Solve Plastic Products coming with IPO to raise Rs 11.85 crore

Solve Plastic Products

• Solve Plastic Products is coming out with an initial public offering (IPO) of 13,02,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 91 per equity share. 
• The issue will open for subscription on August 13, 2024 and will close on August 16, 2024.
• The shares will be listed on NSE Emerge Platform.
• The share is priced at 9.10 times higher to its face value of Rs 10.
• Book running lead manager to the issue is Finshore Management Services. 
• Compliance Officer for the issue is Divya Ajnthakumari.

Profile of the company

The company is engaged in manufacturing of comprehensive range of uPVC (Unplasticized Polyvinyl Chloride) Pipes and Rigid PVC Electrical Conduits. The company is committed towards constant innovations in drinking water piping solutions and electrical conduit fittings technologies to meet the constantly increasing demands. The company has 3 well-equipped manufacturing facility. It has the latest technology and equipment that helps in the production of high-quality uPVC pipes and Electrical Conduits of different sizes. Its manufacturing facilities are fully automated. The company also has a well-trained team of engineers, technicians and operators that helps in the production and quality control of the products.

The company markets its products under the brand name of ‘BALCOPIPES’, through its network of Authorized Dealers/Distributors. The products manufactured are approved by various agencies such as the Bureau of Indian Standards (BIS) and also from organisations i.e. Central Public Works Department (CPWD) of Chennai & Kochi, Military Engineer Services (MES), Integral Coach Factory, Public Works Department (PWD) of Kerala and Tamil Nadu and Tamil Nadu Housing Board. It is registered vendor with government organizations such as Chennai Port Authority and Southern Railway.

The company has always strived to provide its clients with the best uPVC pipes and electrical conduits in the market. With the help of the latest technology and equipment, the company has been able to produce high-quality uPVC pipes and electrical conduits that are not only durable but also affordable.  The company is a quality oriented and innovative company with a wide, comprehensive and cost-effective range of uPVC pipes and electrical conduits. Its continuously aim at growing its product range to meet the needs of a growing India. It is committed towards constant innovations in drinking water piping solutions and electrical conduit fittings to meet the constantly increasing demands. 

Proceed is being used for:

• Funding capital expenditure towards purchase of additional plant and machinery 
• Meeting the working capital requirements 
• Meeting the issue expenses 
• General corporate purposes 

Industry overview

The Indian plastic industry is one of the leading sectors in the country’s economy. The history of the plastic industry in India dates back to 1957 with the production of polystyrene. Since then, the industry has made substantial progress and has grown rapidly. The industry is present across the country and has more than 2,500 exporters. It employs more than 4 million people in the country and constitutes 30,000 processing units; among these, 85-90% belong to small and medium enterprises.

In FY24 (Until February 2024), India’s plastic exports stood at $10.43 billion. During this period, the exports of human hair & related products, medical items, plastic pipes and FRP & composites grew by 12.7%, 8.9%, and 13.8%, respectively, over the same period last year.  In February 2024, the exports of Floorcoverings, leather cloth & Laminates witnessed a growth of 19.7%.  The cumulative exports of plastics and related materials during 2022-23 were valued at $11.96 billion. This was a 10.4% decrease from the 2021-22 exports valued at $13.35 billion. Plastic raw materials were the largest exported category and constituted 27.76% of the total exports in 2022-23; it recorded a growth of 21.5% over the previous year. 

The Plastic Export Promotion Council (PLEXCONCIL) has set a target to increase the plastic exports of the country to $25 billion by 2027. There are multiple plastic parks that are being set up in the country in a phased manner that will help improve the plastic manufacturing outputs of the country. Under the plastic park schemes, the Government of India provides funds of up to 50% of the project costs or a ceiling cost of Rs 40 crore per project.  Government initiatives like ‘Digital India’, ‘Make in India’, and ‘Skill India’ will also boost India’s Plastic industry. For instance, under the ‘Digital India’ program, the government aims to reduce the import dependence on products from other countries, which will lift the local plastic part manufacturers.

