Sanstar coming with IPO to raise Rs 510.15 crore

Sanstar 

• Sanstar is coming out with a 100% book building; initial public offering (IPO) of 5,37,00,000 shares of Rs 2 each in a price band Rs 90- 95 per equity share.    
• Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.  
• The issue will open for subscription on July 19, 2024 and will close on July 23, 2024.
• The shares will be listed on BSE as well as NSE.
• The face value of the share is Rs 2 and is priced 45.00 times of its face value on the lower side and 47.50 times on the higher side.
• Book running lead manager to the issue is Pantomath Capital Advisors.
• Compliance Officer for the issue is Fagun Harsh Shah.

Profile of the company

The company is one of the major manufacturers of plant-based speciality products and ingredient solutions in India for food, animal nutrition and other industrial applications. Its products include liquid glucose, dried glucose solids, maltodextrin powder, dextrose monohydrate, native maize starches, modified maize starches and co-products like germs, gluten, fiber and enriched protein, amongst others. Its speciality products and ingredients solutions add taste, texture, nutrients and increased functionality to (i) foods as ingredients, thickening agents, stabilizers, sweeteners, emulsifiers and additives (in bakery products, confectionery, pastas, soups, ketchups, sauces, creams, deserts, amongst others), (ii) animal nutrition products as nutritional ingredients, and (iii) other industrial products as disintegrants, excipients, supplements, coating agents, binders, smoothing & flattering agents, finishing agents, among others.  

The company’s two manufacturing facilities spread across cumulative area of 10.68 million square feet (approximate 245 Acres) are located at Dhule in the state of Maharashtra and Kutch in the state of Gujarat. Its Dhule Facility is the latest, sustainability focused, state of the art, automated facility and has been designed by its in-house team of 24 engineers. Its manufacturing facilities are strategically located in terms of both proximity to its raw material sources i.e. maize harvesting belts as well as seaports of Mundra, Kandla, Hazira and Nhava Sheva, for exports of its finished products. Its Dhule Unit has been duly certified in accordance with FSSAI, FSSC 22000:2018, Kosher, HALAL, International Standards for Quality Management Systems as per ISO 9001:2015 and SGS’s Certificate for India’s National Programme for Organic Production Standards, amongst others. Similarly, its Kutch unit is registered with United States Food and Drug Administration (USFDA) and also hold certifications like FSSAI, HACCP, HALAL, ISO 9001:2015. 

Proceed is being used for:

• Funding the capital expenditure requirement for expansion of Dhule Facility.
• Repayment and/or pre-payment, in part or full, of certain borrowings availed by the company.
• General Corporate Purposes.

Industry overview

The Indian native maize starch industry is expected to be valued at $1,897 million in 2023 with volume of 4.87 million tons. The market has grown at CAGR 3.27% since 2019 and is further expected to grow at CAGR 4.56% till the forecasted period. The market for maize starch has expanded significantly over the years as a result of new plants that have recently opened with milling capacities ranging from 200 TPD (Tons Per Day) to 350 TPD at the start and gradually expanding till 600-1000 MTD. Many players in Indian maize starch industry are undergoing capacity expansions to cater to increasing global as well as domestic demands. The minimum viable capacity for maize starch in Indian ranges from 600- 800 MTD. Further the growing applications of native maize starch in pharmaceutical, textile, adhesives, paper and cosmetic industry propelling the growth of native maize starch in India. Native starch is incorporated in a wide variety of consumable products, such as bakery mixes, frozen cakes, sheeted snacks, batter mixes, brewing adjuncts, dry mix soups and sauces, processed meat, pudding powders, cold process salad dressings, dips, and fruit preparations. It is also added to pet food products as native starch is an effective source of energy for dogs and cats and enhances the density and texture of the product. It is used as a stabilizing, thickening, gelling, and moisture-retaining agent. It is also employed to stiffen textiles for improving the appearance of fabrics by imparting a glossy texture. It is widely used as a flocculant, binder, and bonding agent in the paper industry.

India's installed starch capacity presently ranges between 5.8 and 6.5 MTPA, and the industry is experiencing a surge in expansion activity, resulting in multiple projects to improve/set up new capacities. Industry experts claim that the availability of raw materials in the country and the rise in demand for starch in both the domestic and export markets have increased the capacity for maize based ingredients solution’s industry to nearly triple over the past decade. With a global share of approximately 14.3% in 2022, India stands as the world's top exporter of native maize starch. A relatively small amount of native starch is imported. The India native Maize starch market is highly competitive, with several key players dominating the industry. Some of the major players in the market include Roquette Riddhi Siddhi, Gujarat Ambuja Exports, Sanstar Biochem, Sukhjit Starch & Chemicals, Sayaji Industries, Universal Starch Chem Allied, etc. Key end users in domestic market for Native Starch are Mondelez, Parle Products, Nestle, Britannia Industries, Priya Gold, ITC, Dabur, JK Paper, Weikfield Foods, Arvind, JCT, Century Pulp & Paper to name a few.

