Premium Plast coming with IPO to raise Rs 26.20 crore

Premium Plast

• Premium Plast is coming out with an initial public offering (IPO) of 53,46,000 equity shares in a price band Rs 46-49 per equity share.
• The issue will open on October 21, 2024 and will close on October 23, 2024.
• The shares will be listed on SME Platform of NSE.
• The face value of the share is Rs 10 and is priced 4.60 times of its face value on the lower side and 4.90 times on the higher side.
• Book running lead manager to the issue is Khandwala Securities.
• Compliance Officer for the issue is Rohit Shyamsunder Sharma.

Profile of the company

Premium Plast is a tier-1 (tier-1 companies are companies that directly supply to original equipment manufacturers (OEMs)) automotive component group. It designs, manufactures and supplies, exterior plastic components, interior cabin components, under the hood components to commercial vehicle OEMs directly. It is an IATF-16949, ISO 9001:2015, and ISO 14001:2004 specialised plastic injection and blow mould components manufacturer. It manufactures a wide variety of injection and blow moulded plastic articles for a broad group of industries and applications. Its products broadly include automotive parts, plastic industrial components and packaging components, which cater to a diverse range of industries. It specialises in manufacturing of automotive parts and have manufactured over 600 components across three facilities strategically located in India. It uses blow moulding and injection moulding technologies for manufacturing its products.

The company is a manufacturer of automotive parts, plastic industrial components and packaging components. Its customers are mainly domestic and international automobile OEMs, ear buds and cotton manufacturers and industrial tool manufacturers. It manufactures automobile components for commercial vehicles of the ‘Volvo Eicher Group’. It is the exclusive automotive component supplier for a number of original commercial automobile manufacturers. It started its manufacturing operations by manufacturing automotive components for various OEMs. Thereafter, it diversified its product portfolio to include industrial plastic parts and molded industrial packaging. It has obtained ISO 9001:2015 (QMS), ISO 14001:2015 (EMS) and IATF-16949 (QMS) certification for manufacture and supply of automotive components, assemblies and moulds. Owing to the quality of products manufactured and supplied by the company, it has received various awards and recognitions from its customers. 

Proceed is being used for:

• Expansion of existing manufacturing facility at Pithampur, Madhya Pradesh and purchase of machineries
• Funding of capital expenditure requirement of the company towards set up of rooftop on Grid Solar Power Plant at its existing manufacturing facility
• Prepayment or repayment of all or a portion of certain outstanding borrowings availed by the company
• General corporate purpose
• Offer related expenses

Industry Overview

The automobile component industry turnover stood at $ 36.1 billion (Rs 2.9 lakh crore) during H1 2023-24, registering a revenue growth of 12.6% as compared to H1 2022-23. Domestic OEM supplies contributed 66% to the industry’s turnover, followed by domestic aftermarket (12%) and exports (22.3%), in FY23. The component sales to OEMs in the domestic market grew by 13.9% to $30.57 billion (Rs. 2.54 lakh crore). During H1 2023-24, exports of auto components grew by 2.7% to $10.33 billion (Rs 85,870 crore). As per the Automobile Component Manufacturers Association (ACMA) forecast, automobile component exports from India are expected to reach $30 billion by 2026. In FY22, India’s auto component Industry for the first time reached a trade surplus of $700 million. The aftermarket for auto components grew by 7.5% during H1 2023-24 reaching $5.43 billion (Rs 45,158 crore). 

Exports of auto components grew by 5.2% to $19.49 billion (Rs 1.61 lakh crore) in 2022-23 from Rs 1.41 lakh crore ($19 billion) in 2021-22. During H1 2023-24, the export value of auto components/parts was estimated at $10.4 billion. In FY 2023, North America, which accounts for 33% of total exports, increased by 2%, while Europe and Asia, which account for 33% and 24% of total exports, increased by 12% and declined by 4%, respectively. The key export items included drive transmission and steering, engine components, body/chassis, suspension and braking etc. Exports of automobile components from India increased, at a CAGR of 8.75%, from $10.83 billion in FY16 to $19.49 billion in FY23. The aftermarket for auto components grew by 7.5% during H1 2023-24 reaching Rs 45,158 crore ($5.43 billion). By 2026, the automotive aftermarket segment in India is expected to reach $32 billion. Aftermarket turnover increased at a CAGR of 6.16% from $6.80 billion in FY16 to $10.33 billion in FY23 and is expected to reach $32 billion by FY2026.

