Qualitek Labs
- Qualitek Labs is coming out with an initial public offering (IPO) of 19,64,400 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 100 per equity share.
- The issue will open on January 18, 2024 and will close on January 22, 2024.
- The shares will be listed on BSE SME Platform.
- The share is priced at 10 times higher to its face value of Rs 10.
- Book running lead manager to the issue is Oneview Corporate Advisors.
- Compliance Officer for the issue is Ashima Bhatnagar.
Profile of the company
Qualitek Labs is primarily engaged in the business of provides testing, inspection, homologation, certification and consultancy services to various industries viz the automotive, defence, metals & metallurgy, environment and water, minerals, food & agriculture, pharma & healthcare. Within 5 years of incorporation, the company has commenced its business operation of providing services to its clients from a testing laboratory, which was set up in Pune in the year 2018. Later in the year 2022, the company expanded and established the second laboratory in Bhubaneshwar. Also, the company is in process of setting up another two testing laboratories at Pune and Noida.
The company is managed by its Promoters and Directors, Alok Kumar Agarwal, Kamal Grover and Antaryami Nayak, who plays pivotal role in managing the affairs of the Company. Alok Kumar Agarwalis a successful entrepreneur with over 27 years of experience and with more than 20 years of successful venture in finance, consulting, advisory and taxation field, he ventured in testing, inspection and certification(TIC) business by establishing TIC Services Private Limited. Subsequently he established the company for testing, inspection and certification business in the year 2018. The company has demonstrated a remarkable growth and Alok Kumar Agarwal is responsible for strategic investment, management of funds, expansion, getting new businesses and setting up appropriate control mechanism in the business.
The company’s team of professionals have the knowledge and experience to fully understand the challenges faced by the industry and try to comprehend the same. In addition, its experienced team has enabled it to build an effective business model that gives it control over its processes such as raw material procurement, marketing and sales through its network.
Proceed is being used for:
- Funding capital expenditure towards installation of plant and machinery for new & existing laboratories and for expansion of laboratories.
- Repayment of unsecured loans to Promoter.
- Funding of working capital requirements.
- General corporate purposes.
Industry overview
The Indian testing, inspection, and certification (TIC) market size was valued at USD 26 million in 2021 and is projected to reach $47 million by 2030, registering a CAGR of 6.9% during the forecast period (2022- 2030). India's testing, inspection, and certification (TIC) market is a quickly expanding industry offering services to several sectors, including manufacturing, the automobile, aerospace, medical, food and beverage. The government's emphasis on quality and safety requirements, the rising need for certification services, and the expansion of the manufacturing and automotive industries are some of the main factors driving the TIC market in India. The implementation of numerous rules and guidelines by the Indian government, including BIS, FSSAI, and BEE, has raised the demand for testing and certification services. The market is also adopting new technologies like IoT, AI, and machine learning to deliver enhanced testing and inspection services. Environmental testing and certification services are in greater demand due to the increased emphasis on sustainability and the environment.
India is experiencing an increased need for certification services due to expanding consumer awareness, globalization, and the requirement for compliance with international standards. Consumers are becoming more concerned about the quality and safety of goods and services. They look for certifications like ISO, HACCP, and CE to ensure they purchase goods that adhere to high standards. Similar to how trade is becoming more globally interconnected, Indian companies are trying to sell their goods abroad, necessitating meeting several foreign standards and certifications. As a result, there is an increasing need for certification services, and the TIC sector is playing a crucial role in meeting this demand for Indian firms.
Testing, Inspection and certification standards for end-use applications differ from industry to industry. Thus,the lack of standards restrains the market growth. For instance, the textile industry in India has higher exports and imports than other countries; therefore, India is witnessing a surging demand for testing, inspection and certification services for textiles application in the country. The market growth is driven by companies who strictly want to adhere to defined standards and the growth is hampered when the country has relaxed norms pertaining to import and export. Small to medium sized testing, inspection and certification companies face challenges in terms of receiving accreditation due to requirement of huge initial capital. Additionally, each country has different certification standards. For instance, US and China have more certification standards for electronics, while Europe has a high number of certification standards for the automotive sector.
Pros and strengths
Established brand name: It is a NABL ISO / IEC 17025:2017 accredited laboratory company formed by industry professionals having more than decades of experience in the respective fields of expertise. The company has a system of internal controls to ensure that all the assets are safeguarded and are productive. Necessary checks and controls are in place to ensure that transactions are properly verified, adequately authorized, correctly recorded and properly reported. The company’s team of professionals with their expertise in the business, fully understands the challenges faced by the industry and comprehends the same.
