Paramount Speciality Forgings coming with IPO to raise Rs 23.14 crore

Paramount Speciality Forgings

• Paramount Speciality Forgings is coming out with an initial public offering (IPO) of 39,22,000 equity shares in a price band Rs 57-59 per equity share.
• The issue will open on September 17, 2024 and will close on September 19, 2024.
• The shares will be listed on SME Platform of NSE.
• The face value of the share is Rs 10 and is priced 5.70 times of its face value on the lower side and 5.90 times on the higher side.
• Book running lead manager to the issue is Swaraj Shares and Securities.
• Compliance Officer for the issue is Ankita Anil Patankar.

Profile of the company

Paramount Speciality Forgings manufacturers of steel forgings in India offering a diverse range of forged products. The company has developed its business and scale of operations since its founding in 1996 and have invested in a variety of machinery to boost and diversify its manufacturing capabilities. It can now manufacture and provide forged components ranging in weight from 1Kg to 4 metric tons in rough or finish-machined condition. Its products are manufactured in accordance with National and International standards and is used in a wide range of industrial applications catering to the extensive requirements of Petrochemicals, Chemicals, Fertilizers, Oil and Gas, Nuclear Power, and other heavy engineering sectors.

The company benefits from its experience in catering to a wide range of customers due to its legacy of over three decades in the manufacturing businesses and has built long-standing relationships with customers across end-users in the Petrochemicals, Chemicals and Fertilizer, Oil and Gas, Nuclear, Power and other Heavy Engineering Industries.

The company as an organization have established, implemented, and maintained an Integrated Management System (IMS), including the processes needed and their interactions, to achieve the intended outcome, including enhancing environmental and OH and S performance. The organization has considered the knowledge it gained during determination of internal and external issues, workers and other interested parties’ requirements while establishing and maintaining the Integrated Management System. The organization ensures continual improvement in IMS.

Proceed is being used for:

• Capital expenditure through purchase of machinery and equipment required for expansion at its Khalapur Plant
• General corporate purposes.

Industry Overview

The forging industry is a key link between critical manufacturing segments -- metal suppliers (both ferrous and nonferrous) and end user industries. Forging units are usually classified basis the installed capacity of the forging unit. The forging units may be classified on the basis of physical capacity. Over the years, the Indian forging industry has evolved from being a labour-intensive industry to capital-intensive manufacturing sector. The forging industry of India provides direct employment to about 95,000 people. The small and very small units are mainly dependent on manual labour, however medium and large units are more mechanized. Quality standards in the industry have improved significantly and the sector is now well known globally for its high quality. Current share of auto sector is about 58% of total forging production while the rest is with the non-auto sector. Changes in Indian automobile industry directly impact Indian forging industry, because the forging components form the backbone of the Indian automobile industry.

Forging has unique value among manufacturing processes. The industry is a key link between critical manufacturing segments -- metal suppliers (both ferrous and nonferrous) and end user industries. Forgings are intermediate products used widely by original equipment manufacturers in the production of durable goods. They range in size from less than an ounce to more than 150 tons and are found in the machines, vehicles and equipment used to generate its industrial economy. Forgings are found in 20% of the products representing the Gross Domestic Product of the United States. The products of the forging industry are essential to the U.S. industrial economy, to its society, and to its national security. 

Globally, India is considered as one of the major manufacturing hubs. The increase in domestic manufacturing capacity and competitiveness is helping India’s exports to grow at a record pace. According to the Engineering Export Promotion Council of India (EEPC) forging sector is identified as one of the key sectors for export growth. Additionally, government initiatives such as ‘Make in India’ has given a boost to the manufacturing industry in the region by creating a positive business environment. The key players operating in the Indian metal forging industry are bagging export orders from various economies, which is likely to drive the growth of the metal forging industry in India. India export forging to more than 143 countries. In the year 2020-2021 (April - November), India has exported forging worth $813.66 Million. The total volume of exports was nearly 957,447,114 units. The increasing demand for forged products across various industries worldwide is anticipated to boost the growth of the Indian metal forging market during the forecast period.

Pros and strengths

Strengthening its business through effective branding: The company intends to promote its brand through different marketing channels to increase its brand visibility and recall. As its business requires it to reach out to its target customers as well as dealers, the effort and the exercise is challenging and requires significant time and effort to ensure reach to its target customers and dealers. The company also intends to strengthen its existing brand building activities such as retail branding, web marketing, magazine advertising and outdoor advertising for marketing. The company also engage in digital marketing efforts in order to target customers.

