Sati Poly Plast coming with IPO to raise Rs 17.36 crore

Sati Poly Plast

• Sati Poly Plast is coming out with initial public offering (IPO) of 13,35,000 shares in a price band Rs 123-130 per equity share.
• The issue will open on July 12, 2024 and will close on July 16, 2024.
• The shares will be listed on NSE Emerge Platform.
• The face value of the share is Rs 10 and is priced 12.30 times of its face value on the lower side and 13.00 times on the higher side.
• Book running lead manager to the issue is Beeline Capital Advisors.
• Compliance Officer for the issue is Akanksha Jain.

Profile of the company

Sati Poly Plast is an ISO Certified Company engaged in the manufacturing of flexible packaging material which is multifunctional and caters to the packaging requirements of various industries. It provides end-to-end solution for various flexible packaging needs. Its range of packaging solutions span a variety of products in the food and beverage category, including salty snacks, snack bars, dry fruits, confectionery and dry foods. It utilizes the advanced equipment available and continually invests to maintain the quality of product, process efficiency and the superior service that it is renowned for. Its products are crafted out of an extensive range of industry approved materials such as polyethylene terephthalate, biaxially-oriented polypropylene, polythene, cast polypropylene, foil, paper, bio-degradable films, etc. Since, flexible packaging material predominantly consists of plastic as a major raw material, it aims to manufacture its products sustainably by aiming towards ‘Reuse, Recycle and Upcycle’. 

One of the key ways it achieves this is by recycling the waste generated in its flexible packaging production process. This waste is processed and transformed into recycled plastic material, which it does not use in its production process due to low grade quality of recycled plastic material and therefore it sold recycled plastic material in the market for use in various applications. By doing so, it not only reduce the amount of waste sent to landfills but also contribute to the circular economy by reintroducing recycled materials into the production chain. It stringently maintains the processes and accreditation required to ensure the quality needs of the customers it supplies in the food and beverages. It has also installed Automated Machine with Auto Gauge Control with minimum gauge variation specially for Edible Oil Industries. 

Proceed is being used for:

• Working capital requirements
• General corporate purposes

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 6-17% of India’s GDP pre-pandemic and is projected to be one of the fastest growing sectors. The machine tool industry was literally the nuts and bolts of the manufacturing industry in India. Today, technology has stimulated innovation with digital transformation a key aspect in gaining an edge in this highly competitive market. Technology has today encouraged creativity, with digital transformation being a critical element in gaining an advantage in this increasingly competitive industry. The Indian manufacturing sector is steadily moving toward more automated and process-driven manufacturing, which is projected to improve efficiency and enhance productivity.

Manufacturing exports have registered highest ever annual exports of $447.46 billion with 6.03% growth during FY23 surpassing the previous year (FY22) record exports of $422 billion. By 2030, Indian middle class is expected to have the second largest share in global consumption at 17%. The positive developments in the manufacturing sector, driven by production capacity expansion, government policy support, heightened M&A activity, and PE/VCled investment, are creating a robust pipeline for the country’s sustained economic growth in the years to come.

As per the Union Budget 2023-24, the income tax rate for new co-operative societies engaged in manufacturing activities has been lowered from 22% to 15% (plus 10% surcharge). Startups incorporated within a time-period and meeting other conditions can deduct up to 100% of their profits; the end of this period has been extended from March 31, 2023 to March 31, 2024. In addition, the period within which losses of startups may be carried forward has been extended from seven to ten years. The upper limit on turnover for MSMEs to be eligible for presumptive taxation has been raised from Rs 2 crore ($2,43,044) to Rs 3 crore ($3,64,528). The upper limit on gross receipts for professionals eligible for presumptive taxation has been raised from Rs 50 lakh ($60,754) to Rs 75 lakh ($91,132).

Pros and strengths

Cordial relationship between management and labour: Over the years its management has successfully maintained harmonious relations with its workforce. Its management has been able to match the goals and objectives of the company with the goals and expectations of the workforce which enabled the company to achieve its production targets and desired quality of products. Until now, there has been no union of its employees. Further, it has not faced any strikes, lock - outs or any other labour protests in its organization since the inception of its business.