Pros and strengths

Customer satisfaction and revenues from long standing customer relationships: It has long-standing relationships with its customers. This is, in part, due to the high criticality of its product and technical knowhow to many of its customer's business needs. It establishes long-term relationships with its customers for multi-layered engagement with various departments and divisions of the customer's organizations. Its product offerings help it to cross-sell to its existing customers as well as to acquire new customers. It also conducts regular senior management reviews with its key customers to engage with them for feedback and future opportunities.

Cost effective production and timely fulfilment of orders: Timely fulfilment of the orders is a prerequisite in its industry. The company has taken various steps in order to ensure adherence to timely fulfilment and also to achieve greater cost efficiency. The company constantly endeavours to implement an efficient procurement policy for inputs required for production so as to ensure cost efficiency in procurement which in turn results in cost effective production.

Quality assurance and standards: The company is an ISO 9001:2015 for Quality Management System and Bureau of Indian Standards IS 4985:2021, 3419:1988, 9537:Part 3:1983 certified organization and it provides its customers the best possible quality by manufacturing superior quality products. Quality standards followed right from the beginning were very stringent, and are adhered during the process of manufacturing. It is very particular from usage of right quality of material to following the right procedure for manufacturing. Its dedicated efforts towards the quality of products, processes and inputs have helped it gains a competitive advantage over others.

Risks and concerns

Revenue is dependent on single business segment: Its revenue is dependent on single business segment i.e. PVC based Pipes and Electrical Conduits. Its continued reliance on single business segment for substantial portion of its revenue exposes it to risks, including but not limited to, reduction in the demand of the products in the particular segment in the future; increased competition from regional and national players; the invention of superior and cost- effective technology; fluctuations in the price and availability of the raw materials; changes in regulations and import duties and the general economic conditions. Any occurrences of such event could significantly reduce its revenues, thereby materially adversely affecting its results of operations and financial condition. 

Dependent upon few customers: Substantial portion of the company’s revenues has been dependent upon a few customers. For the financial year ended March 31, 2024, March 31, 2023 and March 31, 2022, its top ten customers accounted for around 60.24%, 54.44% and 51.79% of its revenue from operations. However, the loss of any significant customer would have a material effect on its financial results. Its business from customers is dependent on its continuing relationship with such customers, the quality of its products and its ability to 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. However, in case of any change in the buying pattern of its end users or disassociation of major customers can adversely affect its business.

Operate in a price sensitive industry: It operates in PVC Pipe industry wherein the purchasing decisions of consumers are highly influenced by the product price. It may not always be able to offer its products at price points which represent value for money and is competitive in the market. Accordingly, PVC Pipe companies like it needs to be able to reduce the operating costs in order to maintain profitability while maintaining rigorous quality standards. Its distributors, dealers and direct customers also negotiate for monetary benefits as the volume of their sales increase. Its ability to maintain and enhance its competitiveness through its competitive pricing strategy will have a direct effect on its business, financial condition and results of operations.

Outlook

Solve Plastic Products is an ISO 9001:2015 and Bureau of Indian Standards IS 4985:2021, 3419:1988, 9537:Part 3:1983 certified company engaged in manufacturing of comprehensive range of uPVC (Unplasticized Polyvinyl Chloride) Pipes and Rigid PVC Electrical Conduits. The company is committed towards constant innovations in drinking water piping solutions and electrical conduit fittings technologies to meet the constantly increasing demands. On the concern side, it faces competition from substitutes for many of its products. For instance, the pipes are made up from uPVC, CPVC or PPR Pipes. Increases in consumers’ preferences for any of these substitutes could lead to a reduction in the demand for its products, which could have a material adverse effect on its business, financial condition and results of operations.

The company is coming out with an IPO of 13,02,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 91 per equity share to mobilize Rs 11.85 crore. On performance front, the total revenue for FY 2023-24 was decreased to Rs 4715.73 lakh as against Rs 6225.43 lakh in the FY 2022-23. The restated Profit after Tax for FY 2023-24 has been increased to Rs 142.48 lakh as against Rs 120.27 lakh in the FY 2022-23. Meanwhile, the company intends to improve efficiencies to achieve cost reductions so that they can be competitive. Increasing its penetration in existing regions with diversified range of products, will enable it to penetrate into new catchment areas within these regions and optimize its infrastructure. As a result of these measures, the company will be able to increase its market share and profitability.