Shiv Texchem coming with IPO to raise Rs 101.35 crore

Shiv Texchem

• Shiv Texchem is coming out with an initial public offering (IPO) of 61,05,600 equity shares in a price band Rs 158-166 per equity share.
• The issue will open on October 08, 2024 and will close on October 10, 2024.
• The shares will be listed on SME Platform of BSE.
• The face value of the share is Rs 10 and is priced 15.80 times of its face value on the lower side and 16.60 times on the higher side.
• Book running lead manager to the issue is Vivro Financial Services.
• Compliance Officer for the issue is Dinky Jain.

Profile of the company

Shiv Texchem is primarily engaged in the business of importing and distribution of hydrocarbon-based chemicals of the product family viz. Acetyls, Alcohol, Aromatics, Nitriles, Monomers, Glycols Phenolic, Ketones, and Isocyanates, which are critical raw materials and inputs and have application across wide spectrum of industries like paints and coatings, printing inks, agro-chemical products, specialty polymers, pharmaceuticals products and specialty industrial chemicals. In the petrochemical industry, there is a wide array of base chemicals that serve as the foundation for various derivative chemicals. These chemicals serve as secondary and tertiary chemicals for application in various industries. Its business focuses on the import and redistribution of these secondary and tertiary chemicals, which are essential raw materials for multiple industries.

The company manages the supply chain of these secondary and tertiary chemicals derived from base chemicals. For example, benzene serves as a fundamental building block for producing essential secondary and tertiary chemicals such as phenol, styrene and aniline. These secondary and tertiary chemicals are indispensable base raw material inputs in various industries including paints, coatings, printing inks, agrochemicals, pharmaceuticals, specialty polymers, and industrial chemicals. Its role involves sourcing these chemicals from international producers and suppliers, redistributing them to domestic industries, and ensuring sufficient and timely supply to manufacturers. By handling the import and distribution of these essential raw materials, it supports various industries in accessing high-quality chemicals for their manufacturing processes. It bridges the gap between global suppliers and local industries, ensuring a steady and reliable supply of crucial chemicals.

The company acts as one of the preferred sourcing partners for its customers wherein it assists and supports its customers for their purchase planning of these products, aggregate orders from customers, engage with global and domestic producers and suppliers to negotiate terms which includes price, specifications, quantity and delivery schedule and manage supply chain, which includes storage, handling and logistics support. It has strategically sourced a wide variety of products from global producers and suppliers and has successfully delivered to a diverse range of customers such as Apcotex Industries Limited, Hemani Industries Limited, Gujarat Fluorochemicals Limited amongst others. Its sourcing efforts have spanned multiple countries including China, Taiwan, South Korea, Kuwait, Qatar, USA, Netherlands, Belgium and Italy amongst others.

Proceed is being used for:

• Meeting long-term working capital requirements
• General corporate purposes

Industry Overview

India has been one of the largest consumers of chemicals & petrochemical products in Asia Pacific region for the bulk of the last 10 - 15 years. The rapid growth in India’s manufacturing infrastructure during this time period have created strong demand for a wide range of chemical & petrochemical input materials and intermediates. As India became one of the fastest growing economies in the world, the annual growth in demand for chemical & petrochemical input materials and intermediates too increased at a fast clip. Despite the strong growth in petrochemical consumption in the recent years, per capita petrochemical consumption in India remains low when compared to both global average as well as other fast growing developing economies. For example, the per capital consumption of polyester in India is only 1.4 kgs as against 6.6 kg for China and 3.3 kg for world. Similarly, the per capital consumption of polymer in India is estimated to be 4 kg as compared to global average of 20 kg. These disparities highlight the significant potential for growth in India's petrochemical consumption as the country continues to develop its industrial base and expand its production capacities to meet both domestic and global demand.

Meanwhile, India is the fourth-largest producer of agrochemicals globally, following the United States, Japan, and China, and is also the fourth net exporter of agrochemicals and the thirteenth-largest exporter of pesticides and disinfectants. Indian agrochemical industry is estimated to be worth Rs 1,255 billion in FY 2024, and it is expected to reach a turnover of Rs 1,680 billion by FY 2030. The rising demand in the agricultural segment is driving the growth of agrochemicals in India. Agrochemicals, which include insecticides, herbicides, fungicides, and other plant-protection chemicals, rely heavily on petrochemical feed stocks for their production. Organic chemicals derived from petrochemicals are crucial in synthesizing these agrochemicals. India's installed capacity for insecticide and pesticide manufacturing stands at approximately 324 thousand MT, with annual production reaching 138 thousand MT in FY 2023 (up to September 2022). The industry encompasses around 280 molecules and 800 agrochemical formulations registered in India, underscoring the significant dependency on petrochemical-derived raw materials.

While the historical performance of Indian chemical industry has been exemplary, the future holds even better growth opportunities. Domestic chemical consumption is rising steadily, and the country is expected to account for more than 20% of the incremental global consumption of chemicals that would happen globally in near future. The steady growth in industrial production is a key demand enabler. The annual consumption of petrochemicals in India is estimated to be 57 million tons in FY 2024, and it is expected to reach nearly 61 million tons per annum by the next year (FY 2025). Petrochemical demand is closely linked to the overall economic growth, due to the widespread usage across various industries. With Indian economy poised to maintain its strong growth, the demand for petrochemicals too is expected to remain strong. Going ahead, assuming the strong economic growth in India continues, the annual consumption of petrochemicals in India has the potential to reach nearly 82 million tons per annum by the end of this decade. 