The turnover of the automotive component industry grew 32.8% to Rs 5.6 lakh crore ($69.7 billion) during 2022-23 compared to the previous year and is expected to reach $200 billion by FY26. India’s share in the global auto component trade was at $20.1 billion in FY23. India aims to increase its auto component exports to $30 billion by 2026. The auto-components exports grew by 2.7% to Rs 85,870 crore ($10.4 billion) while imports climbed by 3.6% to Rs 79,815 crore ($10.2 billion) In H1 2023-24. In February 2021, Vedanta Resources launched its newest-aluminium cylinder head alloy, a crucial raw material for manufacturing cylinder heads and other automotive components. In July 2021, Steelbird launched a new range of engine oils and lubricants, comprising engine oil, grease and fork oil, for the 2-wheeler segment. The Automotive Component Manufacturers Association of India (ACMA) September 2023 report forecasts the automotive electronics market to surge from $10.6 billion to around $74.4 billion by 2032. 

Pros and strengths

Provide diverse range of specialised plastic products across varied customer segments: The company’s capacity to continuously diversify and develop its products, effectively supported by its strategically located manufacturing facilities, enables it to launch and market new products aligned to evolving consumer preferences. Its products broadly include automotive parts, plastic industrial components and packaging components, which cater to a diverse range of industries. It specialises in manufacturing of automotive parts and have manufactured over 600 components across three strategically located in India. It uses blow moulding and injection moulding technologies for manufacturing its products.

Robust design optimisation capabilities: The company relies on its integrated location-focussed manufacturing operations, design capabilities, and its focus on quality and cost-efficient manufacturing processes to achieve customer satisfaction, foster customer loyalty and accordingly, generate repeat business. The evolution of its product portfolio and its ability to provide customised manufacturing solutions to its customers have been driven by its design capabilities. The company’s design optimisation efforts are focused on (i) development of new products along with its clients, on case to case basis, only when the client requires a specific modification to the standard products and improvement of the quality of its existing products; (ii) improving its design and manufacturing capabilities, (iii) improving its manufacturing processes, and (iv) improving its quality control processes, including by undertaking performance and reliability validation tests of various products and product components.

Sustainable business development: The company is a socially and ethically compliant manufacturer of automotive parts, plastic industrial components and packaging components. In order to effectively follow norms prescribed by authorities, it has developed a sustainable business model wherein it reuses waste plastic material which helps it to reduce its plastic waste and raw material costs and also making its manufacturing units ‘zero-discharge’ units. Furthermore, its business practices also address problems such as gender pay gaps and gender discrimination, in its manufacturing units. The company has increased its focus on recruiting and deploying more girls and women to ensure consistency in product quality with better productivity. It also ensures that women have equal access to challenging any new task, promotions, and leadership positions. Empowering Women in the work culture tends to bring in more output for the company and also makes them financially independent for future.

Risks and concerns  

Maximum revenue comes from top 10 customers: The company is dependent on certain major customers, especially VE Commercial Vehicles Limited. Sales to VE Commercial Vehicles Limited (based on the total invoiced amounts) represented 84.61%, 84.45%, 81.20% and 85.86% of its total invoicing for the period ended June 30, 2024, Fiscal 2024, Fiscal 2023 and Fiscal 2022, respectively. The company garnered revenue of 97.16%, 98.09%, 97.79% and 98.51% from its top 10 customers for the period ended June 30, 2024, Fiscal 2024, Fiscal 2023 and Fiscal 2022, respectively. There is no commitment on the part of the customer to continue to place new purchase orders with it and as a result, its sales from period to period may fluctuate significantly as a result of changes in its customers’ vendor preferences. Further, it may not find any customers or purchasers for the surplus or excess capacity, in which case it would be forced to incur a loss. 

