Mamata Machinery coming with IPO to raise upto Rs 179.39 crore

Mamata Machinery

• Mamata Machinery is coming out with a 100% book building; initial public offering (IPO) of 73,82,340 shares of Rs 10 each in a price band Rs 230-243 per equity share.
• Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
• The issue will open for subscription on December 19, 2024 and will close on December 23, 2024.
• The shares will be listed on BSE as well as NSE.
• The face value of the share is Rs 10 and is priced 23.00 times of its face value on the lower side and 24.30 times on the higher side.
• Book running lead manager to the issue is Beeline Capital Advisors.
• Compliance Officer for the issue is Madhuri Sharma.

Profile of the company

Mamata Machinery manufactures and exports plastic bags and pouch making machines, packaging machines and extrusion equipment. It provides end-to-end manufacturing solutions for the packaging industry. Products manufactured using its machines are used across several industries as packaging applications, such as the packing of food and FMCG products. It primarily sells its packaging machinery to direct consumer brands catering to the FMCG, Food, & Beverage Industry and bag and pouch making machines to convertors and service providers who, in turn, mainly catering the FMCG and consumer industry. The company’s machineries are also utilised in non-packaging applications, such as e-commerce bags and garment packaging bags. It consistently endeavour to expand its product offerings and solutions to its customers. The company also provides after-sales service to its customers. As part of its focus on innovation, it has launched new and advanced machines from time to time.

The company operates two machine manufacturing facilities, one in India and one in the USA. In India, its manufacturing facility is located on Sarkhej - Bavla Highway, Sanand, Ahmedabad, Gujarat, with a total area of about 20,662 square meters and an in-house electronic department, demo/exhibition centre and a fully equipped paint shop. Its manufacturing facility in the USA is located in Bradenton, Florida, and it focuses on product applications, design and development of machines, and customisation of the machines sold in the USA. It offers a complete range of multilayer blown film plants, from mono layer, three, five and seven layers. 

The company’s operations are supported by its manufacturing technology training centre, where it train individuals to cater to its internal requirements for a skilled workforce. Customers have consistently recognized it for the high quality of the products it supplies. Further, its manufacturing facility at Sarkhej - Bavla Highway, Sanand, Ahmedabad, Gujarat, is also certified for international quality management systems ISO 9001:2015 for the design, manufacture, installation and service of (i) Plastic bag-making machines & their attachments; (ii) Pouch making machines & their attachments; and (iii) Sachet packaging machines & their attachments, which ensures high-quality standards are maintained. 

Proceed is being used for:

• Carrying out the Offer for Sale of Equity Shares by the Selling Shareholders
• Achieving the benefits of listing the Equity Shares on the Stock Exchanges

Industry Overview

The Indian packaging sector, witnessing significant growth, benefits from its presence across various industrial segments and the evolving trade landscape, including the rise of e-commerce and organized retailing. The demand for secure packaging solutions has surged with the growth of e-commerce, emphasizing the crucial role of packaging in preserving product integrity during transit, supported by robust logistics and distribution networks. The packaging industry is one of the largest economic sectors in the country, and it is estimated that Indian packaging industry accounts for approximately 10 to 15% of the global packaging industry. The India Packaging Market, valued at $50.5 billion in 2019, is estimated to have reached $130.14 billion by 2023, experiencing a compounded annual growth rate of 26.7% from 2019 to 2023. This reflects the robust growth of the packaging sector in India, expanding at a rate of 23-28% annually and establishing itself as a preferred hub for the packaging industry.

Meanwhile, the Indian packaging machinery sector is undergoing significant growth, driven by increased demand from diverse industries and advancements in technology. Packaging machinery is the backbone of modern packaging, ensuring efficiency, productivity, and the delivery of high-quality packaging solutions. With the rapid growth of industries in India, the demand for innovative and reliable packaging solutions has surged. To meet this demand, several packaging machine manufacturers in India have emerged, offering state-of-the-art machinery that streamlines packaging processes and enhances productivity. This industry is shaped by factors such as industry expansion, technological advancements, and a growing emphasis on sustainable packaging practices. The packaging machinery segment can be categorized in two types: By Product Type or by End user industry. 

