QVC Exports coming with IPO to raise Rs 24.07 crore

QVC Exports 

• QVC Exports is coming out with an initial public offering (IPO) of 27,98,400 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 86 per equity share.  
• The issue will open for subscription on August 21, 2024 and will close on August 23, 2024.
• The shares will be listed on NSE Emerge Platform.
• The share is priced at 8.60 times higher to its face value of Rs 10.
• Book running lead manager to the issue is Khandwala Securities. 
• Compliance Officer for the issue is Khushboo Singh.

Profile of the company

The company is engaged in the business of dealing in ferro alloys, including but not limited to high carbon silico manganese, low carbon silico manganese, high carbon ferro manganese, high carbon ferro chrome and ferro silicon. It also engaged in the dealing in raw materials for manufacturing of steel. It has devised a unique business model, wherein it procures raw materials required for manufacturers of ferro alloys, such as, manganese ore, chrome ore, coke, and purchase their finished products, being varied categories of ferro alloys and further sell it to domestic and international steel manufacturers. It has created a unique inward and outward model, wherein it procures raw materials for a manufacturer and further sell the finished products of the same manufacturer, thereby creating a wide and reliable customer and supplier base and ability of serving manufacturers at different points of the steel supply chain. As on March 31, 2024, 82.95% of its revenue from operations was earned from its export operations. Further, as of January 31, 2024, it exports its products to various countries, including but not limited to Taiwan, Japan, Bangaladesh, Vietnam, Thailand, Turkey, Aganistan, Korea, Italy, Ukrain, United Kingdome, Belgium, Oman, etc. The company imports manganese ore, manganese ore lumps from reputed miners and manufactures in Hong Kong and France.

A majority of the company’s revenue from operations is earned from exporting its products to reputed steel manufacturers in various countries. It is also a supplier of ferro alloys for a lot of reputed Indian manufacturers and therefore in order to maintain such clientele, it is bound to ensure that the products procured by it are of utmost quality and are compliant with the quality requirements of its customers. The company deploys independent inspection agencies such as Bureau Veritas, IRA, SGS etc. It also follows up with its customers to ensure that the products supplied to them is of utmost quality. If the event its products face quality issues, it ensures that corrective and preventive steps, wherein it investigate the root cause of the issue, update its customers about its analysis and change suppliers or quality inspection agencies, to ensure that such issues are not repeated. Furthermore, the company has devised an extensive supplier selection process in order to identify and evaluate the effectiveness and quality of the products manufactured by the suppliers, reduce purchase risk, maximize overall value to the purchaser, and develop closeness and long-term relationships between buyers and suppliers. Owing to its supplier selection process, it engages with quality manufacturers of its products, in order to stand by its commitments to its customers. 

Proceed is being used for:

• Repaying the unsecured loans taken by the company.
• Meeting working capital requirement.
• General Corporate Purposes.

Industry overview

Ferro-alloys are one of the important inputs in the manufacture of alloys and special steel. They impart special properties to steel. The alloys provide increased resistance to corrosion, improves hardness and tensile strength at high temperature, gives wear and abrasion resistance and increases creep strength, etc. The growth of Ferro-alloys Industry is, thus, linked with the development of the Iron and Steel Industry, Foundry Industry and to some extent Electrode Industry. The principal ferroalloys are chromium, manganese and silicon. The product series consists mainly of ferromanganese, silico-manganese, ferro-silicon and ferro-chrome. Ferro-alloys are classified into two main categories, viz, bulk ferro-alloys and noble ferroalloys. Owing to high cost of power, Ferro-alloys Industry has not been operating to its full capacity in India. The Electricity cost accounts over 40 % to 70 % of total cost of production, depending on the Ferro Alloys produced. At present, major portion of the ferro-alloys produced is exported. Ferro-manganese, silicomanganese, ferro-silicon, high carbon ferro-chrome and charge-chrome are exported after meeting the domestic requirements. India has sufficient highly skilled technical manpower and the latest equipment technology for production of ferro-alloys. India ranks 1st in the world for the export of Sillico Manganese & ranks 4th in the world for export of Ferro Manganese.

Ferro-manganese is produced as high carbon ferro-manganese with 72-82% Mn, 6-8% C and 1.5% Si, medium carbon ferro-manganese with 74-82% Mn, 1-3% C and 1.5% Si and low carbon ferromanganese with 80-85% Mn, 0.1-0.7% C and 1-2% Si. Manganese in the form of ferro-manganese is added for hardening and desulphurisation of steel. Silico-manganese, a combination of 60-70% manganese, 16-28% silicon and 1.5 to 2.5% carbon is used as a more effective deoxidizing agent than high carbon ferromanganese in the production of various types of steels. It is also used as feedstock to produce refined alloys like medium and low carbon ferromanganese. It consumes around 4,750 to 5,250 kWh power per tonne of silico-manganese produced. Silico-manganese has emerged as a more important alloy than ferro-manganese. The country, thus, has emerged as a leading producer of silico-manganese. Silicomanganese was also produced by a number of small-scale ferro-alloy producers. The total production of ferromanganese in 2017-18 was about 5,18,000 tonnes which remained same in 2018-19. The estimated consumption of ferromanganese was 50,800 tonnes in 2017-18. The production of silicomanganese (including medium-carbon & lowcarbon silicomanganese) which was about 3,11,326 tonnes in 2017-18 increased to 3,45,291 tonnes in 2018-19. In 2017-18, the total consumption of silicomanganese by all industries has been estimated at 1,22,600 tonnes.

