Siyaram Recycling Industries coming with IPO to raise upto Rs 22.96 crore

Siyaram Recycling Industries

• Siyaram Recycling Industries is coming out with an initial public offering (IPO) of 49,92,000 equity shares of face value of Rs 10 each in a price band Rs 43-46 per equity share.
• The issue will open on December 14, 2023 and will close on December 18, 2023. 
• The shares will be listed on SME Platform of BSE.
• The share is priced 4.30 times of its face value on the lower side and 4.60 times on the higher side.
• Book running lead manager to the issue is Hem Securities.
• Compliance Officer for the issue is Kiran Parmanand Goklani.

Profile of the company

The company is primarily engaged in (i) segregation of brass scrap (ii) manufacturing of brass ingots, billets and brass rods and (iii) manufacturing of brass based components (plumbing and sanitary parts). It manufactures various brass components (plumbing and sanitary parts) such as brass inserts, brass ceramic cartridges (brass spindles), brass valves, extension nipples etc. as per the customer’s requirements, from its two manufacturing units (Unit-I and Unit-II) located at village Lakhabaval, district Jamnagar. Some of the renowned brands which are its customers include Hindware, ROCA, Eauset, Somany, Supreme, AGI Greenpac (formerly known as HSIL) and Ashirvad Pipes.

It manufactures brass ingots, billets and rods through brass scrap from its manufacturing unit-II located at Village Lakhabaval, District Jamnagar. It mainly export these products to China. Additionally, it supplies brass ingots to esteemed customers in India such as Astral, Kajaria Bathware and AGI Greenpac (formerly known as HSIL). It procures brass scrap mainly from international market such as USA, UK, Europe and Middle East. Post procurement, segregation of brass is done at its unit-III located at Village Lakhabaval, District Jamnagar. Post segregation, the segregated brass is termed as Brass scrap honey. The brass scrap is mainly sold by the company in Gujarat.

Proceed is being used for:

• Repayment of a portion of certain borrowing availed by the Company
• General corporate purpose

Industry overview

India is one of the fastest growing economies in the world. Strong domestic demand coupled with several reforms that the government has undertaken are on track to maintain the economic growth momentum going forward. As nonferrous metals find widespread applications across the economy, the current policy measures provide a tremendous opportunity for the development of the Indian non-ferrous metals industry in the future. A major push is expected to emerge from the governments ‘Make in India’ initiative, which aims to increase the manufacturing share of GDP from the present 17 per cent to 25 per cent by the end of 2025. Under this initiative, the government has identified 25 sectors such as Automotive, Power, Defence manufacturing, etc. which have extensive applications of various non-ferrous metals, and therefore, can provide a boost to the industry. Furthermore, these metals are witnessing increasing applications in the existing sectors as well as exploring many newer applications.

Government initiatives for Recycling Ministry of Environment, Forest and Climate Change (MoEF&CC) is in the process of formulating National Resource Efficiency Policy (NREP) which aims to mainstream resource efficiency across all sectors, wherein Aluminium sector has been considered as a priority sector. Ministry of Steel has brought out Steel Scrap Recycling Policy which envisages a framework to facilitate and promote establishment of metal scrap recycling centers in India. Such centers will ensure scientific processing & recycling of ferrous scrap generated from various sources. The policy framework shall provide standard guidelines for collection, dismantling and shredding activities in an organized, safe and environmentally sound manner. Similarly, NITI Aayog is proposing a comprehensive ‘National Material Recycling Policy’ to drive concerned and coordinated national and state level programs, plans and actions towards ramping up material recycling in India in a formal and organized manner. 

Pros and strengths

Strategically located manufacturing facilities: It manufactures brass billets & ingots, brass rods and brass components (plumbing parts) from its unit-I situated at land of 4970 sq. mtrs. and the brass components (sanitary parts) are manufactured from its unit-II situated at land of 3629 sq. mtrs. It has cumulative installed capacity of 9,900 Mt for manufacturing of brass billets and ingots, 8,250 Mt for manufacturing brass rods and 3,300 Mt for manufacturing of brass components, which enables the company to stream line inventory management and production process resulting into maintenance of high-quality production standards, minimizing production time and bringing cost effectiveness.

