are about 11799 salt manufacturers engaged in production of Common salt in an extent of about 6.09 lakh acres in the Country. It is estimated that 87.6 per cent of the total number of salt manufacturers are small salt producers (having an individual extent of less than 10 acres for salt manufacture), 5.8% is large scale producers (having an individual extent of more than 100 acres) and 6.6 % is medium scale producers (having an individual extent between 10 and 100 acres). Average Annual Production of Salt in India is 215.80 lakh tonnes whereas ever high production of 240 lakh tonnes was recorded during 2009-10 followed by 221 lakh tonnes during 2012-13 (Upto 2/13). 

Government of India has delicensed Salt Industry by deleting provisions relating to Salt in the Central Excise & Salt Act, 1944 vide Finance Bill of 1996-97. In line with Government of India’s Policy of Liberalisation and simplification of Procedures, the Salt Cess Rules, 1964, have been amended vide Notification No.GSR 639(E) dated September04, 2001. Salt Commissioner’s Organisation plays a facilitating role in overall growth and development of Salt Industry in the country. 

Pros and strengths

Experienced management team and promoters: It is led by an experienced management team that has the expertise and vision to manage and outgrow its business. Its management team’s collective experience and forecasting capabilities enables it to understand and anticipate future market trends, manage its business operations and growth, leverage customer relationships and respond to changes in customer preferences. Its management team continues to focus on production, marketing and new growth areas in their respective product segments.

Long and strong relationship with customers and dealers: It focuses on building sustained and long-term client relationship with its clients and dealers and constantly try to cater customer needs with its products. Its top 10 customers contributed to 68.47%, 60.35% and 50.84% of its total revenue from operations for the FY 2022-23, FY 2021-22 and FY 2020-21, respectively, as per its Restated Financial Statements. The average age of its relationship with its top five customer groups spans more than a decade. its long-term relationships with its customers is indicative of its quality consciousness and working capabilities.

Established refining facility: Its refining unit is located at renowned salt area in Nawa City near Sambhar Lake. Its production facility is equipped and capable to carry out end to end refining activities with a production facility of about 700 tonnes per day. Its years of experience in the salt industry, strategically located production facility, focus on quality, coupled with technologically advanced and cost competitive refining technology processes has enabled it to meet its customers’ bespoke and stringent requirements. The entire process is carried out under one roof. Its dynamic setup not only gives it better control over quality but also benefits it with cost advantages.

Risks and concerns

Working capital requirements: Its business is working capital intensive and requires a significant amount of working capital for smooth functioning. A significant portion of its working capital is utilized towards trade receivables and inventories. As on March 31, 2023, March 31, 2022, and March 31, 2021, its inventories and trade receivables form 89.22%, 92.14% and 85.40% respectively, of total current assets based on restated financial statements. It intends to continue growing by expanding its business operations. This may result in an increase in the quantum of current assets, particularly trade receivables and inventories. The results of operations of its business are dependent on its ability to effectively manage its inventory and stocks. To effectively manage its inventory, it must be able to accurately estimate customer demand and supply requirements and trade inventory accordingly.

Face competition:  The market of its product is very much competitive. There are many bigger groups operating in the industry and they compete with each other on key attributes such as technical competence, quality of product, customer base, pricing and timely delivery. These bigger groups are far ahead in terms of technical knowhow, capital adequacy, availability of financial resources, skilled labour and better industry experience. These companies pose a lot of competition and consequently affect its volume of sales and growth prospects. Increasing competition may result in a decline in its market share and may affect its profit margins which may adversely affect its business operations and its financial conditions. 

Dependents on third party transportation: Dependents on third party transportation and logistics providers for procurement of raw material and supply to the refinery and finished products to the storage unit. It does not have any long-term contractual arrangements with such third-party transportation and logistics providers and engage their services, as and when required. Disruption of logistic could impair its ability to procure raw material and/or deliver its products on time, which could materially affect its business, financial condition and result of operations. Railway and truck loading, salt transportation and Tractor freight expenses form an integral part of its revenue.

Outlook

Goyal Salt is primarily engaged in the business of refining of raw salts procured from sub soil brine in the state of Rajasthan for useable as industrial salts and edible salts. The company refines and supplies pure, refined and quality range of triple refined free flow iodized salt, industrial salt, double fortified salt and triple refined half dry salt. On the concern side, the market of its product is very much competitive. There are many bigger groups operating in the industry and they compete with each other on key attributes such as technical competence, quality of product, customer base, pricing and timely delivery.

The issue has been offered in a price band of Rs 36-38 per equity share. The aggregate size of the offer is Rs 17.65 crore to Rs 18.63 crore based on lower and upper price band respectively.  On performance front, the company’s total revenue has increased by 77.94% to Rs 11,770.68 lakh for fiscal year 2022-23 from Rs 6,615 lakh for fiscal year 2021-22 bifurcated into revenue from operations and other income. The Profit after tax for the year increase by 464% from net profit of Rs 62.75 lakh in financial year 2021-22 to net profit Rs 353.74 lakh in financial year 2022-23. Meanwhile, the company’s intends to cater to the increasing demand of its existing customers by enhancing the distribution reach of its products. Enhancing its presence in additional regions will enable it to reach out to a larger market. Its presence in the domestic market and intension to reach out in the international markets will help it in capitalizing on the expected growth in demand of industrial salt and edible salt and present it with significant opportunities for growth of its existing market share.