Sunita Tools coming with IPO to raise Rs 22.04 crore

Sunita Tools

• Sunita Tools is coming out with an initial public offering (IPO) of 15,20,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 145 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 SME Platform of BSE.
• The share is priced 14.50 times higher to its face value of Rs 10.
• Book running lead manager to the issue is Aryaman Financial Services.
• Compliance Officer for the issue is Rupal Dedhia.

Profile of the company

Sunita Tools has been in the Engineering and Mould base Industry for more than three decades providing one of its kind customized solutions to various industries with a vision to fulfill tomorrow’s requirements today. The company manufacture Ground Plates, Mould Bases and Precision CNC Machining. Its products are a pre-requisite and act as food to the Manufacturing industries be it Automotive, Pharmaceutical, Electronics, Consumer Goods and most of the Manufacturing Sectors. Its products are mould base and machining parts which are industrial capital goods which undergoes stringent quality tests to meet industry standards before they are delivered to its clients.

The company’s manufacturing facility in Vasai, Mumbai has many strategic advantages. The area in which it is located is a well-developed industrial area providing easy availability of resources, easy to & fro logistics & transportation enhances efficiency of timely delivery as per convenience of customers. This location gives a competitive edge over competitors to its business. Its manufacturing facility has proper infrastructure, availability of labour, water and power supply. The company’s ability to produce customized quality products, compatible products, guidance throughout the design and manufacturing process, after sale technical support provides it significant competitive advantages. Its commitment to compatibility makes its products & services a flexible and versatile choice compared to others. It endeavor to promptly address any concerns of its business associates through significant senior management engagement.

Proceed is being used for:

• Funding Working capital requirements.
• General Corporate Purpose.

Industry overview

Manufacturing is emerging as an integral pillar in the country’s economic growth, thanks to the performance of key sectors like automotive, engineering, chemicals, pharmaceuticals, and consumer durables. The Indian manufacturing industry generated 16-17% of India’s GDP pre-pandemic and is projected to be one of the fastest growing sectors. India is an attractive hub for foreign investments in the manufacturing sector. One of the initiatives by the Government of India's Ministry for Heavy Industries & Public Enterprises is SAMARTH Udyog Bharat 4.0, or SAMARTH Advanced Manufacturing and Rapid Transformation Hubs. This is expected to increase competitiveness of the manufacturing sector in the capital goods market. With impetus on developing industrial corridors and smart cities, the Government aims to ensure holistic development of the nation. The corridors would further assist in integrating, monitoring and developing a conducive environment for the industrial development and will promote advance practices in manufacturing.

India’s Capital Goods manufacturing industry serves as a strong base for its engagement across sectors such as Engineering, Construction, Infrastructure and Consumer goods, amongst others. India’s engineering sector has witnessed a remarkable growth over the last few years, driven by increased investment in infrastructure and industrial production. The engineering sector, being closely associated with the manufacturing and infrastructure sectors, is of huge strategic importance to India’s economy. The development of the engineering sector of the economy is also significantly aided by the policies and initiatives of the Indian government. The engineering industry has been de-licensed and allows 100% foreign direct investment (FDI). Additionally, it has grown to be the biggest contributor to the nation's overall merchandise exports.

Pros and strengths

Well Experienced Management Team: The company’s Promoters Sanjay Pandey and Satish Pandey possess significant industry experience and have been instrumental in the growth of the company. They have a strong understanding of the manufacturing process and the various components involved in creating mould bases. The company is being managed by promoters and its team to achieve efficiency in its work each day. The company as a team follow Kaizen theory to learn and improve by taking small steps every day and contributing to company in all ways possible. Promoters and team have expertise in reading and interpreting technical drawings and specifications. Furthermore, they possess a deep understanding of machining processes, materials, and manufacturing techniques used in mould base production. They are familiar with the latest trends and advancements in the field, enabling them to recommend improvements and optimizations to enhance the overall quality and efficiency of the mould base manufacturing process. Promoters have a knack for problem-solving and troubleshooting.

Long Standing Relation with Customers: The company’s business is customer centric and requires optimum utilization of its existing facilities, assuring quality supply of raw materials and achieving consequent economies of scale. It has been able to build trust and establish relations with its major customers for a long time. It deals with various companies and been able to deliver them with consistent products all these years. It produces components which act as an input for these companies and therefore each customer has their own stringent condition relating to quality, time and use of components. The raw material used in production is specified by its customer and it make mould bases on those specific raw materials. It needs to supply the goods in their mentioned schedule, lots and boxes as per their given list. It provides prompt assistance, and go the extra mile to resolve any issues or concerns. It makes its customers feel heard, valued, and appreciated. It has been able to cater their requirement timely and as specified and therefore over years trust has been built. 