Pros and strengths

One of the largest manufacturers of maize based speciality products and ingredient solutions in India: The company is the fifth largest manufacturer of maize based speciality products and ingredient solutions in India. It commenced commercial manufacturing from its manufacturing facilities located at Kutch, Gujarat and Dhule, Maharashtra in the year 2006 and 2017 respectively and has grown its business to the current scale with an installed capacity of 363,000 tons per annum (1,100 tons per day). The company offers a diversified portfolio of speciality products and ingredient solutions including liquid glucose, dried glucose solids, maltodextrin powder, dextrose monohydrate, native maize starch, modified maize starches and co-products like germs, gluten, fiber and enriched protein, amongst others. These products find applications in a wide array of industries including food and beverages, pharmaceuticals, animal nutrition, adhesives, textiles, paper, amongst others. The company’s product mix determines its revenue and it changes based on the market prices and level of demand for completed goods. 

Speciality products and ingredients solutions player catering to diverse industry segments: The company is a speciality products and ingredients solutions company manufacturing native and modified maize starches, derivatives and co-products for applications including ingredients, thickening agents, stabilizers, sweeteners, emulsifiers, additives, nutritional ingredients, disintegrants, excipients, supplements, coating agents, binders, smoothing & flattering agents, finishing agents, amongst others, across diverse end user industries. Its manufacturing facilities, its exports presence & exposure in over 49 countries and its track record of commercialising and scaling up new products, position it advantageously to capture requirements of diverse end user industrial sectors.

Global presence in a market with high entry barriers: The company has sold its products to 49 countries across Asia, Africa, Middle East, Europe, North America, South & Central America and Oceania regions during Fiscal 2024. Its top export destinations include Malaysia, Vietnam, Kenya, Indonesia, United Arab Emirates, Nigeria, Sri Lanka, Ghana, Thailand, among others. It is a recognised Two Star Export House under the Indian Ministry of Commerce (while Sanstar Biopolymers, the erstwhile Company which was merged with the Company is a recognised Three Star Export House). The maize based speciality products and ingredient solutions industry in which it operates has high entry barriers, which include the high capital costs of building manufacturing facilities, the lead time and expenditure required for research and development and building customer confidence and relationships which can only be achieved through a long gestation period, the limited availability of raw materials necessary for manufacturing due to alternative applications of the raw materials, certain level of capacities required for achieving economies of scale, competition from well established players like it, among others.

Two Generations of Promoters with domain knowledge: Manufacturing of speciality products and ingredient solutions requires an experienced and sound team with expertise in efficient and cost-effective procurement, technical understanding of manufacturing process, understanding of customers’ requirements and building long term relationships with them, among others. Management having significant experience with highs and lows of this sector have advantage over the competition. Its Promoters and senior management team possess relevant exposure and acumen in the speciality products and ingredient solutions industry across maize procurement, supplier and farmer relationships management, business development, product research and development, finance, operations, administration, marketing and human resource management. The knowledge and exposure of its Promoters and its management team provide it with a competitive advantage as it seeks to grow its existing markets and enter new geographical markets. 

Risks and concerns

Do not have any long-term contracts with customers: The company has in the past received repeat orders from its customers and they continue to engage it, however it does not enter into long-term purchase contracts with its customers and it relies on purchase orders which govern the volume and other terms of its sale of products to them. Many of the purchase orders it received from its customers specify pricing terms and the delivery schedule. Absence of any long-term contracts or contractual exclusivity with respect to its business arrangements with such customers poses a challenge on its ability to continue to supply its products to these customers in future. Further, the number of purchase orders that its customers place with it differ from period to period, which has caused its revenues, results of operations and cash flows to fluctuate in the past and it expects this trend to occasionally continue in the future. It may possibly experience issues executing a purchase order from a customer in accordance with the requirements of the customers on a timely basis. Additionally, its customers have certain specific requirements for product quality as well as delivery schedules and any failure to meet its customers’ expectations and specifications could result in cancellation of orders or the risk of the customer not placing any subsequent orders or might place orders for lesser quantity. 

