Paramount Dye Tec coming with IPO to raise Rs 28.43 crore

Paramount Dye Tec

• Paramount Dye Tec is coming out with an initial public offering (IPO) of 24,30,000 equity shares in a price band Rs 111-117 per equity share.
• The issue will open on September 30, 2024 and will close on October 03, 2024.
• The shares will be listed on SME Platform of NSE.
• The face value of the share is Rs 10 and is priced 11.10 times of its face value on the lower side and 11.70 times on the higher side.
• Book running lead manager to the issue is Gretex Corporate Services.
• Compliance Officer for the issue is Chandni Jain.

Profile of the company

Paramount Dye Tec is a Ludhiana, Punjab-based company, specializing in the manufacturing of yarns by recycling waste synthetic fiber (recycling synthetic waste), serving the B2B segment of the textile industry. It offers a range of products including synthetic fiber and yarns which includes acrylic yarn, polyester yarn, nylon yarn, wool yarn, hand-knitting yarn and acrylic blend yarn with quality, finer impact, and lasting excellence. It utilizes synthetic waste fibers as its primary raw material, transforming them into quality yarn. This process not only enhances industry sustainability but also boosts economic efficiency. Its commitment to environmental responsibility and economic benefits is evident through its innovative approach. Through continuous R&D, it has developed advanced technology to recycle pre-consumer waste into premium yarn and fiber. This capability allows it to meet the growing demand for sustainable and circular fashion, solidifying its market presence.

The company operates from its manufacturing facility located in Village Mangarh & Village Koom Khurd, Punjab. This facility is equipped with advanced processing capabilities and staffed with industry experts. It prioritizes quality assurance through rigorous testing of both raw materials and finished goods, ensuring adherence to the highest standards. As an ISO 9001:2015 and Good Manufacturing Practice (GMP) certified organization, it adheres to a robust Quality Management System. Its dedication lies in providing work of such quality that aligns with project standards and specifications for materials, workmanship, schedules, and public service. 

The company is committed to profitability and competitiveness while ensuring continual improvement through quality processes overseen by its management team. The company’s quality control process guarantees high standards of safety and environmental protection, meeting client expectations and adhering to their defined standards and specifications. Spearheading its company’s strategic direction and operational oversight are Kunal Arora & Palki Arora, the Promoters who are dedicated to steering the company towards sustainable success through comprehensive leadership and management which is the guiding force behind all the strategic decisions of the company. Their industry knowledge and understanding also gives it the key competitive advantage enabling it to expand its customer presence in existing as well as target markets, while exploring new growth avenues.

Proceed is being used for:

• Setting up of manufacturing unit
• Repayment/prepayment of certain debt facilities availed by the company
• Expenses towards registration of land purchased from Promoter
• General corporate purposes

Industry Overview

India’s textiles sector is one of the oldest industries in the Indian economy, dating back to several centuries. The industry is extremely varied, with hand-spun and hand-woven textiles sectors at one end of the spectrum, with the capital-intensive sophisticated mills sector at the other end. The fundamental strength of the textile industry in India is its strong production base of a wide range of fibre/yarns from natural fibres like cotton, jute, silk and wool, to synthetic/man-made fibres like polyester, viscose, nylon and acrylic. The decentralised power looms/ hosiery and knitting sector form the largest component of the textiles sector. The close linkage of textiles industry to agriculture (for raw materials such as cotton) and the ancient culture and traditions of the country in terms of textiles makes it unique in comparison to other industries in the country. India’s textiles industry has a capacity to produce a wide variety of products suitable for different market segments, both within India and across the world.

The market for Indian textiles and apparel is projected to grow at a 10% CAGR to reach $350 billion by 2030. Moreover, India is the world's 3rd largest exporter of Textiles and Apparel. India ranks among the top five global exporters in several textile categories, with exports expected to reach $100 billion. The textiles and apparel industry contributes 2.3% to the country’s GDP, 13% to industrial production and 12% to exports. The textile industry in India is predicted to double its contribution to the GDP, rising from 2.3% to around 5% by the end of this decade. The Manufacturing of Textiles Index for the month of August 2023 is 106.9 which has shown a growth of 1.6 % as compared to August 2022. The Indian Technical Textile market has a huge potential of a 10% growth rate, increased penetration level of 9-10% and is the 5th largest technical textiles market in the world. India’s sportech industry is estimated around $1.17 million in 2022-23. The Indian Medical Textiles market for drapes and gowns is around $9.71 million in 2022 and is expected to grow at 15% to reach $22.45 million by 2027.

The future of the Indian textiles industry looks promising, buoyed by strong domestic consumption as well as export demand. India is working on various major initiatives to boost its technical textile industry. Owing to the pandemic, the demand for technical textiles in the form of PPE suits and equipment is on the rise. The government is supporting the sector through funding and machinery sponsoring. Top players in the sector are achieving sustainability in their products by manufacturing textiles that use natural recyclable materials. The technical textiles market for automotive textiles is projected to increase to $3.7 billion by 2027, from $2.4 billion in 2020. Similarly, the industrial textiles market is likely to increase at an 8% CAGR from $2 billion in 2020 to $3.3 billion in 2027. The overall Indian textiles market is expected to be worth more than $209 billion by 2029. 