Strategic Location of Unit: The company’s manufacturing hub is located at Survey No. 66, Plot No. A, Valiv, Sativali Road, Vasai East, Palghar, Thane which is well developed industrial area & has been growing in terms of industry set up. Its facility has proper infrastructure with good conditions of road and transport facility and availability of water and power supply. Labors are easily available from nearby area as these facilitate it to fetch them as per its work load in factory. This location gives a competitive edge over competitors to its business.

Risks and concerns

Dependent on third party transportation providers: The company uses services of third party transportation providers for the delivery of its raw material and products. Even though majority of its customers arrange their own transportation and have a separate agreement with them, but sometimes it need to arrange such services. Vehicle strikes could have an adverse effect on its receipt of raw materials and its ability to deliver its products to its customers. In addition, transportation costs in India have been steadily increasing over the past several years. Continuing increase in transportation costs or unavailability of transportation services for its products may have an adverse effect on its business, financial condition, results of operations and prospects. Currently, physical infrastructure is less developed and problems with its road networks, electricity grid, communication systems or any other public facility could disrupt its normal business activity, including its supply of raw materials and the delivery of its products to customers by third-party transportation providers.

Face competition: The company may have to confront pressures in respect of pricing; product quality etc. from the clients and such pressures may put strain on its profit margins which may consequently affect the financial position of the company. Competition emerges not only from the organized sector but also from the unorganized sector and from both small and big players. Its Competitiveness is also measured by the technology it adopts as the industry is rapidly growing in India. Its inability to compete with this intense competition; will have material adverse impact on the company's financial position.

Product development is long, expensive and uncertain process: The mould base industry is influenced by advancements in technology, such as 3D printing, automation, and computer-aided design (CAD) software. Companies in the industry need to stay updated with the latest technologies to remain competitive and meet customer demands. The development of the company’s software products is a costly, complex and time-consuming process, and the investment in its development often involves a long wait until a return is achieved on such an investment. It has made, and will continue to make, significant investments in software product development and related product opportunities. Investments in new technology and processes are inherently speculative. Commercial success depends on many factors, including the degree of innovation of the software products developed and effective distribution and marketing. Such expenditure may adversely affect its operating results if they are not offset by corresponding and timely revenue increases. However, significant revenues from new software product investments may not be achieved for a number of years, or at all. Moreover, new software products may not be profitable, and even if they are profitable, operating margins for new software products may not be in line with the margins it has experienced for existing or historical software products.

Outlook

Sunita Tools manufactures mold base and machining parts for Automotive, Pharmaceutical, Electronics, Consumer Goods, and Manufacturing Sectors. The company manufactures Customized Mould Bases, Precision Finish CNC Machining, Plastic Mould Bases, Pocket Machining, Injection Mould Bases, Precision Component Machining, Mould Bases For Caps and closures, Blow Mould Bases, Standard Mould Bases, Compression Mould bases, Die Casting Mould Bases, Insert Mould Bases, Over mold Bases, and Prototype Mould Bases. The company's products are used as Capital Assets as inputs in the Automotive Industry, Heavy Manufacturing, Industry Plastics Industry, Electrical Industry, and Consumer Goods Industry. On the concern side, the company is engaged in the business of manufacturing mould base & machining part items and sub-assembling. All of its machinery is occupied with customer’s order which is critical to the operations of its customers business. Any failure or defect in its products could result in a claim against it for substantial damages, regardless of its responsibility for such a failure or defect.

The company is coming out with an IPO of 15,20,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 145 per equity share to mobilize Rs 22.04 crore. On performance front, in fiscal 2023, the company’s revenue from operations increased by Rs 510.97 lakh or 58.50%, from Rs 873.47 lakh in fiscal 2022 to Rs 1,384.44 lakh in fiscal 2023. The increase in the year 2023 was due to increase in number of orders and increase in range of products manufactured as compared to last year. The company’s Profit after Tax increased by Rs 256.72 lakh or 316.98%, from Rs 80.99 lakh in fiscal 2022 to Rs 337.71 lakh in fiscal 2023. Meanwhile, in the company’s business, it focuses to undertake orders of high transactional value. These order gives it a good margin and it is able to deliver its products at better prices compared to market due to bulk purchasing of its raw materials and economies of scale achieved during production.