Maize cultivation is water intensive process: The company is in the ‘maize based speciality products and ingredient solutions industry’ and for the manufacturing of the company’s product portfolio the primary raw material required is ‘maize’ and it meet its raw material requirements by way of procurement from mandis that are local market places and also directly from farmers harvesting maize. Cultivation of maize is a water intensive affair and a growing maize plant requires about 2-3 litres of water per day during peak growing period and average consumptive use of water varies from 2.5 to 4.3 mm/day. Further, cultivation of maize is also dependent upon favourable weather conditions in the areas where it procure maize from such as Jalgaon, Nandurbar, Amalner and Malegaon in Maharashtra. Though maize can be cultivated in all the seasons because of the favorable climatic conditions, it is mainly grown as major Kharif crop in most States in India and Rabi crop in Andhra Pradesh and Tamil Nadu. Due to favorable agro climatic factors & consistent water supply, Rabi maize is more consistent in quality. Maize cultivation being a water intensive affair, it can be a cause of concern during the dry months of the year. In the event the company is unable to procure quality maize during the dry months of the year, the same may have an impact on the quality of product adversely affecting its business and financial condition.

Operate in highly competitive industry: The company operates in maize based speciality products and ingredient solutions industry and face strong competition from other players of the industry. Further, in the maize based speciality products and ingredient solutions industry, many small players have started manufacturing maize starch and derivatives. This has led to pricing pressures in global markets with some unorganised players compromising on quality. Further, this has also led to increased competition by local unorganized players in the maize based speciality products and ingredient solutions industry. Competitive factors in the maize based speciality products and ingredient solutions industry include product quality, price, advertising and promotion, innovation of products, product packaging and package design. Some of its competitors have been in their respective businesses longer than it has and may accordingly have substantially greater financial resources, larger product portfolio, technology, research and development capability and greater market penetration.

Dependent for raw material requirement: The company in its usual course of business meets its raw material requirement by way of procurement from mandis that are local market places and from maize harvesting farmers located in Maharashtra at Jalgaon, Nandurbar, Amalner and Malegaon and others being the major maize growing regions. The primary raw material required for manufacturing the company’s products is ‘maize’. Further, its ability to identify and establish relationships with reliable suppliers contributes to the growth of its business as well as other aspects of its operations. Further, there can be no assurance that increased demand, adverse weather conditions, quantum of maize harvesting during the peak harvesting season and their expectation with respect to the price or other problems will not result in shortages or delays in their supply of raw material to the company. Any changes in their supply pattern or supply volume may affect its business, manufacturing volumes, results of operations, financial condition and profitability.

Outlook

Sanstar is one of the major manufacturers of plant based speciality products and ingredient solutions in India for food, animal nutrition and other industrial applications, with an installed capacity of 1,100 metric tons per day. Through complex, multi-step value addition and manufacturing process, it turns maize into ingredients and solutions that add taste, texture, nutrients and increased functionality to (i) foods as ingredients, thickening agents, stabilizers, sweeteners, emulsifiers and additives in food products (bakery products, confectionery, pastas, soups, ketchups, sauces, creams, deserts, amongst others), (ii) animal nutrition products as nutritional ingredients, and (iii) other industrial products as disintegrants, excipients, supplements, coating agents, binders, smoothing & flattering agents, finishing agents, among others. It is the third largest manufacturer of maize based speciality products and ingredient solutions in India. Its products include liquid glucose, dried glucose solids, maltodextrin powder, dextrose monohydrate, native starches, modified starches and co-products like germs, gluten, fiber and enriched protein, amongst others. On the concern side, the products manufactured by the company are subject to inherent risks such as contamination due to fungi or bacteria and product tampering during their transport or storage. It faces inherent business risks of exposure to recall of products in the event that its products fail to meet the required quality standards. Besides, its manufacturing process requires certain temperature at different control points and equipment levels, high level of cleanliness and accuracy to manufacture products with expertise. 

The company is coming out with an IPO of 5,37,00,000 equity shares of face value of Rs 2 each. The issue has been offered in a price band of Rs 90-95 per equity share. The aggregate size of the offer is around Rs 483.30 crore to Rs 510.15 crore based on lower and upper price band respectively. On performance front, the company’s total income in Fiscal 2024 decreased by 10.58% to Rs 10,816.83 million in Fiscal 2024 from Rs 12,096.68 million in Fiscal 2023. The company’s profit for the year increased by 59.17% from Rs 418.05 million in Fiscal 2023 to Rs 667.67 million in Fiscal 2024. Meanwhile, to cater to the growing demand of its products from its existing customers and to meet requirements of new customers, it intends to expand its manufacturing capacities for existing products including native starches, modified starches, liquid glycose, dextrose monohydrate. It also intends to add manufacturing capacities for its new products like dextrose anhydrous. To achieve this, it intends to expand its manufacturing capabilities at its Dhule, Maharashtra facility by installing additional factory building, machineries and equipments and utilities to increase its installed capacities by 1,000 Tons Per Day (TPD).