Emerald Tyre Manufacturers coming with IPO to raise Rs 49.26 crore

Emerald Tyre Manufacturers

• Emerald Tyre Manufacturers is coming out with an initial public offering (IPO) of 51,85,200 equity shares in a price band Rs 90-95 per equity share.
• The issue will open on December 5, 2024 and will close on December 9, 2024.
• The shares will be listed on SME Platform of NSE.
• The face value of the share is Rs 10 and is priced 9.00 times of its face value on the lower side and 9.50 times on the higher side.
• Book running lead manager to the issue is GYR Capital Advisors.
• Compliance Officer for the issue is Raja Devika Dhivya.

Profile of the company

Emerald Tyre Manufacturers is engaged in the business of manufacturing, supplying and services for a comprehensive range of tyres for material handling applications like forklifts, skid loaders, ground support equipment of Airports, Port trailers, agri implements, lawn and garden mowers, mining equipment, aerial work platform trucks, backhoe loaders etc. The company being incorporated in the year 2002, has a renowned presence in the Domestic market as well as Global market for more than two decades in the international market under the brand name “GRECKSTER”.

Pursuant to the strong market position in off highway tyre manufacturing industry, its manufacturing unit is operational at Tiruvallur District, Tamil Nadu spread over 10.05 acres. The company has an installed production capacity of 10560 MT of tyres, tubes and wheels. Moreover, the company’s product range covers a wide range of off the highway range of tyres. The company has the flexibility in its manufacturing facility to address market requirements.

The company was promoted and pioneered by Chandhrasekharan Venkatachalam Thirupathi. Its Promoter has a rich engineering background with more than two decades’ experience in Manufacturing and operation of tyres. He has guided the company in expanding its operations by taking strategic directional focus towards focusing on exports, multi- size expansion, de-risking entire business by strategic product & market selection. 

Proceed is being used for:

• Meeting out the capital expenditure
• Meeting out general corporate purposes
• Meeting out offer expenses 

Industry Overview

The India Tyre Market is experiencing robust growth of 8.71% CAGR during the forecast period 2023-2030 and is projected to reach $25.50 billion by FY2031 from $13.11 billion in FY2023 mainly owing to the rapidly growing automotive industry in the country. Tyres play a crucial role in ensuring vehicle safety and performance, making them an essential component of the automotive ecosystem. In recent years, the market has witnessed several key drivers that have propelled its growth. With the rising disposable income and growing middle-class population, there has been a surge in demand for passenger and commercial vehicles. This has directly translated into increased demand for tyres. Additionally, government initiatives such as 'Make in India' and the push for electric vehicles have further contributed to the market's growth.

India has witnessed an increase in demand for Off-The-Road (OTR) tyres in recent years. Several factors are included in this growing demand. Firstly, there has been significant infrastructure development in the country, including the construction of roads, highways, and airports. These projects require heavy machinery and vehicles that rely on OTR tyres for optimal performance in challenging terrains. Secondly, the mining and construction sectors in India have experienced substantial growth. OTR tyres are essential for heavy-duty vehicles used in mining operations, earthmoving equipment, and construction projects. Moreover, the agriculture sector, which heavily relies on tractors and other agricultural machinery, has also contributed to the demand for OTR tyres. The expansion of mechanized farming practices and the need for increased productivity have driven the demand for reliable and durable OTR tyres.

Automotive Tyre Manufacturers’ Association (ATMA) in India represents and advocates the interests of tyre manufacturers in the country. While ATMA does not have regulatory authority, it works closely with the government to address industry challenges and promote a favourable regulatory environment. ATMA actively engages in discussions with policymakers on Offers related to taxation, import/export regulations, standards, and other industry-specific regulations. The association also collaborates with government agencies to enhance road safety, promote sustainable manufacturing practices, and ensure compliance with quality standards. ATMA acts as a platform for its members to voice their concerns, provide industry insights, and work towards the growth and development of the Indian tyre market while adhering to relevant government regulations. For example, the export business currently accounts for roughly 20% of the Indian tyre industry's total sales; by 2030, this percentage is anticipated to increase to 30%. The tyre business is in line with India's expected significant growth in the coming decade. 

Pros and strengths

Manufacturing facility to handle wide range of Off Highway Tyres: The company has manufacturing facility to manufacture a wide range of Off Highway Tyres under one roof. By controlling the entire production chain from raw materials to finished products, the company gains enhanced quality control, ensuring that every tyre meets rigorous global standards. This manufacturing facility fosters innovation, allowing for swift adjustments in production methods and materials to meet evolving market demands and technological advancements. The manufacturing facility has a capacity that enhances cost efficiency through economies of scale, as well as streamlining the operations, thus potentially lowering production costs. Additionally, it grants flexibility in production scheduling, enabling quicker response times to market fluctuations or sudden shift in demand. Overall, its manufacturing facility offers greater control, agility, and efficiency, ultimately leading to sustained competitiveness in the industry.

