SAH Polymers Ltd IPO

Published by Sharekhan Education | December 31, 2022

Amit Pathak | Sharekhan Education

SAH Polymers Ltd IPO details:

Issue size: ₹ 62-66 Cr
Price Band: ₹ 61-65
Issue opens on: Friday, 30th Dec’2022
Issue closes on: Tuesday, 4th Jan’2023

SAH Polymers Ltd Company Overview:

SAH Polymers is primarily engaged in manufacturing and selling of Polypropylene (PP)/ High Density Polyethylene (HDPE) Bags, Woven sacks and fabrics. They offer bulk packaging solutions to B2B manufacturers catering to industries such as Agro Pesticides, Basic Drug, Cement, Chemical, Fertilizer, Food Products, Textile, Ceramic and Steel Industry. It enters into arrangements as third-party manufacturers to manufacture their tape and fabric based on customers’ requirements. It is an ISO 9001:2015 certified company.

Objectives of the Issue:

The IPO is a fresh issue of equity shares aggregating to Rs 66 crore. The company will use the proceeds from the fresh issue for funding working capital requirements, setting up of a new manufacturing facility and repayment of debt.  The investor has to make minimum application  for 230 shares and in multiples thereafter. Post allotment, the company will list shares on BSE and NSE. Listing of the equity shares will result in the enhancement of brand name.

Industry Overview:

Manufacturers produce polymers from small molecules called monomers. Polymers are essentially used in the manufacturing of various plastic products. Business experts expect the Polymers market size to grow at a CAGR of 5.5% during the period 2022-27 and reach $790 billion by 2027. The global polystyrene market size is expected to grow from $28.4 billion in 2021 to $30.7 billion in 2022 at a CAGR of 8.1%. India’s Polystyrene market demand stood at 0.34 million tonnes in FY21 and is forecasted to reach 0.52 million tonnes by FY30.

Business Strategy:

SAH Polymers is setting up a new manufacturing facility to widen the product portfolio and increase their capacity. They intend to increase their customer network in existing markets and enter new geographical markets both domestically and abroad. The company is carefully evaluating inorganic opportunities to grow. They intend to apply a selective acquisition strategy that focuses on economies of scale, product diversity, and geographic reach.

Key Concerns:

They face customer concentration risk to an extent. Revenues generated from sales to top 10 customers accounted for 60-70% of their revenue from operations over last few years. Two of its group companies have interests in similar line of business. A group company Aeroflex Industries Ltd. is appearing in the willful defaulter’s list of RBI. The business is working capital intensive. The company consumes a sizable portion of working capital  in trade receivables and inventories.

Financials:

The topline of the company has grown at a CAGR of 27.7% over FY20-22. EBITDA margins have expanded from 5.2% to 9.5% in the same period. RoE has increased from 1.5% to 16.4%. Debt/Equity ratio has increased significantly from 0.5 to 1.1. In terms of valuations, the P/E works out to be 23.2x FY22 EPS (at the upper end of the price band).

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