Three M Paper Boards coming with IPO to raise Rs 39.83 crore

Three M Paper Boards

• Three M Paper Boards is coming out with a 100% book building; initial public offering (IPO) of 57,72,000 shares in a price band Rs 67-69  per equity share.
• The issue will open on July 12, 2024 and will close on July 16, 2024.
• The shares will be listed on BSE SME Platform.
• The face value of the share is Rs 10 and is priced 6.70 times of its face value on the lower side and 6.90 times on the higher side.
• Book running lead manager to the issue is Comfort Securities.
• Compliance Officer for the issue is Sneha Parth Shah.

Profile of the company

The company is engaged in the business of manufacturing recycled paper-based Duplex Board products used in various packaging applications across industries such as food and beverage, pharmaceuticals, cosmetics, and consumer goods and supplies its high-quality duplex board paper products in both the domestic and international markets. Its products are made out of 100 percent recycled waste paper and are completely biodegradable. The company sets out to undertake various innovations in both the product-development side as well as in manufacturing processes on a consistent basis. The company is headquartered in Mumbai, with its manufacturing facility located in Chiplun, Dist. Ratnagiri, Maharashtra.

Its product portfolio includes a diverse range of coated boards tailored to meet the specific needs and preferences of its customers. From lightweight folding carton boards to heavy-duty packaging boards, it offers a comprehensive selection of grades, coatings, and finishes to enhance printability, durability, and shelf appeal. Moreover, the portfolio reflects the company's commitment to sustainability, as evidenced by its FSCR certification, ensuring responsible forest management practices. Technological upgrades and a flexible manufacturing facility enable the production of a diverse range of products aligned with market demand. Supported by a strong Pan-India distribution network and numerous dealers, the company maintains a significant market presence, enhancing accessibility nationwide.

Proceed is being used for:

• Capital expenditure for installation of new machinery, modernisation of certain processes under existing manufacturing facility and installation of plastic fired low pressure boiler. 
• Funding working capital requirements. 
• Prepayment or repayment of all or a portion of outstanding borrowing availed by the Company.
• General corporate purposes.

Industry Overview

The Paper Industry holds a significant historical presence in India, evolving since the establishment of the first mill in the country. Over time, there has been a substantial increase in the number of paper mills, particularly in recent years, leading to a notable rise in both the quantity of mills and overall production volume. The Indian paper industry plays a noteworthy role on the global stage, contributing approximately 5% to the world's paper production. The industry's economic impact is substantial, with an estimated turnover exceeding Rs 80,000 crore, contributing to approximately Rs 5,000 crore to the national exchequer. In terms of employment, the industry directly engages 500,000 individuals and indirectly supports an additional 1.5 million jobs.

The roots of the Indian Paper Industry date back to 1812 when the inaugural paper mill was established in Behranpur. Since itsinception, the industry has experienced significant growth, expanding both in terms ofscale and scope. Currently, it ranks among the top 15 major paper producers globally. In FY 2023, boasting an annual capacity of 30.73 million Tonnes Per Annum (TTPA), India successfully manufactured 23.67 million tonnes of paper and paperboard. This translates to approximately 88% of the capacity utilisation by the industry.

The domestic paper and paper product production has grown steadily between FY 2018-23 where estimated production stood at 23.67 Mn tonnes in FY 2023. The slow growth observed after a remarkable rise of 10.3% in FY 2020 comes from the halted industry brought on by the covid-19 pandemic lockdowns. While the industry has now picked up, growth levels achieved pre-pandemic are yet to be achieved. On demand side, total consumption of paper, paperboard, and Newsprint stood at 21.14 million tonnes in FY 2022, registering y-o-y 16.2%, with Packaging Paper/Board segment alone accounting for nearly 63% share followed by writing and printing paper contributing 24.6% share and newsprint accounting for 6.4% share while remaining 6.4% share was accounted by all other categories.

Pros and strengths

Consistence financial performance: The company maintains strong financial discipline and is regular in payment of banks interest/ instalments as well as creditors on time. The company follows stringent financial policies. The company has policy of having internal audits done from time to time to ensure that there is no margin of error. The company has shown sustainable growth in revenue since inception and has a healthy balance sheet.

