Nexxus Petro Industries coming with IPO to raise Rs 19.43 crore

Nexxus Petro Industries

• Nexxus Petro Industries is coming out with an initial public offering (IPO) of 18,50,400 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 105 per equity share.
• The issue will open on September 26, 2024 and will close on September 30, 2024.
• The shares will be listed on SME Platform of BSE.
• The share is priced 10.50 times higher to its face value of Rs 10.
• Book running lead manager to the issue is Srujan Alpha Capital Advisors.
• Compliance Officer for the issue is Zehra Murtaza Ghadiali.

Profile of the company

Nexxus Petro Industries is engaged in trading, manufacturing and selling of Petrochem products namely Bitumen products. Its product is widely used in infrastructure sector being road construction industry. Its range of products includes various grades of Bitumen which are classified on the base of viscosity and related properties of each grades. Presently, it procures bitumen via imports from Dubai as well as purchase from other domestic importers/sellers in India. It further processes the bitumen procured at its processing units located at Mundra, Gujarat; Pali, Rajasthan; Bhopal, Madhya Pradesh. Apart from sale of processed bitumen, it also trades in bitumen by directly selling it to customers as per the requirement. It endeavors to supply products to its Customers at competitive prices yet keeping quality standards.

The company holds BIS and ISO certification for its products and process. The company’s products are supplied to its customers as per the quantity ordered. Over the years, it has developed expertise and upgraded its processing unit by adding required machineries and equipment, which has helped it to boost its production capacity, grades and the quality of its products. Over the last years, the company has been able to add customers, due to good will and good approach towards clients. its present manufacturing and processing units are well equipped with the required facilities including machinery, other handling equipments to facilitate smooth manufacturing process and easy logistics. It endeavors to maintain safety in its premises by adhering to key safety norms, established through its internal safety protocols. It has well equipped testing laboratory. Its present manufacturing and processing units are equipped with required testing facilities to ensure that all products meet the standards and specifications.

Proceed is being used for:

• Funding the working capital requirements of the company
• General corporate purposes

Industry Overview

Bitumen is a black to dark brown sticky material, composed principally of high molecular weight hydrocarbons. It is a semi-solid hydrocarbon product of crude oil distillation, which is produced by removing the lighter fractions (such as liquid petroleum gas, petrol, and diesel) from heavy crude oil during the refining process. The physical properties of bitumen include adhesion, resistance to water, hardness and higher softening point. Bitumen refers to a substance produced through the distillation of crude oil. Bitumen is known for its waterproofing and adhesive properties and is commonly finds its application in the construction industry. Bitumen is most essential property while constructing road and bridges. It is primarily used for road construction, roofing, waterproofing, in railways, industrial flooring, adhesives and soundproofing. Characteristics of Bitumen include viscosity, water resistance, durability, adhesiveness. Bitumen has ductility and viscoelastic properties, owing to which when bitumen is deformed by traffic load, it can return to its original shape without damage or cracks. Bitumen is a durable material that can withstand a variety of environmental conditions.

Most of the bitumen consumed is processed into asphalt for road construction. Asphalt is a mixture of rock aggregates and bitumen. Bitumen serves as a binding agent and is responsible for the stability of asphalt. Depending on the type of bitumen or composition of the mixture used, asphalt roads can be made suitable for regions with different climatic conditions or various levels of operational demands. Asphalt is also used for airport runways, parking decks, and working areas in ports. Based on product, the bitumen will hold the largest market share of close to 60% in terms of value in 2027. Around 85% of all the bitumen manufactured is used as binder in asphalt concrete for roads, car parks, airport runways, and footways due to the studiness and ability to be repaired quickly. With rising number of automobile vehicles in the world, mostly in the developing economies of Latin America and Asia Pacific, the demand for road construction will witness a significant rise in the upcoming years. Global vehicle sales reached 77.62 million units in 2020 and is expected to reach 125.43 million units by end of the forecast period, thus generating a need for broader and superior quality roads. 

The growth of Indian bitumen market is majorly driven by increase in road and building construction activities. Construction of various national highways, expressways, and airport runways boosts the demand for bitumen across the country. Bitumen is processed into asphalt for road construction. In addition, rise in investments by the government for the development of national highways and expressways, which include projects relating two-laning of highways, the National Highways Development Project, six-laning of crowded stretches of the Golden Quadrilateral, special program for the development of road connectivity in affected areas, development of Vijayawada-Ranchi road, and for providing last mile connectivity, is anticipated to drive the growth of the market. Furthermore, bitumen is widely used in the construction industry for roofs, owing to its physical properties such as adhesion, resistance to water, hardness, ductility, and higher softening point. Therefore, growth in the construction industry due to growth in population across the cities and demand for new houses led to increase in demand for bitumen across the country.

