Archit Nuwood Industries coming with IPO to raise Rs 168 crore

Archit Nuwood Industries

• Archit Nuwood Industries is coming out with an initial public offering (IPO) of 62,40,000 equity shares in a price band Rs 257-270 per equity share.
• The issue will open on August 30, 2024 and will close on September 3, 2024.
• The shares will be listed on SME Platform of BSE.
• The face value of the share is Rs 10 and is priced 25.70 times of its face value on the lower side and 27.00 times on the higher side.
• Book running lead manager to the issue is Share India Capital Services.
• Compliance Officer for the issue is Rahul Kumar.

Profile of the company

The company is engaged manufacturing of broad range of Medium Density Fiberboard (MDF) & High Density Fibreboard (HDF), and Pre-laminated Sheets of different varieties. The Factory is located at Tohana and equipped with MDF & HDF Plant along with Short Cycle Presses with an installed capacity of 3600 CBM per day (7200 Boards of size 16 ft. 4ft. in a day). The Pre-laminated Range includes variety of textures like Solid, Wood Grain Shades, and Fabric & Stone décors, finely crafted textured caul plates etc.

MDF Board making Plants based on wood, are designed for flexible production. The system utilizes low-cost plantation timbers as the raw material. The result is a high quality & highly versatile panel product with unlimited applications in furniture, packaging, construction & related industries. MDF is nearest to the natural wood among all wood-based panels. MDF has the most extensive applications because it possesses several merits such as smooth face, uniform core layer, superior performance of machining and shaping at the surface & edge. It is firmer than natural wood. The MDF production line includes de-barking (optional), chipping, screening, washing (optional), refining, glue addition, drying, mat forming, pre-pressing, pre-heating, hot pressing, cooling & curing, sanding, edge trimming & cutting. 

The company’s goal is to provide its customers a unique nuwud buying experience. It helps its customers to understand nuwud and its products, it offers different brands which simplify the nuwud related needs and cater them exact product listing experiences. All its brands are well established and trusted by its existing customer base.

Proceed is being used for:

• Investing in its wholly-owned subsidiary company, Archit Panels Private Limited (APPL)
• General corporate expenses

Industry Overview

Medium-density fiberboard (MDF) is an engineered wood panel that is formed by coalescing wood fibers obtained from breaking down hardwood and softwood in a defibrillator. It has a non-directional grain structure, making it an ideal wooden material for cutting, machining drilling processes without the production of chips or splinters. Furthermore, the absence of knot makes it easier for finishing, making it suitable for application in the interior decoration of houses and offices. MDF are usually denser than plywood, along with being considerably inexpensive. These factors make it an excellent alternative material for application wherein moisture resistant and very high impact resistance are not obligatory attributes. For instance, MDF is largely utilized in the assembly of furniture cabinetry and wood flooring subsurface. MDF is typically made up of 82% wood fibre, 9% urea formaldehyde resin glue, 8% water, and 1% paraffin wax Rising Rising trend in the cost of raw materials is a cause of worry for the MDF manufacturers. In the last 6 months, cost of chemicals/resins has increased by 70-80% due to sharp rise in Brent crude oil price which has gone up by 70% in last 6 months. Raw material prices are also impacted by higher container freight rates, strong dollar and price increase in origin countries.

High density fiberboard (HDF) is made of wood fibers or other plant fibers along with urea formaldehyde or other synthetic resins through a process of compressing in pressurized heating conditions. Demand for HDF is expected to increase due to a rise in demand for different hardboard with HDF in interior decor, furniture, toys and game boards, as well as in other application sectors. Moreover, increase in use of HDF for construction, furniture, consumer goods, packaging, etc., is also estimated to propel the high density fiberboard (HDF) market growth. Key players engaged in the manufacture of high density board wood are looking to scale up investment in regions where they have limited geographic presence and consolidate their high density fiberboard (HDF) market share. Europe and Middle East & Africa are expected to witness increased investment by the year 2050.

Decorative High-Pressure Laminates Market Size was valued at $11.5 Billion in 2022. The Decorative High-Pressure Laminates market industry is projected to grow from $11.9 Billion in 2023 to $15.7 Billion by 2032, exhibiting a compound annual growth rate (CAGR) of 3.53% during the forecast period (2023 - 2032). There are more attractive high-pressure laminates being used in construction, and they are also less expensive to install and maintain, are the key market drivers enhancing the market growth. The rise in demand for these laminates in the housing industry is another factor driving the decorative laminates market. In significant and developing areas including real estate, furniture, and modular kitchens, decorative laminates have emerged as a key component. The market for decorative laminates is anticipated to grow over the coming years as a result of decorative laminates’ low installation and maintenance costs.

Pros and strengths

Production facilities close to availability of Raw material: Proximity of production facilities to raw material sources ensures efficient supply chain management and potentially lower transportation costs.

High Quality Products: Consistently high-quality products meet the demands of a discerning customer base, fostering brand loyalty and positive word-of-mouth.