Significant revenue comes from automotive molding products division: The company garnered revenue of 83%, 84%, 82% and 80%, from automotive molding products (injection and blow molding) division for the period ended June 30, 2024, Fiscal 2024, Fiscal 2023 and Fiscal 2022, respectively. The company’s future success depends in part on its ability to reduce its dependence on its automotive molding products (injection and blow molding) division by increasing exposure towards its other products. Any failure to successfully offer its existing products or diversify its product portfolio could adversely affect its business, financial condition, cash flows and results of operations. The company’s business, growth prospects and financial performance largely depends on its ability to attract new clients, retain its existing clients and effectively implement its diversification and expansion strategies. It cannot assure that it will be able to achieve the same in a timely and effective manner, on the occurrence of such an event, its business, results of operations and financial condition will be materially and adversely affected.

Substantial capital expenditure and working capital requirements: The company’s business is capital intensive as it has expanded and upgraded its existing production facilities. The actual amount and timing of its future capital requirements may differ from estimates as a result of, among other factors, unforeseen delays or cost overruns, unanticipated expenses, regulatory changes, economic conditions, engineering design changes, weather related delays, technological changes, additional market developments and new opportunities in the automotive components industry. The company’s sources of additional financing, where required to meet its capital expenditure plans, may include the incurrence of debt, the issue of equity or debt securities or a combination of both. The company’s working capital requirements may increase if the payment terms in its agreements or purchase orders include reduced advance payments or longer payment schedules. These factors may result, and have in the past resulted, in increases in the amount of its receivables and short-term borrowings. Continued increases in its working capital requirements may have an adverse effect on its financial condition and results of operations.

Outlook

Premium Plast manufactures various injection and blow moulded plastic parts for a wide range of industries and applications. The company's product portfolio includes automotive parts, industrial plastic parts, and packaging components used in a variety of industries. The company has obtained ISO 9001:2015 (QMS), ISO 14001:2015 (EMS) and IATF-16949 (QMS) certification for manufacture and supply of automotive components. Its products undergo stringent quality tests to meet industry standards before they are delivered to its clients. On the concern side, the company’s business is dependent on certain major customers, with whom it does not have firm commitment agreements. The loss of such customers, a significant reduction in purchases by such customers, or a lack of commercial success of a particular vehicle model of which it is a significant supplier could adversely affect its business, results of operations and financial condition. Moreover, it significantly relies on automotive molding products (injection and blow molding) division for a significant amount of revenue, and any interruption or reduction in the customers in the said division may adversely affect its business and results of operations.

The company is coming out with a maiden IPO of 53,46,000 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 46-49 per equity share. The aggregate size of the offer is around Rs 24.59 crore to Rs 26.20 crore based on lower and upper price band respectively. On performance front, the company’s total income has increased by 6.03% from Rs 4,404.83 lakh in FY23 to Rs 4,670.59 lakh in FY24. The Increase in the revenue is due to due to the productivity and staff training programs launched in FY23, along with the shift to high-value parts, reduced rejection rates, optimized procurement practices and improvement in operational efficiency. Moreover, the Net Profit after tax, extraordinary items and Minority interest has increased by 199.75% from Rs 159.32 lakh in FY23 to Rs 477.56 lakh in FY24.

The company has over the years increased its production capacities through consistent growth and innovation. Further, the company intends to increase its production capacity by way of installation of new machineries at its existing manufacturing facility. Its investment in these machineries will add on to its current installed capacity, thus, enabling it to cater to the growing demand from its customers and add new products in its existing product portfolio. The company’s established presence in the Indian market positions it well to capitalize on the anticipated growth in demand of its product. It intends to increase its existing manufacturing capacities to cater to the increasing demand of its products, increase its geographic presence and increase its revenues and profit margins.