Pros and strengths

Location of manufacturing and processing unit, in-house testing facility with equipped machines and processes: Factories situated at Kutch district in Gujarat, Pali District in Rajasthan and Bhopal District in Madhya Pradesh are well equipped with machines and processes. With diversified locations it will get advantages in terms of economies of scale and proximity to customers. This will help the company to expand its business in future.

Scalable business model: The company’s business model is scalable as its main product bitumen finds application in various industries across applications. This will provide it with ample opportunities to grow its operations, diversify its product portfolio and add new customers.

Existing relationship with suppliers: The company maintains good relationship with its suppliers and customers which is the most important factor to keep the company growing. Its strong relationships with suppliers will enable it to continue to grow its business. Due to its relationships with its suppliers, it gets quality and timely supplies of its raw materials. This enables it to manage its inventories and supply quality products on timely basis to its customers. This in turn has enabled it to generate repeat business. 

Risks and concerns  

Maximum revenue comes from few customers: The company is dependent on a limited number of customers for a certain portion of its revenues. Its top ten customers accounted for approximately 41.01%, 49.12% and 60.28% of its revenue from operations for the year ending March 31, 2024, 2023 and 2022 respectively. There can be no assurance that its significant customers in the past will continue to place similar orders with it in the future. Also as per nature of its business, it does not have any firm agreements with its customers. A significant decrease in business from any such key customer, whether due to circumstances specific to such customer or adverse market conditions affecting the industry or the economic environment generally, such as the COVID-19 pandemic, may materially and adversely affect its business, results of operations and financial condition.

Limited operating and financial history: The company was incorporated in the year 2021 as a Private Limited Company in name and style of Nexxus Petro Industries Limited. Since then the initial years have been devoted to build the foundation of its business. Although its Promoters-Directors Haresh Mohanlal Shengani and Rahul Mohanlal Shengani have been in the same line of business since 2016 but the company has limited operating history and this relatively limited history of the company make it difficult to accurately assess its future prospects.

Dependent on few suppliers for raw material procurement: Although the company’s supplier base is diversified, still it is dependent significantly on its suppliers. The company got 78.66%, 49.48% and 91.02% of raw material from top 10 suppliers in FY24, FY23 and FY22 respectively. If its suppliers are unable to supply its products in sufficient quantities and on a consistent basis, it may not be able to sell its products to its customers in a timely manner. If it was to experience a supply disruption, it could take an extended period of time to find and qualify an alternate vendor. There is no guarantee that it would be able to obtain such alternative sources of supply on a timely basis, if at all. The company may experience significant business disruption if it is unable to secure necessary raw materials from its suppliers or suffer reduction in efficiency, the revenue from operations of the company will get severely affected.

Outlook

Nexxus Petro Industries is involved in the trading, manufacturing, and sale of petrochemical products, particularly bitumen products. The company produces and distributes high-quality bitumen, bitumen emulsions, and special bituminous allied products to infrastructure/construction companies, government agencies, road authorities, and the bitumen industry. It has strong supplier relationship for business growth. It also has factories in Gujarat, Rajasthan and Madhya Pradesh, which are well-equipped with modern machines and advanced processes. On the concern side, the company has a limited operating and financial history, which makes it difficult to accurately assess its future growth prospects. The company relies significantly on some suppliers for the supply of its raw materials. If these suppliers are unable or unwilling to supply raw materials on time or otherwise fail to meet its requirements, its business will be harmed. An inability to procure the desired quality, quantity of its raw materials in a timely manner and at reasonable costs, or at all, may have a material adverse effect on its business, results of operations and financial condition. 

The company is coming out with a maiden IPO of 18,50,400 equity shares of Rs 10 each at a fixed price of Rs 105 per share to mobilize Rs 19.43 crore. On performance front, the total income of the company for fiscal year 2024 was Rs 23,837.57 lakh against Rs 14,283.95 lakh total income for Fiscal year 2023, an increase of 66.88% in total income. This increase in the revenue from operations can be attributed to the overall increase in operations of the company. Profit after tax for the Fiscal 2024 was at Rs 348.47 lakh against profit after tax of Rs 200.87 lakh in fiscal 2023, a 73% increase.

The major customers of the company are present in the states of Gujarat, Chhattisgarh, Delhi, Uttar Pradesh, Maharashtra etc. Its growth in other states in the country can fetch it new business expansion and opportunities. Going forward, the company intends to establish its presence in few other locations in the country. Its emphasis is on scaling of its operations in other markets shall provide it with attractive opportunities to grow its client base and revenues. Further, developing and maintaining long term sustainable relationships with its suppliers, customers and employees will help it in achieving its long term objective of business growth and sustainability.