SPP Polymer coming with IPO to raise Rs 24.49 crore

SPP Polymer

• SPP Polymer is coming out with an initial public offering (IPO) of 41,50,000 equity of face value of Rs 10 each for cash at a fixed price of Rs 59 per equity share.
• The issue will open on September 10, 2024 and will close on September 12, 2024.
• The shares will be listed on SME Platform of NSE.
• The share is priced 5.90 times higher to its face value of Rs 10.
• Book running lead manager to the issue is Interactive Financial Services.
• Compliance Officer for the issue is Chetna Shoor.

Profile of the company

SPP Polymer is an ISO 9001:2015 certified company engaged in the business of manufacturing of HDPE/PP woven fabric & bags, non-woven fabrics & bags and PP Multifilament yarn. The company offers packaging solutions to Business to Business (B2B) manufacturers catering to different industries such as cements, chemicals, food grains, sugars, polymers, agriculture, and others for the packaging of goods in big quantities. The company has manufacturing facility situated at Pantnagar, Udham Singh Nagar, Uttarakhand. The company has achieved installed capacity of HDPE/PP Woven Fabric and bags 9125 MT and Non-Woven Fabric 3600 MT. The company has well equipped production facility with well -versed quality section which help it to deliver consistently high-quality products to the customer at the most competitive price. 

The company’s manufacturing facility employs an extensive and stringent quality control mechanism at each stage of the process to ensure that its finished product conforms to the exact requirement of its customers. The company’s infrastructure and team of experts also allow it to provide a comprehensive range to its clients as per their needs and requirements. The company also provides customized solutions as per the specifications detailed by its clients. It is also ISO 45001: 2018 and SA 8000:2014 certified occupational health & safety management system and environment management system.

Proceed is being used for:

• Repayment of loan
• Working capital requirement
• General corporate purpose

Industry Overview

Packaging is an essential component of almost every product. A product's packaging acts as an ‘eye catcher’, allowing it to stand out from competing goods in today’s market environment, which faces stiff competition, and therefore, an edge is required for the product to outshine its rival. Packaging is also instrumental in conveying the product’s message to consumers and helps in establishing the visual appeal of a brand; hence, marketers view product packaging as the best possible opportunity to attract consumers to their product. Moreover, the product’s packaging is designed to capitalise on the impulse shopping behaviour, especially in large super market chains that account for a significant proportion of purchases made by an average consumer.

The paper and packaging sector in India is growing rapidly and has significant potential for future expansion. The industry was valued at $50.5 billion in 2019 and is anticipated to reach $204.81 billion by 2025, registering a CAGR of 26.7% from 2020 to 2025. The growth in the sector is being driven by a surge in e-commerce, food processing, pharmaceuticals, FMCG, manufacturing industry and healthcare sector. Additionally, numerous government initiatives including 'Make in India' had positive impact on the packaging industry. The paper and packaging industry is currently the fifth largest sector in the Indian economy and has the potential to achieve pricing levels that are about 40% cheaper compared to European regions. The Indian packaging sector has distinguished itself with its exports of flattened cans, printed sheets and components, crown cork, lug caps, plastic film laminates, craft paper, paper board and packaging machinery. The packaging segment with the fastest growth include laminates and flexible packaging, particularly PET and weaved sacks.

The Indian packaging sector is diverse and caters to a broad sector of industries and products. The government, through its positive promotion of the Make in India policy, has set the packaging sector to grow rapidly due to companies setting up their manufacturing units in the country and using these domestic facilities as a base to export to other countries. The government has implemented a strategy to lower tax rates for new manufacturing companies in order to turn India into a global manufacturing hub. Furthermore, given the need for domestic firms to compete with MNCs, the government is planning to further level the sector among players by launching various initiatives with the aim of promoting the development of packaging, along with technological advancements.

Pros and strengths

Strong product portfolio: The company’s product portfolio includes HDPE woven fabric and bags, non-woven fabric and bags. It engages in manufacturing of products based on the orders of its customers to meet their requirements. Raw Material used for its production are sourced from the reliable vendors and quality of the raw material is tested in its laboratory before taking them for further production. It has an in-house quality testing laboratory to ensure the compliance with global standards at all the levels of production. It trusts that maintaining a variety of products and customising as per the customer requirement provides it with an opportunity to cater to diverse needs of different customer segment.

Quality assurance: The company is ISO 9001:2015, 45001:2018, 14001:2015 and SA 8000:2014 certified for the quality management system, occupational health & safety management system and environment management system and to comply with the norms it strives hard to maintain quality standards of its product. Quality assurance and quality control are integral part of its manufacturing operations. Quality is an ongoing process of building and sustaining relationship. The company’s testing laboratory is equipped with all necessary infrastructure to test raw material and finished goods. The company inspects the entire process ensuring quality of its products is maintained. Keeping in view of the expectations of its customers for the quality of its products, it takes special care from procuring raw material to packing of finished goods.