Network of dealers and customers: It serves a diversified customer base comprising multinational corporations, regional brands, converters, and packaging manufacturers. Its flexible manufacturing processes and responsive customer support allow it to accommodate varying demand levels and deliver customized solutions to meet specific requirements. Specializing in manufacturing recycled paper-based Duplex Board products for packaging in industries like food, beverage, pharmaceuticals, cosmetics, and consumer goods, it caters to both domestic and international markets.

Economies of scale leads to low procurement costs: Purchasing of raw material in large volumes results in better bargaining power for the company while negotiating the cost of raw material with its suppliers. Due to economies of scale, the cost of procurement in reduced. Adopting this strategy helps the company by aiding in reduced cost of production and a subsequent increase in the profit margin for the company. Moreover, efficient management of logistics and effective utilization of the supply chain will again help reduce the overall cost of production the company.

Risks and concerns

Dependent on few customers: A significant proportion of its revenues have historically been derived from a limited number of customers. Over the last four Financial Years, its top 10 customers have contributed 45.24%, 48.09%, 63.85% and 57.01% of its total revenues for Financial Year 2024, 2023, 2022 and 2021 respectively. The loss of orders from any of these significant customers will result in a considerable reduction in its revenue. Its business from customers is dependent on its continuing relationship with such customers, the quality of its products, competitive pricing and its ability to timely deliver on their orders, and there can be no assurance that such customers will continue to do business with it in the future on commercially acceptable terms or at all. If its customers do not continue to purchase products from it, or reduce the volume of products purchased from it, its business prospects, results of operations and financial condition may be adversely affected.

Geographical concentration: It generates major sales from its customers domestically situated at Maharashtra, Karnataka, Goa and Delhi. These 4 states contribute 76.00% of total revenue for the year ended March 31, 2024 and 74.62% of total revenue for the year ended March 31, 2023. Such geographical concentration of its business in these regions heightens its exposure to adverse developments related to competition, as well as economic and demographic changes in these regions which may adversely affect its business prospects, financial conditions and results of operations.

Business is dependent on single manufacturing facility: The company has single manufacturing facility located at Chiplun, Ratnagiri, Maharashtra engaged in manufacturing of Coated Duplex Boards. Its success depends on its ability to successfully manufacture and deliver its products to meet its customer demand. Being dependent on its sole manufacturing facility heightens its exposure to adverse developments related to regulation, as well as economic, demographic and other changes at the location as well as the occurrence of natural and man-made disasters, which may adversely affect business, results of operations and financial condition.

Outlook

Three M Paper Boards is engaged in the business of manufacturing recycled paper-based coated Duplex Board products used in various packaging applications across industries such as food and beverage, pharmaceuticals, cosmetics, and consumer goods and supplies its high-quality duplex board paper products in both the domestic and international markets. Its products are made out of 100 percent recycled waste-paper and are completely biodegradable. On the concern side, it does not have long-term agreements with suppliers for its raw materials, and an increase in the cost or a shortfall in the availability of such raw materials could adversely affect its business, results of operations, and financial condition. The production quantity and cost of its products are dependent on its ability to source raw materials and packaging materials at acceptable prices while maintaining a stable and sufficient supply of key raw materials, including wastepaper and chemicals.

The company is coming out with a maiden IPO of 57,72,000 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 67-69 per equity share. The aggregate size of the offer is around Rs 38.67 crore to Rs 39.83 crore based on lower and upper price band respectively. On performance front, its total revenue decreased by 16.30% to Rs 27,601.56 lakh for the Fiscal 2024 from Rs 32,974.92 lakh for the Fiscal 2023 primarily due to reduction in the sale price of paper and paper boards. It recorded a profit after tax for the year of Rs 1,134.72 lakh in Fiscal 2024 compared to Rs 661.53 lakh in Fiscal 2023. Meanwhile, invest & continuously improve product quality, develop new manufacturing technologies, and innovate packaging solutions. By staying at the forefront of technological advancements, the company can differentiate itself from competitors and meet evolving customer demands. Additionally, Innovative and well-developed products can also lead to creation of opportunities for obtaining first mover advantage(s) for a technologically advanced product. As a result, investment in Innovation and Research becomes crucial for the business.