Wide product range and customized product offering: Being a Tyre Manufacturer with a wide range of tyre products, the company is able to offer tyres for Original Equipment Manufacturers and cater to their entire Tyre wheel solutions. The company has numbers of sizes of tyres with variants in each of the size. It offers this range of tyres over a majority of Off Highway equipment. The company has a customer centric business model and endeavours to supply customised products that meets its customer’s demands. Customer satisfaction has enabled it to expand its business operations and widen its customer base.

Diverse customer base: The company’s products are being exported to global markets including, USA, UAE, Russia, major European Countries like Belgium, Germany, Netherlands, Hungry, Portugal, Italy, Denmark, Poland besides UK. Through its wholly owned subsidiaries located at Belgium and Dubai it is able to support the customers with continuous supply and effective service. This has reduced its dependency on any single market. Again, in the Indian sub-continent its products go as OEM fitments to all the major manufacturers and it has an excellent after sales market network across majority of states in India.

Risks and concerns  

Maximum revenue comes from limited customers: The company’s business and revenues are substantially dependent on a few clients. Its top 1,3,5,10 clients contributed 26.47%, 49.01%, 55.32% and 65.45% respectively of its aggregate revenues for the financial year ended on July 31, 2024, as per its restated consolidated financial statements. It does not enter into long term contracts with its client and most of the solutions and services provided are project specific and last only up to the completion of the project. Where required, it also provides back-up support services to the engineers and technicians of the client once the project goes on stream or to the next level of activity of the specific project. As its business is currently concentrated with a select number of clients, any adverse development with such customers, including because of any dispute with, or disqualification by such major customer, may result in it experiencing significant reduction in its cash flows. If its clients are able to fulfil their requirements by employing any of its competitors, it may lose a significant portion of its business.

Dependent on few suppliers for supply of raw materials: The company relies significantly on few of its suppliers to furnish the essential components for its products, drawing from both domestic and international markets based on considerations of cost-effectiveness and quality. However, the bulk of its raw material requirements are met by a handful of key suppliers. Its top 1, 3, 5, 10 suppliers contributed 23.09%, 54.25%, 68.63% and 81.51% respectively of its aggregate purchases for the period ended on July 31, 2024, as per its restated consolidated financial statements. While it remains confident in its ability to secure alternative sources of raw materials, if necessary, any disruption in the supply chain from these critical suppliers or any unfavourable changes in procurement terms could impact its operations and financial standing. It prioritizes transparency and strives to keep its investors informed about potential risks, ensuring that it maintains resilience in the face of challenges.

Dependent on subsidiaries for expanding its market share: The company has two wholly owned subsidiaries “Emrald Tyres (Europe)” and “Emrald Middle East FZE”. It relies on its subsidiaries for expanding its market share and business in various jurisdictions for sale of its products, and consequently its revenues, its free cash flows, and other permitted payments. Additionally, a significant dependency on its subsidiaries may have an adverse effect on its financial condition, results of operations and prospects. As its subsidiaries are separate and distinct legal entities, they have no obligation to pay dividends and may be restricted from doing so by law or contract, including applicable laws, charter provisions and the terms of their financing arrangements. It cannot assure that its subsidiaries will generate sufficient profits and cash flows, or otherwise be able to pay dividends to it in the future. In addition, its financial condition may be adversely affected, should they cease to be its subsidiaries.

Outlook

Emerald Tyre Manufacturers specializes in manufacturing, supplying, and servicing a wide range of tyres. The company offers its products under the brand name 'GRECKSTER'. The company's products are being exported to global markets including, the USA, UAE, Russia, and major European Countries like Belgium, Germany, Netherlands, Hungry, Portugal, Italy, Denmark, Poland besides the UK. On the concern side, the company’s business is dependent on a few of its clients who contribute to significant of its revenues from operations. Any loss of business from them may adversely affect its revenues and profitability. 

The company is coming out with a maiden IPO of 51,85,200 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 90-95 per equity share. The aggregate size of the offer is around Rs 46.67 crore to Rs 49.26 crore based on lower and upper price band respectively. On performance front, the revenue from operations of the company for fiscal year 2024 was Rs 17,098.74 lakh against Rs 16,393.95 lakh total income for Fiscal year 2023, an increase of 4.30% in revenue from operations. Profit after tax for the Fiscal 2024 was at Rs 1,214.32 lakh against profit after tax of Rs 892.85 lakh in fiscal 2023, an increase of 36.00% on the back of reduction in consumption of raw materials and increase in selling price and reduction in effective tax rate.

The company has bolstered service efficiency and OEM engagement by establishing wholly owned subsidiaries in Belgium and UAE. Each subsidiary has warehouse facility and sales offices staffed by proficient professionals well-versed in addressing the distinct needs of European, Middle Eastern, and African markets. Through these strategic footholds, Emerald ensures personalized service including delivery to customers, catering to diverse requirements with precision and agility. By leveraging local expertise and infrastructure, they forge stronger connections with OEMs and clientele, cementing their position as a reliable partner capable of meeting the evolving demands of these regions with tailored solutions and unparalleled support. On domestic front, the company is a well-established supplier in the value segment of the OEM market, with a valuable presence in the after-sales market. Many OEMs have consistently chosen to source a significant portion of their tire requirements from it. This enduring partnership highlights its commitment to reliability and quality, which has been nurtured over many years.