Pros and strengths

Differentiated business model offering comprehensive and integrated commercial and supply chain solutions: The availability of hydrocarbons is limited in India. However, India has been one of the largest consumers of chemicals & petrochemical products in the Asia Pacific region for most of the last 10 to 15 years. Through its internal integrated research database, coupled with its relationships with global hydrocarbon manufacturers and suppliers, it acts as a knowledge partner for its customers to plan their manufacturing and consumption plans. Its relationship with suppliers and understanding of the hydrocarbon market allows it to develop strong engagements with various global hydrocarbon manufacturers and suppliers. The company assists its suppliers to optimize their distribution by providing them with secondary consumption data on a timely basis, an overview of their product specifications, as well as customer insights at the Indian market level.

Well diversified product portfolio, customer base with extensive suppliers’ network: The company is focused on sourcing and supplying the diversified products which are critical raw materials and have applications across a wide spectrum of industry including paints and coatings, printing inks, agro-chemical products, specialty polymers, pharmaceuticals products and specialty industrial chemicals. As of June 30, 2024, its product portfolio comprised around 43 products which were sourced from more than 65 manufacturers and suppliers and distributed and supplied to over 700 customers.

Long standing and active relationships with customers: The company has developed long-term relationships with various corporations that has helped it to expand its product offerings. Its customers are typically engaged in various industries, including paints and coatings, printing inks, agro-chemical products, specialty polymers, pharmaceuticals products and specialty industrial chemicals and are spread across various geographies in India, which helps it to mitigate risks resulting from dependence on a limited number of customers, industry and geographic concentration. As of June 30, 2024, the company’s product portfolio was sold to over 700 customers in India. 

Risks and concerns  

Derives a significant part of its revenue from a group of select products: The company is primarily in the business of importing and distribution of hydrocarbon-based chemicals of the product family viz. Acetyls, Alcohol, Aromatics, Nitriles, Monomers, Glycols Phenolic, Ketones, and Isocyanates, which are critical raw materials and inputs for manufacturing of paints and coatings, printing inks, agro-chemical products, specialty polymers, pharmaceuticals products and specialty industrial chemicals. Over the past three Fiscals, it has expanded its product portfolio from offering 21 products in Fiscal 2022 to 39 products by Fiscal 2024 and 43 products as on June 30, 2024. The company garnered 74.10%, 82.04% and 96.24% of revenue from its top 10 products in FY24, FY23 and FY22 respectively. Any failure on its part to procure and deliver these products efficiently to its customers as per their requirements or not deliver at all, could adversely affect its business, financial condition, reputation and results of operations.

Dependent on limited number of suppliers for supply of its traded products: The company is dependent on suppliers for supply of stock in trade products; however, it has not entered into any long term supply agreement for the same. The company has purchased 57.76%, 61.34% and 70.47% of its traded products from top 10 suppliers in FY24, FY23 and FY22 respectively. While the company may find additional suppliers to supply these traded products, any failure of its suppliers to deliver these traded products in the necessary quantities or to adhere to delivery schedules, credit terms or specified quality standards and technical specifications may adversely affect its ability to deliver orders on time and at the desired level of quality.

Huge working capital requirement: The company operates on high volume and low margin business model which require it to invest substantial sum in working capital requirements of the Company. Majority of the working capital funds of the company are blocked due to high inventories and trade receivable level in line with high revenue from operations. As on June 30, 2024 and March 31, 2024, the company’s net working capital (total current assets less total current liabilities) amounted to Rs 26,332.75 lakh and Rs 25,800.88 lakh, respectively, as against Rs 18,120.80 lakh as on March 31, 2023, and Rs 16,427.34 lakh as on March 31, 2022, respectively. Additional debt financing could increase its interest costs and require it to comply with additional restrictive covenants in its financing agreements. Additional equity financing could dilute its earnings per Equity Share and investors interest in the Company and could adversely impact its Equity Share price.

Outlook

Shiv Texchem imports and distributes hydrocarbon-based secondary and tertiary chemicals, which are important raw materials for numerous industries. The company imports and distributes hydrocarbon-based chemicals of the Acetyls, Alcohol, Aromatics, Nitriles, Monomers, Glycols Phenolic, Ketones, and Isocyanates product family, which are important raw materials and feedstocks for a wide range of industries such as paints and coatings, printing inks, agrochemicals, specialty polymers, pharmaceuticals, and industrial specialty chemicals. On the concern side, the company derives a significant part of its revenue from a group of select products. If it fails to offer any of these products, its business, financial condition and results of operations may be adversely affected. Moreover, it is dependent on limited number of suppliers for supply of its traded products and it has not made any long term supply arrangement with its suppliers. In an eventuality where its suppliers are unable to deliver it the required materials in a time-bound manner it may have a material adverse effect on its business operations and profitability.

The company is coming out with a maiden IPO of 61,05,600 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 158-166 per equity share. The aggregate size of the offer is around Rs 96.47 crore to Rs 101.35 crore based on lower and upper price band respectively. On performance front, the company’s total income increased by 37.37% from Rs 1,11,866.98 lakh in financial year ended March 31, 2023 to Rs 1,53,668.79 lakh in financial year ended March 31, 2024 primarily due to increase in sale of its products resulting into increase in revenue from operations. Moreover, the profit after tax of the company increased from Rs 1,602.72 lakh in fiscal 2023 to Rs 3,011.30 lakh in fiscal 2024.

The company has built long-standing relationships with its customers through consistent delivery of quality products as per customers’ requirements, which it intends to leverage by entering into long-term marketing arrangements. The company intends to add new products in its product portfolio to cater to additional requirements of existing customers and add new ones. In addition, it continues to leverage its existing sales and marketing network, diversified product portfolio and its industry standing to establish relationships with new customers and manufacturers providing them a competitive edge in product quality, supply consistency and competitive pricing. As a business strategy, it intends to further expand its customer network for it to capitalize and grow its business operations.