Sah Polymers IPO: Here's all you need to know about its financials

The initial public offering (IPO) of Sah Polymers Ltd kicked off on December 30, 2022. The issue is open for subscription until Wednesday, January 04. The IPO consists of a fresh issue of equity shares aggregating to ₹66.3 crore.

The public offering consists of a new issue of up to 1.02 crore equity shares with a face value of Rs. 10. There is no offer for sale.

The price band for the issue has been set at ₹61–65 per share. Investors can bid for a minimum of 230 equity shares and in multiples of 230 equity shares thereafter. At the upper end of the price band, a single lot of shares would cost ₹14,950.

The net offer will be reserved for qualified institutional buyers at 54.55% of the total offer size, non-institutional investors at 27.7%, and retail investors at 18.18%.

Meanwhile, Sah Polymers' IPO received a healthy response from investors, as it got subscribed 5.35 times on the third day of subscription on Tuesday.

The public issue was subscribed 86 percent on Day 1, while on Day 2, the issue was subscribed 2.37 times.

Retail investors bought 16.53 times more than the allotted shares. Non-institutional investors bid for 6.49 times while qualified institutional buyers bought 1.05 times more than the reserved quota.

About Company

Sah Polymers is primarily engaged in the manufacturing and selling of Polypropylene (PP)/High-Density Polyethylene (HDPE) FIBC bags, Woven Sacks, HDPE/PP woven fabrics of different weights, sizes, and colours as per customers' specifications.

The company offers customized bulk packaging solutions to business-to-business ("B2B") manufacturers catering to different industries such as Agro Pesticides Industry, Basic Drug Industry, Cement Industry, Chemical Industry, Fertilizer Industry, Food Products Industry, Textile Industry Ceramic Industry and Steel Industry.

Sah Polymers has two business divisions: domestic sales and exports. It has a presence in 5 states and 1 union territory. Internationally, the company exports its products to 14 countries.

Currently, the company has one manufacturing facility with an installed production capacity of 3960 mtpa located in Udaipur, Rajasthan. Further, the company plans to establish a new facility with an additional installed capacity of 3960 mtpa to manufacture different variants of FIBC products.

The company is promoted by SAT Industries Limited, a listed company. Currently, the promoters hold 91.79% of the pre-issue issued, subscribed, and paid-up equity share capital.

Industry Overview

The India packaging market was valued at USD 50.5 billion in 2019, and it is expected to reach USD 204.81 billion by 2025, registering a CAGR of 26.7% during the period 2020–2025.

Packaging is among the high-growth industries in India, and developing at a rate of 22–25% per annum and becoming a preferred hub for the packaging industry. Currently the 5th largest sector of India's economy, the industry has reported steady growth over the past several years and shows high potential for expansion, particularly in the export market.

The costs of processing and packaging food can be up to 40% lower than in parts of Europe, which, combined with India's resources of skilled labour, make it an attractive venue for investment.

According to the Packaging Industry Association of India, the India packaging market was worth $ 10.77 billion in 2021 and is expected to reach $ 15.69 billion by 2027, growing at a CAGR of 6.63% between 2022 and 2027.

Competitive advantage

The company gained a competitive advantage due to its recent acquisition of Fibcorp Polyweave Private Limited on January 5, 2022, which will leverage to generate incremental synergies.

"We intend to apply a selective and disciplined acquisition strategy that focuses on enhancing our scale, product diversity and geographic reach, while bolstering our financial performance through synergies and additional cash generation," the company said.

Sah Polymers competes with both large and small, organized businesses, as well as smaller, regionally based competitors. "Some of our competitors may have greater resources than those available to us. "While product quality, brand value, timely delivery, customer network, etc. are key factors in customer decisions among competitors," the company said in an RHP filing.

Among listed companies of similar size and product portfolio in India, the company faces competition from Kanpur Plastipack, Rishi Techtex, Jumbo Bag, SMVD Polypack, EMMBI Industries, and Commercial Syn. Bags.

Objective of the issue

Sah Polymers proposes to use the net proceeds towards setting up of a new FIBC production unit, the repayment of certain secured and unsecured borrowings; and funding the working capital requirements.

Financials

For FY22, the company posted a net profit of ₹4.38 crore, a jump of 244% compared to a net profit of ₹1.27 crore in FY21. The revenue from operations in FY22 came in at ₹80.51 crore, a growth of 46.19% compared to a revenue of ₹55.07 crore in FY21.

In Q1 FY23, Sah Polymers reported a net profit of ₹1.25 crore, with a revenue from operations of ₹27.22 crore.

For the three months that ended June 30, 2022, and for Fiscals 2022, 2021, and 2020, the company revenue from exports was Rs. 15.58 crore, Rs. 44.39 crore, Rs. 27.52 crore, and Rs. 24.92 crore, which contributed 57.61%, 55.14%, 49.98%, and 50.75% respectively of its revenue from operations.

Brokerage views

Marwadi Financial Services recommends a "subscribe" rating for the IPO. The company has a diversified product portfolio with a customer base across geographies and industries, the brokerage added.

Considering the FY22 adjusted EPS of Rs. 1.70 on a post-issue basis, the company is going to list at a P/E of 38.32x with a market cap of Rs. 1,677 million, while its peers, namely Rishi Techtex Ltd., Jumbo Bag Ltd., SMVD Poly Pack Ltd., EMMBI Industries Ltd., and Commercial Syn Bags Ltd., are trading at a P/E of 14.91x, 6.24x, 14.86x, 10.15x, and 25.89x, respectively, the brokerage highlighted.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.