Robust technical capability with strong IT infrastructure: The company’s knowledge and experience combined with its infrastructure facilities at Pune and Bhubaneswar offers innovative solutions to the automotive, electrical, aerospace and other allied industries in testing, homologation, certification and consultancy. The company’s solutions help to reduce risks, innovate and test the safety, maintain the quality and performance of product vis-a-vis the regulatory standards. It offers end to end testing solutions to evaluate automotive material, components, assemblies and full vehicle as per Indian and International standards like ASTM, IS, ISO, JIS, SAE, DIN, Specific OEM Standards etc.
Customer centric services: The laboratory operates with a well-developed quality assurance process and customer centric approach to offer a holistic solution beyond testing, inspection and certification for the products and services to its clients. The company focuses to enhance the overall quality of its services for optimal customer satisfaction. Several factors, including the strength of its brand, integrated services model, quality of its product testing services, centre infrastructure, customer experience and convenience of its operational network are important differentiating factors motivating the customers to choose the company as their preferred product testing service provider, which helps it in retaining its customers, and sets it apart from its competitors.
Risks and concerns
Maximum revenue comes from few clients: A substantial portion of its revenues has been dependent upon a few customers. The company’s revenue from operations from its top five customers for the period ended on September 30, 2023 was Rs 268.49 lakh and for FY 2022-23, 2021-22, 2020-21 was Rs 483.02 lakh, Rs 336.57 lakh, and Rs 245.72 lakh, which represented 21.50%, 25.24%, 28.13%, and 38.61% respectively, of its revenue from operations. Moreover, the company has not entered into long-term agreements with its customers and the success of its business is accordingly significantly dependent on maintaining good relationships with them. The loss of one or more of these significant customers or a reduction in the amount of business it obtains from them could have an adverse effect on its business, results of operations, financial condition, and cash flows.
No license agreement with its Group Company for the use LIMS: The company uses software- Laboratory Information Management System (LIMS) developed by its Group Company, for sample registration, sample booking, sample test master creation & updation, test results updation, invoice generation (GST formats), report generation (in defined formats) etc. The company has entered into a confidentiality agreement dated December 25, 2020 with its Group Company, however there is no agreement entered into between the parties for using the said software, therefore, this may adversely affect its business and results of operations.
Huge working capital requirement: The company's business is working capital intensive and requires a significant amount of working capital for smooth functioning. The company has a sanctioned limit for working capital of Rs 400.00 lakh from the existing bankers / financial institutions. Further, an unsecured loan of Rs 838.16 lakh from the Promoter TIC Services Private Limited, and Group Company ASC Consulting Private Limited has been taken. Its growing scale and expansion, if any, may result in increase in the quantum of working capital. Its inability to maintain sufficient cash flow, credit facility and other sourcing of funding, in a timely manner, or at all, to meet the requirement of working capital or pay out debts, could adversely affect its financial condition and result of its operations.
Outlook
Qualitek Labs provides testing, inspection, homologation, certification, and consulting services. The company has two testing laboratories in Pune and Bhubaneshwar. The company is led by a qualified and experienced management team that has the expertise and vision to manage and grow its business and promote its sustainability goals. On the concern side, a substantial portion of the company’s revenues has been dependent upon a few customers, with which it does not have any firm commitments. The loss of any one or more of its major customers would have a material adverse effect on its business, cash flows, results of operations, and financial condition. Moreover, the company owes dues to micro, small and medium enterprises, which are outstanding for more than 45 days.
The company is coming out with an IPO of 19,64,400 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 100 per equity share to mobilize Rs 19.64 crore. On performance front, total income for the financial year 2022-23 stood at Rs 1935.13 lakh whereas in Financial Year 2021-22 the same stood at Rs 1201.73 lakh representing an increase of 61.03% primarily due to an increase revenue from operation. Restated Profit/ (Loss) after tax for financial year 2022-23 was Rs 296.91 lakh in comparison to Rs 113.57 lakh in the financial year 2021-22, representing an increase of 161.43%.
As of now, the company’s presence is in Pune and Bhuwaneshwar where it is providing services relating to automotive, defence, metal and metallurgy sectors. The company intends to expand its services in other geographies where it has the availability of talent to execute and provide services in cost effective and efficient manner to the customers. It is currently in process of establishing two new laboratories in Noida and Pune, apart from the existing laboratory in Pune. Moreover, the company’s dedicated and focused approach with efficient and timely delivery of services has helped it to build strong relationship over the years. The company focuses on doing continuing business with its customers and suppliers. For the company, establishing strong, mutually beneficial long-term relationships with supplier and customers is a critical step in improving its performance, generating greater cost efficiency and enabling it to grow and develop its business.
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