Established manufacturing facility: Its manufacturing facilities located at C44, Phase II, Gautam Budh Nagar, Noida and at Plot No. 85 Udhyog Kendra, Noida are spread over 8100 sq Mtr area and 1035 sq Mtr of area are equipped to carry out end to end manufacturing activities starting from designing of products to production of finished goods. Its dynamic setup not only gives it better control over quality but also benefits it with cost advantages compared to its competitors who resort to job work for various activities in the complete manufacturing process.

Quality assurance: Each of the company’s products passes through stringent quality checks. The quality assurance measures taken by the Company include thorough checking of all raw materials, other inputs and finished goods to ensure quality, statistical methods to identify and analyze areas of improvement, experienced manpower for quality assurance activities, creation of data base for future reference and analysis etc. Each of the divisions is well equipped with modern quality checking and testing equipment in place for quality assurance and functions on its philosophy of providing quality products to customer.

Risks and concerns

Dependent on few numbers of customers: Its top ten customers contribute 70.97%, 80.05% and 71.15% of its total revenue from operations on restated basis for financial year ended on March 31, 2024, 2023 and 2022, respectively. The company is engaged in the business of Manufacturing of manufacturing of flexible packaging material. Its business operations are highly dependent on its customers and the loss of any of its customers may adversely affect its sales and consequently on its business and results of operations.

Working capital requirements: Its business requires significant working capital, part of which would be met through additional borrowings in the future. In many cases, significant amounts of working capital are required to finance the procurement of branded products before payments are received from customers. Its working capital requirements may increase, under certain conditions, where payment terms do not include advance payments or include delayed payments from customers. Additionally, its working capital requirements have increased in recent years due to the general growth of its business.

Rely on third-party transportation providers: It depends on road transportation to deliver its finished products to its customers. Apart from using its own vehicles for transportation, it also uses commercial vehicles and third-party transportation providers for procuring its raw materials as well as for distributing its products to its customers. This makes it dependents on various intermediaries such as domestic logistics companies and container freight station operators. Additionally, if it loses one or more of its third-party transportation providers, it may not be able to obtain terms as favourable as those it receive from the third-party transportation providers that it currently use, which in turn would increase its costs and thereby adversely affect its operating results.

Outlook

Sati Poly Plast is engaged in the manufacturing of flexible packaging material which is multi-functional and caters to the packaging requirements of various industries. It provides end-to-end solution for various flexible packaging needs. Its Product range of flexible packaging material includes Roll form packaging, Pouch form packaging and Coextruded Films. Currently it is working with Pidilite, Adani Wilmar, JVL and have also started vacuum bags for cashews. It is supplying packaging material to Pidilite, Adani Wilmar and JVL as per their usage requirements. On the concern side, its top ten suppliers contribute 84.73%, 85.36% and 85.36% of its total purchase from operations for the financial year ended on March 31, 2024, 2023 and 2022, respectively. It cannot assures that it will be able to get the same quantum and quality 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. 

The company is coming out with a maiden IPO of 13,35,000 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 123-130 per equity share. The aggregate size of the offer is around Rs 16.42 crore to Rs 17.36 crore based on lower and upper price band respectively. On performance front, the total revenue from operations for the year ended on FY 2023-24 was Rs 17,935.48 lakh as compared to Rs 19,091.77 lakh during the FY 2022-23. Revenue from operations was decreased by 6.06% in FY 2022-23. It recorded an increase of 6.40% in its profit for the period from Rs 308.88 lakh in the year ended on March 31, 2023 to Rs 328.64 lakh in the year ended on March 31, 2024. Meanwhile, it intends to diversify its product portfolio which could cater to customers across segments, sectors, and geographies. In accordance with this, it intends to further diversify into products with prospects for increased growth and profitability such as vacuum bags for cashews and rice. The company has expanded its business and set up manufacturing unit and installed Multi color (up-to 10 colors) Roto Gravure Printing Machine for flexible packaging and printing process.