GEM Enviro Management coming with IPO to raise Rs 44.93 crore

GEM Enviro Management

• GEM Enviro Management is coming out with initial public offering (IPO) of 59,90,400 shares of Rs 5 each in a price band Rs 71-75 per equity share.  
• The issue will open for subscription on June 19, 2024 and will close on June 21, 2024.
• The shares will be listed on BSE SME Platform.
• The face value of the share is Rs 5 and is priced 14.2 times of its face value on the lower side and 15.00 times on the higher side. 
• Book running lead manager to the issue are Share India Capital Services and Fintellectual Corporate Advisors.
• Compliance Officer for the issue is Vijay Kumar Sharma.

Profile of the company

GEM Enviro Management (GEM) was established in the year 2013 for collection and recycling of all kinds of Packaging waste including the Plastic Waste. Subsequently, the company diversified to implementation of Plastic Extended Producer Responsibility Programmes for various organization (to fulfill their obligations as per Plastic Waste Management (PWM) Rules 2016 and amendments) and which has become the largest Business vertical of the Company (contributing to 82.41% of revenue in the year 2022-2023). Collection and recycling of Industrial Plastic Waste contributed to 17.42% of revenue and Sales and marketing of recycled products contributed to 0.18% of revenue in FY 2022-2023. Further in year 2023-2024 the company has ventured into new additional businesses in the field of Sustainability.

Established in the year 2013, from the year 2013 to 2018, the company was engaged in trading of plastic waste material and trading of the merchandise manufactured out of the waste recycling. The company was committed to sustainable plastic waste management and environmental stewardship, providing a basket of services to its customers that includes but not limited to plastic waste collection and sorting, recycling and repurposing, waste trading, providing environment consultancy etc. With field experience of the company's promoters in the plastic waste management industry and thorough market knowledge, strategic negotiations have helped it secures good prices and favorable terms for plastic trading waste transactions.

Proceed is being used for:

• Meeting working capital requirements 
• General corporate purposes

Industry overview

India has a population of more than 1.4 billion and generates 26,000 tonnes of plastic waste every day. This is the equivalent of around 26,000 small cars. India produces 3.4 million tonnes of plastic waste in a year and only 30% of it is recycled. The India Plastic Recycling market stood at around 5700 thousand tonnes in FY 2023 and is likely to grow at a steady CAGR of 5.84% in the forecast period by FY 2030. The plastic recycling industry in India is rapidly growing owing to the rise in the number of small-scale plants in the country and the increasing focus of non-governmental entities on the secondary use economy. 

Plastic recycling has various benefits such as financial benefits, reducing the need for the production of fresh plastics, creating employment, opportunities, and reducing energy consumption. Additionally, development in various industries such as packaging, and automotive, and policies and regulations by the government are driving the market. This can be attributed to the increasing environmental awareness and viable applicability of the products derived from plastic waste. Although this sector is mostly managed by unorganized local players, the Government of India has enforced plastic waste management rules that prohibit the use of single-use plastics that have low utility and high littering potential.

The positive outlook for the recycled plastic waste management market in India is underlined by a confluence of factors that signal robust growth and sustainability in the sector. With increasing awareness about environmental conservation and a growing commitment to sustainable practices, the demand for extended producer responsibility (EPR) services in recycled plastic waste management is poised to witness a substantial uptick. Government initiatives and stringent regulations mandating responsible disposal of plastic waste have not only spurred the adoption of EPR services but have also created a conducive environment for market expansion.

Pros and strengths

Expertise: With a robust background in waste management and EPR, GEM brings a wealth of industry experience. GEM’s team of EPR experts (qualified team of cross functional talent (environment science graduates, engineers, MBA, CS etc.) possesses extensive knowledge of environmental regulations, recycling best practices, and industry-specific challenges. This expertise ensures that the clients receive the most effective EPR solutions.

Sound understanding of the regulatory landscape: The company boasts a comprehensive understanding of the regulatory landscape governing waste management and sustainability. This in-depth knowledge positions us as a reliable partner for clients seeking compliance with environmental regulations. It allows it to stay ahead of industry changes and proactively adapt to evolving standards.

Relationship with other stakeholders in the value chain: It values strong relationships across the entire value chain. Collaborating seamlessly with various stakeholders, including suppliers, partners, and clients, has been instrumental in its success. These relationships contribute to the efficiency and effectiveness of its waste management solutions.

Risks and concerns

Reliance on third-party transportation and logistics service providers: Since it doesn’t own any vehicles for material transportation, it relies on third-party transportation and logistics providers for these services, introducing its dependency on intermediaries like logistics companies. Notably, it lacks long-term contractual arrangements with these third-party providers, exposing it to potential disruptions in logistics that could impair its material procurement and product delivery timelines, thereby significantly impacting its business, operational results, and financial health.

Dependent on few numbers of suppliers: Its Top ten Suppliers contributes to 88.63%, 69.23%, 64.17% and 80.17% of its total Purchases for the period ended December 31, 2023 and for the year ended March 31, 2023, March 31, 2022 and March 31, 2021 respectively. Depending on availability of required goods at favorable terms goods are procured. It cannot assure that it will be able to get the same quantum of supplies, or any supplies at all, and the loss of supplies from one or more of them may adversely affect its purchases of stock and ultimately its revenue and results of operations. 

Significant portion of revenue from limited number of customer: It has, in the past derived a significant portion of its revenue from limited number of customer and it may continue to derive a significant portion of its revenue from such customer. As a significant portion of its revenue is concentrated to a select number of customers, any adverse development with such customer, including as a result of a dispute with or disqualification by such major customers, may result in it experiencing significant reduction in its cash flows and liquidity. The loss of significant clients, or projects from such clients for any reason, including as a result of disqualification or dispute, may have a material and adverse effect on its business and results of operations.

Outlook

GEM Enviro Management is engaged in the business of handling of waste and scraps related to all kind and supply and trading of goods. Subsequently, the company diversified to implementation of Plastic Extended Producer Responsibility Programmes for various organization (to fulfill their obligations as per PWM Rules 2016 and amendments) and which has become the largest Business vertical of the Company (contributing to 82.41% of revenue in the year 2022-2023). On the concern side, its business requires significant amount of working capital and major portion of its working capital is utilized towards trade receivables. Its growing scales of operation and to pursue expansion may result in increase in the quantum of current assets. If it faces insufficient cash flows, unable to maintain credit facility, or fail to meet its working capital and other obligations, it could have a material and adverse impact on its business.

The company is coming out with an IPO of 59,90,400 equity shares of face value of Rs 5 each. The issue has been offered in a price band of Rs 71-75 per equity share. The aggregate size of the offer is around Rs 42.53 crore to Rs 44.93 crore based on lower and upper price band respectively. On performance front, total Income for the period ended March 31, 2023, stood at Rs 4,280.57 lakh whereas in Financial Year 2021-22 it stood at Rs 3,291.48 lakh representing an increase of 30.05%. Net Profit has increased from profit of Rs 745.23 lakh in Fiscal 2022 to profit of Rs 1,001.82 lakh in the Fiscal 2023. Meanwhile, the company is planning to target an additional 1000 customers to serve their plastic waste management related needs. The company’s suit of services in this regard might range from registering the client on CPCB’s online portal to charting out their specific waste management plan, training and development of their employees and value chain partners, EPR fulfilment and regulatory compliance management.