HVAX Technologies coming with IPO to raise Rs 33.53 crore

HVAX Technologies

• HVAX Technologies is coming out with an initial public offering (IPO) of 7,32,000 equity shares in a price band Rs 435-458 per equity share.
• The issue will open on September 27, 2024 and will close on October 01, 2024.
• The shares will be listed on SME Platform of NSE.
• The face value of the share is Rs 10 and is priced 43.50 times of its face value on the lower side and 45.80 times on the higher side.
• Book running lead manager to the issue is Fedex Securities.
• Compliance Officer for the issue is Anandan Sengundamudaliar.

Profile of the company

Since its incorporation in 2010, the company has evolved from its origins of acting as a HVAC project contractor and has developed expertise in undertaking turnkey projects on engineering, procurement and execution of controlled environment infrastructure and cleanrooms; design, engineering and consultancy services for pharma and healthcare companies; and sale and supply of equipment. While its primary customers are pharmaceutical companies, its customers also include chemical companies, hospitals, healthcare companies, and FMCG companies.

The company is engaged in the business of turnkey projects on engineering, procurement and execution of controlled environment infrastructure and cleanrooms; design, engineering and consultancy services for pharma and healthcare companies. It sells and supplies the equipment as a part of turnkey projects. Hence, the end users for the same are its clients i.e. pharmaceutical companies, chemical companies, hospitals, healthcare companies, and FMCG companies.

As a turnkey solution company, it is a “design-to-delivery” controlled environment infrastructure and cleanroom solutions provider with the ability to provide end to end solution encompassing designing, engineering, procurement, installation, testing, commissioning, management and operational support for a wide range of customers primarily in the pharmaceutical, healthcare, hospital and biotech sector across India and internationally. With a skilled team, strong project execution capabilities, and a client-centric focus, it is committed for delivering high-quality, safe, and innovative solutions that meet its clients’ specific needs. The company engaged with its customers directly and also indirectly as a sub-contractor to the main contractor where it is assigned specific work scope. Further, it also engaged third- party contractors for undertaking civil, mechanical and structural works. Its expertise covers the entire project lifecycle, ensuring timely delivery and successful outcomes for even the most complex projects.

Proceed is being used for:

• Funding working capital requirements 
• General corporate purpose

Industry Overview

The India Cleanroom Panels Market is witnessing substantial growth, driven by increasing demand for contamination-free manufacturing environments in industries like pharmaceuticals, biotechnology, electronics, and healthcare. The market encompasses various cleanroom products and services to ensure stringent regulatory compliance and maintain product quality. The region's rising awareness regarding the importance of Cleanroom Panels in ensuring product integrity and safety is a significant growth factor. One of the prominent trends in the India Cleanroom Panels Market is the adoption of advanced cleanroom solutions to cater to the expanding manufacturing sectors. With rapid technological advancements and the need to meet international quality standards, industries are investing heavily in modern cleanroom facilities. Moreover, the growing focus on research and development activities in the pharmaceutical and biotechnology sectors is further propelling the demand for Cleanroom Panels.

The increasing prevalence of infectious diseases and the subsequent surge in pharmaceutical production is another key growth driver for the market. Cleanrooms play a pivotal role in maintaining the hygienic conditions required for manufacturing drugs and medical devices, thus driving their adoption. Additionally, the upsurge in electronics manufacturing, driven by a rising consumer electronics market and the demand for microelectronics, is bolstering the demand for Cleanroom Panels in the India region. Despite the promising growth prospects, the India Cleanroom Panels Market faces certain challenges. The high initial setup cost of cleanroom facilities and the stringent regulatory requirements are major hurdles for small and medium-sized enterprises (SMEs). Ensuring continuous compliance with evolving regulations poses an ongoing challenge for companies operating in the market. Moreover, the lack of skilled professionals well-versed in Cleanroom Panels hampers the seamless integration and operation of cleanroom facilities.

The growing emphasis on research and development activities, coupled with the increasing investment in the healthcare sector, presents lucrative opportunities for Cleanroom Panels providers. As the demand for pharmaceuticals and medical devices continues to rise, companies can capitalize on this trend by offering innovative and cost-effective cleanroom solutions. Furthermore, collaborations with research institutions and government organizations to develop cutting-edge cleanroom technologies can open new avenues for market players. Additionally, catering to the emerging demand for modular cleanrooms that offer flexibility and scalability can prove to be a promising business opportunity. In conclusion, the India Cleanroom Panels Market is experiencing robust growth, driven by the need for contamination-free manufacturing environments across various industries. The adoption of advanced cleanroom solutions, increasing pharmaceutical and biotechnology activities, and the surge in electronics manufacturing are major growth drivers. However, challenges such as high setup costs and regulatory compliance issues persist. Despite these challenges, businesses can seize opportunities in research and development, healthcare, and modular cleanroom solutions to thrive in this evolving market. 

Pros and strengths

End-to-end execution capabilities: The company’s execution capabilities, comprising strong in-house operations consisting of design, engineering, procurement, quality assurance teams, is a critical factor that has contributed to growth story of the company. It places significant emphasis on cost management and rigorously monitor its projects to ensure that they are completed within committed timelines and budgeted amounts. As a result of its end-to-end execution capabilities and in-house resources, its is able to complete its projects at competitive cost as well as create value for future projects through its efficient supply chain, which enables its to benefit from economies of scale.