Pros and strengths

Use of recycled synthetic waste as raw materials: The company uses recycled synthetic waste from local and international suppliers. Its recycling process helps in filling the gap in material use, promoting environmental responsibility and economic benefits. Through constant research and development, it has developed technology to produce high-quality yarn and fiber from various types of waste. This meets the growing demand for sustainable and circular clothing. Its innovative technology turns waste into virgin fiber, then into yarn, all at affordable prices. This technology, unique to it, gives it an advantage. The company’s technical know-how ensures efficient, eco-friendly production that maintains high quality while reducing waste.

Value addition through enhanced spinning capacity: Increasing the spinning capacity to convert fiber into yarn is a strategic move that incurs minimal additional expenses that significantly boosts profitability. It maximizes the use of in-house produced fiber to manufacture yarn, ensuring efficient resource utilization. This value addition not only enhances product quality but also optimizes production costs. As a result, can offer competitively priced, high-quality yarn while increasing its profit margins.

Cost-effective products: The company offers cost-effective products that provide exceptional value to clients. By optimizing its manufacturing processes and supply chain management, it is able to offer competitive pricing without compromising on quality. This allows its clients to reduce their production costs while still obtaining high-quality materials for their textile products. 

Risks and concerns  

Majority of its revenue is dependent on single business segment: Majority of the company’s revenue is dependent on single business segment i.e. manufacturing of fiber and yarn which comprises of 70.24% of its total revenue from operations for the period ended March 31, 2024 as per restated financial information. Its continued reliance on single business segment for a significant portion of its revenue exposes it to risks, including but not limited to, reduction in the demand in the future; increased competition from domestic and international manufacturers; the invention of superior and cost- effective technology; fluctuations in the price and availability of the raw materials; changes in regulations and import duties; and the cyclical nature of its customers’ businesses. Any occurrences of such event could significantly reduce its revenues, thereby materially adversely affecting its results of operations and financial condition.

Dependent on a few suppliers for purchases of product/service: The company’s top ten suppliers contribute 100%, 84.88%, 96.67%, 84.95% and 85.93% of its total purchase of the company for the period ended March 31, 2024 and Restated Financial Statements of the Partnership firm Paramount Dye Tec for the period ended on January 03, 2024, and Financial Year ended March 31, 2023, March 31, 2022, March 31, 2021 respectively based on restated financial statement. It 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 seeking 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.

Geographical constrain: The complete revenue for the period ended March 31, 2024, January 03, 2024, and for the Financial Year ended March 31, 2023, March 2022 and March 31, 2021 is from only one state. i.e. Punjab. Such geographical concentration of its business heightens its exposure to adverse developments related to competition, as well as economic and demographic changes in these regions which may adversely affect its business prospects, financial conditions and results of operations. Factors such as competition, culture, regulatory regimes, business practices and customs, industry needs, transportation, in other markets where it may expand, its operations may differ from those in which it is currently offering. The company’s inability to expand more into areas outside Punjab market may adversely affect its business prospects, financial conditions and results of operations.

Outlook

Paramount Dye Tec produces yarns by recycling waste synthetic fiber, catering to the B2B segment of the textile industry. The company offers a range of products, including synthetic fiber and yarns such as acrylic, polyester, nylon, wool, hand-knitting, and acrylic blend yarns, known for their quality, durability, and lasting excellence. Expanding spinning capacity to convert fiber into yarn is a strategic move that minimally increases expenses while significantly boosting profitability of the company. Moreover, the company offers a complete solution by producing both fiber and yarn to streamline the supply chain for its clients. On the concern side, the company derives a majority portion of its revenue from operations from its top 10 customers, contributing 78.18% revenue from operations for the period ended March 31, 2024. Loss of one or more of these 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. Further, it does not have long-term agreements with any of its customers. Moreover, majority of its revenue is dependent on single business segment i.e. manufacturing of fiber and yarns. Any adverse impact on sales of a product would adversely affect its operations and profitability.

The company is coming out with a maiden IPO of 24,30,000 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 111-117 per equity share. The aggregate size of the offer is around Rs 26.97 crore to Rs 28.43 crore based on lower and upper price band respectively. On performance front, the company’s total income for the period ended March 31, 2024 was Rs 2,367.90 lakh which includes revenue from operation and other income. Its revenue from operations for the period ended March 31, 2024 was Rs 2,351.15 lakh which includes Sale of Goods and Other Operating revenue i.e. Commission Income. Further, the company’s profit for the year for the period ended March 31, 2024 was Rs 354.09 lakh. The company is initiating the use of cotton cloth cuttings to venture into new markets. Its process begins with recycling waste from cotton cloth cuttings to produce cotton fiber and yarn. In the next step, it blends this recycled cotton with recycled polyester fiber, creating high-quality yarn suitable for knitting. The yarn it manufactures from this process has diverse applications, including T-shirts, full-sleeve shirts, bed sheets, denim, cushion covers, and more. The company aims to enhance its production capabilities to meet the growing demand and to capitalize on market opportunities. This involves investing in capital expenditure to upgrade yarn manufacturing facilities. Additionally, it aims to prioritize research and development (R&D) initiatives to develop finer quality yarn and fiber, thereby adding greater value to its product offerings. By increasing manufacturing capacity, it intends to strengthen its market position and provide better service for its customers’ needs.