Track record of consistently building capabilities and infrastructure: The company has implemented quality management systems and improvised on its standard operating processes over the years which enables it to meet the complex requirements of its customers and maintain its track record of reliability. The company’s manufacturing operations follow strict process control guidelines and industry standards and practices. It places emphasis on automation and efficiency to continuously improve its operating margins. The company constantly look for ways to streamline its processes and reduce waste, while also improving the quality of its products. For example, the company has (i) automated certain processes in its manufacturing operations to increase productivity and reduce manpower cost; (ii) designed its machining lines to optimize processes and reduce manpower costs by performing multiple processes on a single machine; and (iii) reduced the input weights required to forge its products, which has helped it to reduce material costs. It continuously upgrades its older machines with necessary automation to prevent obsolescence, in a cost effective manner.

Long-standing client relationships: The company provides services with expertise to its clients and this helps it in customer retention and repeat business. It provides services on a customer-goal based approach and its solutions are targeted towards consistently delivering higher efficiencies, higher accuracy meeting and achieving customers’ performance indicators. This approach has helped its customers to meet their objectives, which has led to customer retention and development of customer relationships. 

Risks and concerns 

Dependent on limited suppliers for supply of raw material: For the Financial Year ended on March 31, 2024, March 31, 2023, and March 31, 2022 the company purchased an aggregate of Rs 6.766.27 lakh, Rs 4,551.07 lakh and Rs 7,155.39 lakh of raw materials, respectively, from its top 10 suppliers, constituting 86.58%, 54.39%, and 85.15%, respectively, of its total raw materials purchased during such periods. Accordingly, a significant percentage of its raw material requirements are met by these suppliers and its business is dependent on the continuation of its relationship with these suppliers. The loss of any of its major suppliers, due to its inability to renew its contracts with them or failure to secure orders from them, or a decision by any one of them to reduce the volumes of raw materials supplied to it could result in a decline in its revenues due to an inability to meet its manufacturing schedules.

Geographical constrain: The company currently operates through two manufacturing facilities in Kamothe and Khalapur Plant. Due to the geographic concentration of its manufacturing operations, its operations are susceptible to local and regional factors, such as accidents, system failures, economic and weather conditions, natural disasters, demographic and population changes, political uncertainty and changes in regulations by state government, adverse changes in availability of key inputs including labour and power, the outbreak of infectious diseases and other unforeseen events and circumstances. Such disruptions could result in the damage or destruction of a significant portion of its manufacturing abilities, significant delays in the transport of its products and raw materials, adversely impact its ability to maintain capacity utilization levels and/or otherwise adversely affect its business, financial condition and results of operations. 

Does not have any long-term agreements with its customers: The company does not currently hold firm commitment long-term supply agreements with its customers. Instead, it relies on short-term purchase orders, typically ranging between 6 to 18 weeks, to govern the terms of its product sales to its customers. Many of the purchase orders it receives from its customers specify a price per unit and delivery schedule, and the quantities to be delivered are determined closer to the date of delivery. However, such orders may be amended or cancelled prior to finalisation, and should such an amendment or cancellation take place, it may adversely impact its revenue and production schedules. However, there has been no amendment or cancellation in the past prior to finalisation impacting its revenue and production schedules.

Outlook

Paramount Speciality Forgings is a manufacturer of steel forgings in India, offering a diverse range of forged products. The company's products are manufactured to meet national and international standards and are used in various industrial applications including petrochemicals, chemicals, fertilizers, oil and gas, nuclear power, and heavy engineering sectors. The company focuses on brand visibility through multiple marketing channels, including retail branding, web marketing, magazine advertising, outdoor advertising, and digital marketing. On the concern side, the company does not have any long-term agreements with its customers. If its customers choose not to source their requirements from it or manufacture such products in-house, its business and results of operations may be affected. Moreover, the company’s manufacturing facilities are located in the same geographical location and any disruptions in its manufacturing process due to local and regional factors could have an adverse effect on its business, financial condition, and results of operations.

The company is coming out with a maiden IPO of 39,22,000 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 57-59 per equity share. The aggregate size of the offer is around Rs 22.36 crore to Rs 23.14 crore based on lower and upper price band respectively. On performance front, the company’s total income increased by 2.17% from Rs 11,224.10 lakh in Fiscal Year 2023 to Rs 11,363.62 lakh in Fiscal Year 2024. Net Profit has increased from Rs 275.84 lakh for the fiscal year ended March 31, 2023 to Rs 725.36 lakh for the fiscal year ended March 31, 2024. The company’s growth is the result of increase in its share of business with existing customers, winning new customers, expansion of its product portfolio, expansion of its overseas business and its ability to respond to emerging industry trends towards consumer and its end-industries. The company intends to strengthen its relationships with its existing customers and explore opportunities to grow by expanding the array of products and solutions that it offers to its customers, and to win new customer business by developing products and solutions aligned with their needs. The company has demonstrated the ability to grow, adapt and integrate in response to its customers’ needs. It intends to leverage its relationships with existing customers to increase its wallet share and repeat business with them as well as new business, and potentially become the largest manufacturer for such customers for specific products.