Visible growth through a robust order book: An order book is considered as one of the key indicators of future performance as it represents a portion of anticipated future revenue. The company’s strategy is not focused solely on order book addition but, rather, on adding quality projects with potentially higher margins and/or prestigious projects that help enhance its growing reputation. By diversifying its skill set and order book across different sectors, it is able to pursue a broader range of projects and consequently, optimize its business volume and profit margins. As at August 01, 2024, its on-going projects worth around Rs 15,364.47 lakh, suggesting its strong order book.

Strong and consistent financial performance: The company has been consistently profitable over the last three Fiscal and the stub period. Its financial position enables it to satisfy the minimum financial eligibility criteria for bidding in its projects which generally comprise of financial parameters such as net worth and profitability for various projects across all market segments. As per its Restated Financial Statement, its revenue from operation has grown at a CAGR of 24.17% from Rs 6,879.13 lakh in Fiscal 2022 to Rs 10,606.13 lakh in Fiscal 2024 and its profit after tax has grown at a CAGR of 49.86% from Rs 418.15 lakh in Fiscal 2022 to Rs 939.07 lakh in the Fiscal 2024. As on March 31, 2024, the net worth of the company was Rs 3,059.83 lakh. The company’s earnings per share post bonus from continuing operations have increased from Rs 22.59 per Equity Shares in the Fiscal 2022 to Rs 47.36 per equity shares in the Fiscal 2024. 

Risks and concerns 

Majority of topline comes from limited customers: The company’s top ten customers’ contribution was Rs 7329.07 lakh, Rs 8,329.99 lakh and Rs 6,106.15 lakh, representing 69.10%, 86.83% and 89.46% of its revenue from operations for the Fiscal 2024, Fiscal 2023 and Fiscal 2022, respectively. The loss of one or more of these significant or key customers or a reduction in the amount of business it obtains from them could have an adverse effect on its business, results of operations, financial condition and cash flows. It cannot assure that it will be able to maintain historic levels of business and/or negotiate and execute long term contracts on terms that are commercially viable with its significant customers or that it will be able to significantly reduce customer concentration in the future. Any decline in its quality standards, growing competition and any change in the demand, may adversely affect its ability to retain them. It cannot assure that it shall generate the same quantum of business, or any business at all, and the loss of business from one or more of them may adversely affect its revenues and results of operations.

Dependent on few suppliers for purchase of product: The company’s top ten suppliers contribute Rs 3794.80 lakh, Rs 4,025.51 lakh and Rs 3,296.38 lakh, representing 56.14%, 58.12% and 60.83% of its total purchase for the Fiscal 2024, Fiscal 2023 and Fiscal 2022, respectively. The company cannot assure that it will be able to get the same quantum and quality of supplies, or any supplies at all, and the loss of supplies from one or more of them may adversely affect its purchases of stock and ultimately its revenue and results of operations. However, the composition and amount of purchase from these suppliers might change as it continues to seek new suppliers for its product for better quality and price in the normal course of business. Though the company will not face substantial challenges in maintaining its business relationship with them or finding new suppliers, there can be no assurance that it will be able to maintain long term relationships with such suppliers or find new suppliers in time.

Significant working capital requirements: The business of the company is working capital intensive. Its net working capital was Rs 4087.42 lakh, Rs 1,750.06 lakh and Rs 715.19 lakh, representing 38.54%, 18.24% and 10.48% of its revenue from operations for the Fiscal 2024, Fiscal 2023 and Fiscal 2022, respectively. The successful operation of its business heavily relies on significant working capital, which is essential for various aspects, including financing project operations, inventory management, and the purchase of raw materials and may continue to so in future also. However, changes in credit terms and payment delays can adversely impact its working capital, resulting in lower cash flows and increased funding requirements. Inadequate financing of its working capital needs may arise due to several factors, such as delays in disbursements under financing arrangements, higher interest rates, increased insurance costs, or borrowing and lending restrictions. Such circumstances could have a material adverse effect on its overall business, financial condition, and prospects.

Outlook

HVAX Technologies provides turnkey engineering, procurement, and execution of controlled environment and cleanroom infrastructure, design, engineering, and consulting services to pharmaceutical and healthcare companies. The company has strong and consistent financial performance supported by a solid internal control and risk management system. It also has visible growth on the back of a solid order backlog. On the concern side, the company is dependent on few numbers of customers for sales. The loss of any of this large customer may affect its revenues and profitability. Also, the company is dependent on few suppliers for purchase of product. Loss of any of these large suppliers may affect its business operations.

The company is coming out with a maiden IPO of 7,32,000 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 435-458 per equity share. The aggregate size of the offer is around Rs 31.84 crore to Rs 33.53 crore based on lower and upper price band respectively. On performance front, the company revenue from operations increased 10.56% to Rs 10,606.13 lakh in FY24 as compared to Rs 9,592.92 lakh in FY23. Revenue from operations mainly includes revenue from Turnkey projects, revenue from service activities and other operating revenue (such as duty drawbacks and sale of licenses received under MEIS/RoDTEP scheme). Moreover, PAT increased to Rs 939.07 lakh in FY24 from Rs 520.37 lakh in FY23. PAT was 8.74% and 5.41% of total revenue of the company for the year ended on March 31, 2024 and March 31, 2023 respectively. Meanwhile, the company intends to continue its focus in enhancing project execution capabilities so as to derive twin benefits of client satisfaction and improvements in operating margins. It will constantly endeavour to leverage its operating skills through its equipment and project management tools to increase productivity and maximize asset utilization in its ongoing projects. It has developed a reputation for undertaking challenging projects and completing such projects in a timely manner. It intends to continue its focus on performance and project execution ability in order to maximize its operating margins. To facilitate efficient and cost-effective decision making, it intends to continue to strengthen its internal systems. The company’s ability to effectively manage projects will be crucial to its continued success.