Stringent quality control mechanism ensuring standardized product quality: It employs an extensive and stringent quality control mechanism at each stage of the manufacturing as well as its recycling process including spectrometer analysis to analyze the composition of brass and hardness test to test material hardness, which are required to ensure that ita finished product conforms with the exact requirement of its customers and successfully passes all validations and quality checks. Further, as a certification of the quality assurance, the company has received ISO 9001:2015 for quality management systems.

Diversified client base: It serves a diversified client base encompassing a wide array of industries such as manufacturers in the sanitary and bath ware sector, pipes & plumbing sector and electrical items. In addition, it also sells products to metal dealers and traders. it generally do not enter into long term agreements with its customers, however, it has developed long-standing relationships with these customers some of whom have been with the company for over five years. Maintaining strong relationships with its key customers is essential to its business strategy and to the growth of its business.

Risks and concerns

Fluctuations in prices of raw material: The principal raw material used in its manufacturing process is brass scrap, which is mainly imported by the company from USA, UK, Europe and Middle East. Its cost of raw materials consumed for Fiscal 2023 was Rs 45,130.06 lakh, which represented 91.57% of its revenue from operations. The price of brass and brass scrap primarily depends on the Copper price on London Metal Exchange (LME). Since it have long lead times in its supply chain due to high imports, the scrap markets and forex rate may fluctuate in the intervening time and it may not be able to adjust prices of its finished products against what it would have paid for its raw materials which exposes it to a significant risk of price and currency fluctuations. The prices and supply of these raw materials are also affected by, among others, general economic conditions, competition, production costs and levels, the occurrence of pandemic (such as COVID-19), transportation costs, indirect taxes and import duties, tariffs and currency exchange rate.

Dependent upon few key suppliers: It procures a large portion of brass scrap from a few key suppliers, with whom it does not have any long-term supply contracts. For the six months period ended September 2023, Fiscals 2023 and 2022, purchases from its top ten suppliers amounted to Rs 156.78 crore, Rs 306.15 crore and Rs 215.32 crore respectively and represented 73.71%, 63.86% and 55.90% of its total raw material purchases. Inadequate supply of brass scrap caused either by a sudden change in the prices or imposition of any new taxes or loss of any of its existing major vendors for any reason could have a material adverse effect on its business operations and profitability.

Dependent on few customers: The substantial portion of its revenues has been dependent upon few customers. Its reliance on a limited number of customers for its business exposes the company to risks, that may include, but are not limited to, reductions, delays or cancellation of orders from its significant customers, a failure to negotiate favourable terms with its key customers or the loss of these customers, all of which would have a material adverse effect on the business, financial condition, results of operations, cash flows and future prospects of the Company.

Outlook

Incorporated in 2007, it is primarily engaged in (i) segregation of brass scrap (ii) manufacturing of brass ingots, billets and brass rods and (iii) manufacturing of brass based components (plumbing and sanitary parts). such as brass inserts, brass ceramic cartridges (brass spindles), brass valves, extension nipples etc. as per the customer’s requirements. On the concern side, Its reliance on a limited number of customers for its business exposes the company to risks, that may include, but are not limited to, reductions, delays or cancellation of orders from its significant customers, a failure to negotiate favourable terms with its key customers or the loss of these customers, all of which would have a material adverse effect on the business, financial condition, results of operations, cash flows and future prospects of the Company.

The issue has been offered in a price band of Rs 43-46 per equity share. The aggregate size of the offer is Rs 21.47 crore to Rs 22.96 crore based on lower and upper price band respectively. On performance front, total income for the financial year 2022-23 stood at Rs 497.86 crore whereas in Financial Year 2021-22 the same stood at Rs 426.44 crore representing significant increase of 16.75%. The company reported restated Profit after tax for the financial year 2022-23 at Rs 7.65 crore in comparison to Rs 3.22 crore in the financial year 2021-22, representing an increase of 137.58%. Going forward, the company intends to focus on adhering to the quality standards of the products. Quality of the product is very important for the company from both customer and end user point of view. Continuous quality review of products and timely corrective measures in case of quality diversion are keys for maintaining quality standards of the products. Providing the desired and good quality products help the company in enhancing customer trust and maintaining long term relationships with them.