The Indian economy is experiencing robust growth, fuelled by increasing consumption patterns across various sectors. Supported by rising income level and changing lifestyle, there is noticeable uptick in consumer spending that is significantly contributing to the country's economic expansion. Against this backdrop, key industries are experiencing remarkable growth. The e-commerce sector, boasting a Gross Merchandise Value surpassing approximately $55 billion in 2022, is projected to achieve an annual Gross Merchandise Value of $350 billion by 2030. Simultaneously, the food and beverage industry, constituting approximately 3% of India's GDP, is on a trajectory to reach $505 billion by 2027 from $322 billion in the year 2022. Further, other key user segments such as FMCG and Pharma are also expected to benefit from the growth in the economy. The expansive growth in these industries inherently leads to an increased demand for packaging. E-commerce relies heavily on efficient packaging for the safe delivery of products. The food and beverage sector requires innovative and secure packaging solutions to meet consumer expectations. Similarly, the FMCG and pharmaceutical industries necessitate reliable packaging to preserve product integrity and ensure safety. Thus, the packaging industry is expected to rise to nearly $209 billion by 2025.

Pros and strengths

Among the leading exporter of machinery and equipment for bag and pouch making machinery: With over three decades of presence with strong customer connect and installations of over 4,500 machineries globally, the company is one of the leading exporters of machinery and equipment used in the production of plastic bag and pouches. Its comprehensive product offering covering polymer processing using co-extrusion blown films machineries and film converting machineries, pouch and bag making machineries and attachments. It also makes HFFS, PFS, VFFS multilayer sachet machineries for smaller volume requirements. In each vertical, it offers verity of machines such as side/bottom seal, universal, wicketer, stand-up zipper/spout, side seal pouch makers machines and extensive range of attachments for value added bags under bag and pouch making machinery Vertical.

Advanced manufacturing infrastructure: The company owns and operates a machine manufacturing facility in Sarkhej - Bavla Highway, Sanand, Ahmedabad, Gujarat, with a total area of about 20,662 square meters, and a total built up area of over 9,235 square meters, in addition to a manufacturing facility in Bradenton, Florida, USA. Its manufacturing facilities include customer demonstration centres, design and development centres, electrical manufacturing capabilities, painting, assembly and testing capabilities. Its manufacturing facility at Sarkhej - Bavla Highway, Sanand, Ahmedabad, Gujarat also certified for international quality management systems ISO 9001:2015 for design, manufacture, installation and service of (i) Plastic bag making machines & their attachments; (ii) Pouch making machines & their attachments; and (iii) packaging machines & their attachments, which ensures high quality standards are maintained.

Technology-driven operations with a strong focus on quality and innovation-led research: The company leverages technology to drive its business operations. It is a technology-driven company with a strong focus on quality, product designing and new product development that has allowed it to develop products suited to ever-changing market requirements. It has developed in-house capabilities to deliver evolving technologies, and continue to invest in design and development. Its in-house development focusses on innovation and meeting emerging customer needs and it continuously aims to develop and improve digitisation of its machinery with Industrial Excellence. Electronic systems used for manufacturing its machines are designed and validated in its in?house electronics lab located in Sarkhej - Bavla Highway, Sanand, Ahmedabad, Gujarat. Software and coding required for controlling the machines are developed in-house at its manufacturing facility. Its manufacturing facility is equipped with modern testing infrastructure and software to support development efforts. With a strong focus on quality, innovation-led research and development, it is able to offer industry 4.0 certified machines category recognised for significant advancements in machine learning.

Customer-centric operations, with an extensive global sales and distribution network: As of September 30, 2024, the company has a customer base in over 75 countries comprising both end customer brands and conversion players. It sells its products in India and overseas through its sales team as well as selling agents. Its network in these locations allows it to service and grow in these markets efficiently. In addition to its domestic sales, since its first export in 1992, it has significantly increased its geographical footprint by focusing on certain emerging markets such as Asia Pacific, USA, European Union amongst others. Further, it has a sales office at its registered office, which also performs sales and marketing functions in India and all other jurisdictions except the American Continent. It has pre-sales, after-sales service and product application centres in Bradenton, Florida, USA.

Risks and concerns

Significant revenue comes from limited customers: The company relies and will continue to be reliant on its top 10 customers for a substantial portion of its revenue. The company has garnered 31.69%, 30.00% and 30.59% of its total revenue from top 10 customers in FY24, FY23 and FY22 respectively. The loss of any of its top 10 customers (in particular its largest customer) for any reason including due to loss of, or failure to renew existing arrangements; limitation to meet any change in quality specification, change in technology; regulatory changes, disputes with a customer; adverse changes in the financial condition of its customers, such as possible bankruptcy or liquidation or other financial hardship or a reduction in the demand for its products by any of its top customers could have a material adverse effect on its business, results of operations and financial condition.

