Kalana Ispat coming with IPO to raise Rs 32.59 crore

Kalana Ispat 

• Kalana Ispat is coming out with an initial public offering (IPO) of 49,38,000 equity of face value of Rs 10 each for cash at a fixed price of Rs 66 per equity share.
• The issue will open on September 19, 2024 and will close on September 23, 2024.
• The shares will be listed on the Emerge Platform of NSE.
• The share is priced 6.60 times higher to its face value of Rs 10.
• Book running lead manager to the issue is Jawa Capital Services.
• Compliance Officer for the issue is Manishi Jain.

Profile of the company

The company is engaged in manufacturing M.S. Billets and Alloy Steel Billets/Ingots. The company carries out its operations from its manufacturing unit located at Survey No. 4/1 Taluka Sanand, Mouje Kala village, Ahmedabad. The company manufacturing facility has been duly certified in accordance with international standards of quality management systems such as ISO 2830:2012.

The company operates in two major segments, viz. Sale of Products, and Sale of Services. Under this segment, the company engages in sale of products manufactured by it and sale of traded goods. The sub-segment sale of Manufacturing Goods pertains to the sale of the products manufactured by the Company, viz. M.S. Billets and Alloy Steel Billets of various grades, these are the good manufacture by the company for sale directly to its customers on order basis. Apart from selling of the manufactured goods, the company often capitalizes on sale of traded goods, the company generally trades in goods such as iron scrap, iron ore and ingots.

The company, based on the spare capacity available with it, often undertakes job work for casting of M.S. Billets and/or Alloy Steel Billets, on behalf of its client companies. When the company does not have sufficient order to the extent of installed capacity of caster, then its spare capacity of the caster is used for production on job work basis. Under the sale of services, i.e. job work segment of the company, the raw material is supplied by the clients and the company solely provides the casting services, for which it charges services cost from the client. 

Proceed is being used for:

• Capital Expenditure for Installation of 4 MW DC & 3.5 MW AC Ground Mounted Solar Power Plant - TPSAT Structure.
• Capital expenditure for setting up of rolling mill at Survey No. 4/1 Taluka Sanand, Mouje Kala village, Ahmedabad by construction of the industrial shed, purchase of equipment/machineries, other assets etc.
• General Corporate Purpose.

Industry Overview

Steel is a de-regulated sector, Government acts as a facilitator, by creating conclusive policy environment for development of the steel sector. Government of India has notified National Steel Policy, 2017 which envisages development of a technologically advanced and globally competitive steel industry that provides environment for attaining self-sufficiency in steel production by providing policy support and guidance to steel producers. National Steel Policy covers all aspects of steel sector such as steel demand, steel capacity, raw material security, infrastructure and logistics, Research & Development (R&D) and energy efficiency. Production Linked Incentive (PLI) Scheme for Specialty Steel was approved by the Union Cabinet, with total financial outlay of Rs 6,322 crore to promote the manufacturing of 'Specialty Steel' within the country by attracting capital investment, generate employment and promote technology up-gradation in the steel sector. 

Ministry of Steel has introduced Steel Quality Control Order (QCO) thereby banning sub-standard/ defective steel products both from domestic producers & imports to ensure the availability of quality steel to the industry, users and public at large. As per the Order, it is ensured that only quality steel conforming to the relevant BIS standards are made available to the end users. As on date 145 Indian Standards have been notified under the Quality Control Order covering carbon steel, alloy steel and stainless steel. Out of these, QCO on 144 Indian Standards have been enforced. Ministry of Steel is providing financial assistance for pursuing Research & Development to address the technological challenges faced by the Iron & Steel sector. In this regard, in May 2023, Ministry of Steel has sought R&D Project proposals in joint collaborative mode from reputed Academic Institutions, Research Laboratories and Steel Companies for pursuing R&D projects on the identified thrust areas, for providing financial assistance under the R&D Scheme for the Financial Year 2023-24. The thrust areas for providing financial assistance under the R&D Scheme include development of new alternate processes & technologies to address the burning issues faced by the Iron & Steel Sector such as climate change (green steel production, H2 based steel production, CCUS etc.), waste utilization, resource efficiency, etc. The details of the R&D Scheme including guidelines for financial support and an indicative list of R&D projects that can be taken up to address common issues of the Iron & Steel Sector, have been uploaded on Ministry of Steel’s website in May 2023.

Pros and strengths

Capable Technical Personnel: Manufacturing of Alloy Billets and M S Billets require expertise and technical knowledge. The company has onboard a team of qualified operators who handle the entire manufacturing process efficiently. Apart from the above, the company has a team of experienced, trained & qualified personnel dedicated to Research & Development and has in place quality management systems, which is instrumental in ensuring the quality of the products being manufactured by it.