Diverse product range: Diverse product range caters to various customer segments, allowing for market penetration and revenue diversification.

Risks and concerns 

Dependent on few suppliers for the material requirements: While the company has maintained a long-term relationship with many of its suppliers and it has been able to negotiate favorable credit terms from them due to increased order sizes and timely payments, it cannot assure that it shall be able to maintain such favorable credit terms in future. In this regard, for the year ended March 31, 2024, 2023, 2022, its top 10 suppliers contributed around 70.03%, 40.41%, and 33.87% respectively of its purchases. Although, the company has long term relationship with its suppliers, it does not have a formal written agreement with any of them. It gets longer credit periods based on its relationship with the suppliers established over a period of time primarily because of continuity of orders placed with them, size of the order and timely payments made to suppliers.

Dependent on its one operational manufacturing units: The company has one operational manufacturing units that are operated by it and is located in Tohana, Haryana. Its business is dependent upon its ability to manage its manufacturing units, which is subject to various operating risks, including those beyond its control, such as the breakdown and failure of equipment or industrial accidents and severe climate conditions and natural disasters. Any significant malfunction or breakdown of its machinery may entail significant repair and maintenance costs and cause delays in its operations. If it is unable to repair breakdown of machinery in a timely manner or at all, its operations may need to be suspended until it procures new machinery to replace the same. Obsolescence, destruction, theft or breakdowns of its major plants or machineries may significantly increase its machineries purchase cost and the depreciation of its plants and machineries, as well as change the way its management estimates the useful life of its plants and machineries. In such cases, it may not be able to acquire new plants or machineries or repair the damaged plants or machineries in time or at all.

Working capital requirements in wholly owned subsidiary: The company’s business of wholly owned subsidiary required significant amount of working capital and major portion of working capital is utilized towards debtors and inventories. Its trade receivables for the ten months’ period ended October 31, 2023 and Fiscals March 31, 2023 were Rs 251.93 lakh and Rs 22.04 lakh respectively and its inventories for the ten months’ period ended October 31, 2023 and Fiscals ended March 31, 2023 were Rs 455.70 lakh, Rs 271.13 lakh respectively. The results of operations of its business are dependent on its ability to effectively manage its inventory and trade receivables. To effectively manage its trade receivables, it must be able to accurately evaluate the credit worthiness of its customers and ensure that suitable terms and conditions are given to them in order to ensure its continued relationship with them. However, if its management fails to accurately evaluate the terms and conditions with its customers, it may lead to write-offs bad debts and/ or delay in recoveries which could lead to a liquidity crunch, thereby adversely affecting its business and results of operations. A liquidity crunch may also result in increased working capital borrowings and, consequently, higher finance cost which will adversely impact its profitability. 

Outlook

Archit Nuwood Industries was founded in 2017 and manufactures a wide range of MDF and HDF boards as well as pre-laminated boards in various designs. The company has established reputation for quality leads to repeat purchases and customer satisfaction, enhancing brand equity and market competitiveness. The company is planning collaboration with large business houses in the region which can enhance brand visibility and access to new markets, capitalizing on established reputation and service capabilities. On the concern side, the company’s business is dependent on its manufacturing units and it is subject to certain risks in its manufacturing process. Obsolescence, destruction, theft, breakdowns of its major plants or machineries or failures to repair or maintain the same may affect its business, cash flows, financial condition and results of operations. Moreover, the company is dependent upon few suppliers for the material requirements of its business. Further, it does not have definitive agreements or fixed terms of trade with most of its suppliers. Failure to successfully leverage its relationships with existing suppliers or to identify new suppliers could adversely affect its business operations.

The company is coming out with a maiden IPO of 62,40,000 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 257-270 per equity share. The aggregate size of the offer is around Rs 160.37 crore to Rs 168.48 crore based on lower and upper price band respectively. On performance front, total income for the financial year 2023-24 stood at Rs 18,540.13 lakh whereas in Financial Year 2022-23 the same stood at Rs 15,368.58 lakh representing an increase of 20.64% which is primarily due to an increase in overall operations of the business, cash discounts received on early payments and efficient capacity utilization. Moreover, profit after tax for the financial year 2023-24 amounted to Rs 3692.53 lakh, marking a substantial increase from Rs 2127.9 lakh in the Financial Year 2022-23. This represents a significant increase of 73.53%. The industry is seeing a shift in market share from the unorganised to the organised sector. The company seeks to capture a greater market share in this environment and it is important to invest in the brand to strengthen the top of the mind recall and consequently it shall continue to invest in its brands. Since the industry is highly unorganized, a good distribution network is essential in this industry. It is focusing on expanding on its distributorship network by opening new marketing offices or by way of appointment of new distributors, including smaller towns and rural areas. Smaller towns in suburban India would be the new emerging realty hubs for development of residential and commercial complexes and intend to position ourselves to capitalize on these emerging opportunities.