Pros and strengths

Long Standing Relationship with key Customers & Suppliers: The company enjoys long standing relationship with key customers & suppliers. These long-standing relationships are result of its commitment to quality, timely delivery, promptness in payments and adaptability etc. It benefits immensely from this. Its business and growth are significantly depending on its ability to maintain the client relationship. These long-standing relationship with customers and suppliers have helped in establishing its reputation as a trusted business player in Refractory Industry.  

Quality Assurance: The company’s products and processes undergo regular quality checks to ensure zero defects. Ensuring quality in the export of ferro alloys is crucial to maintaining customer satisfaction, meeting regulatory standards, and preserving the reputation of business. It maintains rigorous quality control measures by partnering with reputable suppliers who provide high-quality materials to ensure consistency and reliability in its production process. It conducts thorough testing and analysis of finished products using advanced laboratory techniques to verify composition, purity, and other quality parameters. It deploys independent inspection agencies such as Bureau Veritas, IRA, SGS etc at the loading port to deliver the quality product to its buyers. It also solicit feedback from customers and incorporate their input to improve product quality and meet their evolving needs and expectations.

Wide range of Products: The company provides a broad range of products to its customers which increases the scope of its customers and its ability to cater to a diversified clientele base. It makes its best efforts to deliver effective solutions and on time execution to its clientele.

Risks and concerns

Reliant on demand from steel industry: The company’s products used as a raw material in the steel industries. Its revenues are highly dependent on its customers from the steel industry and the loss of any of its customers from any industry which it caters to may adversely affect its sales and consequently on its business and results of operations. Further, in the event, there takes place a shift of practice of developing raw materials in-house in the steel industries or the other industries which it caters to, it may have an adverse impact on the demand for its products. Similarly, in the event of any new breakthrough in the development of a novel product or raw material by its competitors or customers, its products may become obsolete or be substituted by such alternatives; thereby impacting its revenues and profitability adversely. 

Depend on few customers for significant portion of revenue: The company’s 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. While it typically has long term relationships with its customers, it has not entered into long terms agreements with its customers and the success of its business is accordingly significantly dependent on it maintaining good relationships with its customers and suppliers. The actual sales by the company may differ from the estimates of its management due to the absence of long term agreements. The loss of one or more of these significant or key customers or a reduction in the amount of business it obtains from them could have an adverse effect on its business, results of operations, financial condition and cash flows. 

Dependent upon few suppliers: The company is engaged in the business of dealing in various types of ferro alloys and other raw materials for the steel industry. It majorly imports the products traded by it from foreign jurisdictions. Thus, if it experiences significant increase in demand, or need to replace an existing supplier, it cannot assure that it will be able to meet such demand or find suitable substitutes, in a timely manner and at reasonable costs, or at all. The company maintains a list of approved and quality suppliers from whom it procures the materials on order basis as per its internal demand projections. It has not entered into long term contracts with its suppliers and prices for materials are normally based on the quotes it receives from various suppliers. Since it has no formal arrangements with its suppliers, they are not contractually obligated to supply their products to it and may choose to sell their products to its competitors. Non-availability or inadequate quantity of products could have a material adverse effect on its business.

Outlook

QVC Exports (QEL) is a professionally managed organization and by virtue of its entrepreneurial skills, innovative strategies, highly dedicated and dynamic workforce, has emerged as one of the leading suppliers for the steel Industry and Foundries. It is engaged in the business of dealing in ferro alloys, including but not limited to high carbon silico manganese, low carbon silico manganese, high carbon ferro manganese, high carbon ferro chrome and ferro silicon. It is also engaged in the dealing in raw materials for manufacturing of steel. It has devised a unique business model, wherein the company procures raw materials required for manufacturers of ferro alloys, such as, manganese ore, chrome ore, coke, and purchase their finished products, being varied categories of ferro alloys and further sell it to domestic and international steel manufacturers. Its marketing team has been divided based on the countries of its customers, and are responsible for coordination with its existing customers and liasoning with prospective customers, as well. On the concern side, the company requires certain statutory and regulatory licenses, registrations and approvals to operate its business some of which are granted for a fixed period of time and need to be renewed from time to time. Its purchase and sales models include various intermediaries who may connect with its competitors and share details of the specialties of its products or its sourcing processes etc. It may not be able to protect its trade secrets and may not be able to detect the same as well. 

The company is coming out with an IPO of 27,98,400 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 86 per equity share to mobilize Rs 24.07 crore. On performance front, total revenue has increased by 111.74%, from Rs 21,471.14 lakh in the fiscal year ended March 31, 2023 to Rs 45,462.68 lakh in the fiscal year ended March 31, 2024. Besides, net Profit on standalone basis after tax and extraordinary items has increased by 129.04% from profit of Rs 171.48 lakh in the fiscal year ended March 31, 2023 to profit of Rs 392.76 lakh in the fiscal year ended March 31, 2024. Meanwhile, the company intends to improve efficiencies to achieve cost reductions so that they can be competitive. This can be done through domestic presence and economies of scale. Increasing its penetration in existing regions with new 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.