Diversified customer base and long-standing relationship with its customers: The company has a customer base across industries and geographies both at domestic and overseas. It follows B2B customer segment catering the packaging requirements of Agro Pesticides Industry, Cement Industry, Chemical Industry, Fertilizer Industry, Food Products Industry, Textile Industry, Ceramic Industry and Steel Industry. It generally does not enter into long term agreements with its customers; however, it has developed long-standing relationships with these customers some of whom have been with it for over five years. Maintaining strong relationships with its key customers is essential to its business strategy and to the growth of its business. 

Risks and concerns  

Substantial portion of the revenue comes from few clients: The company’s customers are spread over the different state of its country. For the stub period i.e. April 01, 2023 to June 30, 2024 Rs 2955.16 consist 89.66% of its total purchase and in the FY 2021-22, 2022-23 and 2023-24, Rs 8044.01 consist of 86.87%, Rs 6,513.01 lakh consist 84.93% Rs 8805.49 consist of 82.28% respectively sales were made to the only top 10 customers. The company has not entered in to any written agreement in this regard. Though, it is receiving order from them on regular basis, it cannot be assured that the customers will continue to purchase regularly from it in future. Loss of any of the customer or reduction in order from any of such customer will adversely affect the business of the company and adversely affect the profitability and financial position of the company. 

Dependency on limited number of suppliers: The company’s most of the purchases are domestic and order based. For the stub period i.e. April 01, 2024 to June 30, 2024, Rs 2688.11 lakh consist 93.29% of its total purchase and in the FY 2021-22, 2022-23 and 2023-24, Rs 7952.39, consist 85.34%, Rs 5,526.48 lakh consist 65.59%, Rs 8540.50 lakh consist 90.50% respectively purchases were confined to only Top 10 suppliers. Though, they are very much regular in supply, the company cannot assure that they will continue to supply regularly in future at the same rate in future. Any disruption in the supply of material by any one or more will adversely affect the business of the company and adversely affect the profitability and financial position of the company.

Geographical constrain: The revenue from Uttar Pradesh is 12.89%, Haryana is 10.88%, Himachal Pradesh is 26.64%, Punjab is 21.62% and Uttarakhand is 12.89% for the stub period ended on June 30, 2024. The revenue from Uttar Pradesh in FY 2023-24 is 25.20%, in FY 2022-23 is 39.74% and in FY 2021-22 is 40.50% respectively. The company is supplying its products to the few customers only. Yet it has not developed much market for its product other than North India. The company is in the process of developing online market that provides the 24X7 business opportunity to all the clients spread over across the country. This will also provide the opportunity for direct sale to the end users of its products and this will provide opportunity for the sales against payment, which will help it to smoothening of its liquidity requirement. As at present, it operates mainly in North India, in the event of any natural or manmade calamity in the states of North India, its entire business operation comes to stand still. Under the circumstances its business, revenue and its profitability will be adversely affected.

Outlook

SPP Polymer, formerly known as SPP Food Products Private Limited, is a manufacturer of a wide range of HDPE/PP woven fabric and bags, non-woven fabrics and bags, and Multifilament Yarn. The company is located in Rudrapur City, Uttarakhand. The company offers customized solutions according to its clients' specifications. Its installed capacity of HDPE/PP Woven Fabric and bags totals 12000 MT, Non-woven Fabric 4000 MT, and Multifilament Yarn 300 MT per annum. The company has received ISO 9001:2015, 45001:2018, 14001:2015, and SA 8000:2014 accreditation for its quality management system, occupational health and safety management system, and environmental management system. On the concern side, the company is having limited number of Customers, for the stub period i.e. April 01, 2023 to June 30, 2024, 89.66% and in the FY 2021-22 ,2022-23 and 2023-24, 86.87%, 84.93% and 89.66% respectively sales were confined to only Top 10 buyers. Moreover, the company is having limited number of suppliers, for the stub period i.e. April 01, 2024 to June 30,2024, 93.29% and in the 2021-22, 2022-23 and 2023-24,85.34% ,65.59% and 90.50% respectively purchases were confined to only Top 10 suppliers.

The company is coming out with a maiden IPO of 41,50,000 equity shares of Rs 10 each at a fixed price of Rs 59 per share to mobilize Rs 24.49 crore. On performance front, in the financial year 2023-24, the company achieved a total revenue of Rs 9,175.11 lakh, reflecting an increase of 38.92% compared to Rs 6,604.72 lakh in FY 2022-23 and a 14.29% increase compared to Rs 8,028.16 lakh in FY 2021-22. Moreover, the company’s PAT is Rs 99.40 lakh for the F.Y. 2023-24 in compared to Rs 54.42 lakh in F.Y. 2022-23. The PAT was 1.06% of total revenue in F.Y. 2023-24 compared to 0.81% of total revenue in F.Y. 2022-23. Profit has improved due to focus on cost reduction in material consumption, employees cost and other business expenses. The company will continue to focus on further increasing its operations and improving operational effectiveness at its production facility. Higher operational effectiveness results in greater production volumes and higher sales which allows it to reduce its fixed cost and thereby, increasing its profit margins. The company wishes to constantly pass such benefit to its customers and increase its efficiency further. It also wishes to target economies of scale to gain increased negotiating power on procurement.