Organized and focused marketing team: The company has a dedicated managerial team which is involved in the sales and marketing. Its Sales and Marketing Team studies the opportunities available in the market and then pitch for prime projects at the appropriate time. Its team ensures compatibility and reliability with the clients servicing their needs and requirements efficiently. This is the reason its clients continue to associate with the company year on year.

Cordial relations with Customers and Suppliers: The company track record has helped it to build strong and cordial relationships with its customers and suppliers, owing to which it is able to secure repetitive orders from its customer base as well as timely and cost effective delivery of raw materials from its suppliers, resulting in efficient and timely execution of projects. 

Risks and concerns  

Geographic constraints: The company generate major domestic sales through its customers situated in Gujarat. Its 100% revenues are generated solely from the Gujarat region. Such geographical concentration of its business in this region heightens its exposure to adverse developments related to competition, as well as economic and demographic changes in this region, which may adversely affect its business prospects, financial conditions and results of operations. Further, as it enters into new markets and geographical areas, it is likely to compete with not only national players, but also the local players, who might have an established local presence, and are more familiar with local business practices and have stronger relationships with local clients, relevant government authorities, suppliers or are in a stronger financial position than it, all of which may give them a competitive advantage over it. Its inability to expand into other areas may adversely affect its business prospects, financial conditions and results of operations.

Depends on third party transportation providers: The company procure MS Scrap, Iron Ore, Silicon Manganese, Aluminum ingots form various dealers/vendors located in and outside of Gujarat, India, accordingly it relies on third party transportation services for the purpose of transit of the raw material from the dealer/vendor to its manufacturing unit. Further, the Billets manufactured in its manufacturing unit is transported to dealers/rolling mills through third party transportation providers. Transportation strikes could have an adverse effect on its receipt of raw materials and its ability to deliver its products to its customers. In addition, transportation costs in India have been steadily increasing over the past several years. Continuing increases in transportation costs or unavailability of transportation services for procuring raw material required by it or for supply of its products may have an adverse effect on its business, financial condition, results of operations and prospects. 

Business is working capital intensive: The company requires working capital for its business operations. Although in past, it has funded its working capital requirements from internal accruals and borrowings from banks, but it cannot assure if it would be in a position to fund working capital requirements in future. Owing to the execution of projects, viz. solar power plant and rolling mill, as proposed in the objects of the issue, its working capital requirements may increase and it may not be in a position to fund them internally or obtain financing of same from bank on terms favorable to it. It cannot assure that it may be in a position to arrange funds for its working capital requirements in a timely manner or on terms favorable to it. In event it is unable to generate enough cash for funding its working capital requirement or obtain the same in time and on terms favorable to it, its business operations and profitability may be impacted adversely. 

Outlook

Kalana Ispat (KIL) is primarily engaged in manufacturing of M.S. Billets and Alloy Steel Billets of various grades. Its manufacturing facility has been duly certified in accordance with international standards of quality management systems such as ISO 2830:2012. The company operates in two major segments, viz. Sale of Products, and Sale of Services. It engages in sale of products manufactured by it and sale of traded goods. The sub-segment sale of Manufacturing Goods pertains to the sale of the products manufactured by the Company, viz. M.S. Billets and Alloy Steel Billets of various grades, these are the good manufacture by it for sale directly to its customers on order basis. Apart from selling of the manufactured goods, the company often capitalizes on sale of traded goods, the company generally trades in goods such as iron scrap, iron ore and ingots. On the concern side, the company may have to confront pressures in respect of pricing; product quality etc. from the clients and such pressures may put strain on its profit margins, which may consequently affect the financial position of the company. Competition emerges not only from the organized sector but also from the unorganized sector and from both small and big players. 

The company is coming out with a maiden IPO of 49,38,000 equity shares of Rs 10 each at a fixed price of Rs 66 per share to mobilize Rs 32.59 crore. On performance front, total income decreased by 11.29% from Rs 8,335.87 lakh for the Financial Year ended March 31, 2023 to Rs 7,394.46 lakh for the Financial Year ended March 31, 2024. A profit after tax stood at Rs 236.70 lakh for the Financial Year ended March 31, 2024 from a profit of Rs 50.09 lakh for the Financial Year ended March 31, 2023. Meanwhile, the company plans to grow its business primarily by growing the number of client relationships which will add stability to its business. It seeks to build on existing relationships and also focus on bringing into its portfolio more clients. The company strives to venture into business where its existing capabilities and setup can be utilized to maximum benefit.