Majority of its business comes from export business: The company generates majority of its revenues form export business. During the period ended on June 30, 2024, Fiscal 2024, Fiscal 2023 and Fiscal 2022, its revenues from its exports to United States constituted 1.08%, 19.20%, 22.96% and 19.88% respectively, of its total revenues from operations. Owing to the nature of its revenue from the export business, it is subject to risks in connection with compliance with the laws of countries where it exports its products to, restrictions on the import and export of certain intermediates, multiple tax and cost structures, cultural and language factors, among others. Any decline in its exports business due to any of these factors could adversely affect its business, financial condition, cash flows, and results of operations.

Revenue is dependent on the bag and pouch making machines segment: A large portion of its revenue was derived from its bag and pouch making machine segment. The company has garnered 63.41%, 60.51% and 66.82% of its total revenue from Bag and Pouch making machines in FY24, FY23 and FY22 respectively. The company’s revenues from sales of products in the bag and pouch making machine segment may decline as a result of increased competition, regulatory action, pricing pressures or fluctuations in the demand for or supply of its products, and other factors beyond its control. If market growth in the bag and pouch making machine segment decreases, market acceptance for its competitors’ products in these bag and pouch making machine segment increases and results in substitution, or it has to lower the prices of its products in these bag and pouch making machine segment, its revenue and/or profit margins may decline. This could adversely affect its business, financial condition, results of operations and cash flows. 

Stiff competition: The industry is competitive, and the competition will continue to increase. Its competitors include a number of organized and unorganized players. Consumers who purchase its products through it have other alternatives, and sellers have other channels to reach consumers. The company’s competitors may offer products that it does not offer and which may be more attractive and devote more resources to marketing and promotional campaigns. In addition, competitors may innovate faster and more efficiently, and new technologies may increase competitive pressures by enabling competitors to offer more efficient or lower-cost products direct to the consumer. If it is unable to change its offerings in ways that reflect the changing demands its business, financial condition, cash flows and results of operations would be adversely affected.

Outlook

Mamata Machinery manufactures and exports machines for making plastic bags, pouches, packaging, and extrusion equipment. The company provides manufacturing solutions for the packaging industry. It is a major exporter of machinery and equipment for bag and pouch making, packaging, and co-extrusion blown film machinery and attachments. On the concern side, the company derives a significant portion of its revenue from operations from its top ten customers which represented an average of 30.76% for the previous three Fiscals. Loss of any of these customers or a reduction in purchases by any of them could adversely affect its business, results of operations and financial condition. Moreover, its revenue from operations from sales located outside India represented 70.42%, 65.28%, 71.52% and 66.13% for three-month period ended June 30, 2024 and Fiscal 2024, Fiscal 2023 and Fiscal 2022 respectively. Any disruptions in its export business could adversely affect its business, financial condition, cash flows, and results of operations.

The company is coming out with a maiden IPO of 73,82,340 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 230-243 per equity share. The aggregate size of the offer is around Rs 169.79 crore to Rs 179.39 crore based on lower and upper price band respectively. On performance front, the company’s revenue from operations increased by 17.80% from Rs 2,008.64 million in Fiscal 2023 to Rs 2,366.12 million in Fiscal 2024, primarily due to an increase in the sale of products by 16.65% from Rs 1,945.29 million in Fiscal 2023 to Rs 2,269.16 million in Fiscal 2024. The company’s profit for the year for Fiscal 2024 increased by 60.52% from Rs 225.05 million to Rs 361.25 million for Fiscal 2024. In comparison of total income Profit for the Year increased from 10.71% of total income in Fiscal 2023 to 14.97% of total income in Fiscal 2024.

The company is exporting packaging machines to USA only and intend to sell these machines to other geographies such as Europe, Africa and Middle East. It intends to increase its market share in international markets by focusing on increasing its exports, through sales of bag and pouch making machines, packaging machines and co-extrusion blown film machines in international market. Focus on export sales will enable it to improve its margins further. Going forward, the company is planning to invest in backward integration to improve on manufacturing efficiency and reduce input cost. It is planning to set up a captive unit to fabricate and manufacture frames for its machines. Its manufacturing facility will be equipped with CNC laser cutting machines, bending and welding machines. The manufacturing facility once operational will improve its manufacturing efficiency and reduce delivery time.