Sah Polymers

Highly Priced

Primarily engaged in manufacturing and selling of polypropylene, HDPE FIBC bags, woven sacks, HDPE and PP woven fabrics

Incorporated in April 1992 as Peacock Continental Limited, Sah Polymer is primarily engaged in manufacturing and selling of polypropylene (PP), high density polyethylene (HDPE) FIBC (flexible intermediate bulk containers) bags, woven sacks, HDPE and PP(poly propylene) woven fabrics, based products of different weight, sizes and colours. The company was promoted by Sat Industries Ltd.

The company offer customised 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. Besides, the company is a del credere associate cum consignment stockist (DCA/ CS) of Indian Oil Corporation and also operates as dealer operated polymer warehouse (DOPW) of Indian Oil Corporation for their polymer division. The company enter into arrangements as third-party manufacturers to manufacture tape and fabric based on customers requirements.

The company has has presence in 5 states and 1 union territory for its domestic market while internationally it export products to 14 countries such as Algeria, Togo, Ghana, Poland, Portugal, France, Italy, Dominican Republic, USA, Australia,UAE, Palestine, UK and Ireland. For the three months ended June 30. 2022 and for fiscals 2022, 2021 and 2020, revenue from exports was Rs. 15.58 crore, Rs. 44.39 crore, Rs. 27.52 crore and Rs. 24.92 crore contributing 57.61%, 55.14%, 49.98% and 50.75% respectively of revenue from operations.

The company currently has one ISO 9001:2015 accredited manufacturing facility with installed production capacity of 3960 tonne per annum (tpa) and one processing unit in Udaipur, Rajasthan located over 8000 sq. mtr. and 1500 sq mtr. of land respectively.

The primary raw material used by the company are low density polyethylene, high density polyethylene, PP resin, anti fab/calcium carbonate, UV stabilizers, colour master batch and pigments. The purchase price of raw materials generally follows market prices. It usually do not enter into long-term supply contracts with any of its raw material suppliers. The raw material is purchased in the spot market on the basis of the rates offered by various suppliers. It also procure fabric from regional suppliers near its factory. PP granules are majorly used in manufacturing of fabric whereas LDPE is used to manufacture liners. Liners are manufactured by processing LDPE in liner blown film plant, output of which is then sized as per customer’s requirement in the form fit & sealing machine and then glued with the help of liner gluing machine. These liners can either be directly sold to the client or can be used an intermediate product and used in finishing of FIBC, based on customer requirements. Liners are especially used in FIBC required to handle semi liquid products.

The Offer and the Objects 

The offer comprises fresh issue of 10200000 equity shares at upper price band of Rs 65 aggregating up to Rs 66 crore by the company and Rs 62 crore at lower price band of Rs 61

The company proposes to utilize the net proceeds of the fresh issue towards setting up of a new manufacturing facility to manufacture new variant of flexible intermediate bulk containers (FIBC) amounting Rs 8.17 crore, repayment of certain secured and unsecured borrowings in full availed by the company amounting Rs 19.66 crore, funding the working capital requirements of the company amounting Rs 14.96 crore and balance towards general corporate purposes.

The company current manufacturing facility manufacture a diverse range of HDPE and PP woven sacks and FIBC products with filling capacity of upto 500 KGs (kilo gram)per bag. It intends to manufacture new variant of FIBC products by setting up a new manufacturing facility to manufacture bags with filling capacities of upto 2,500 KGs, with an installed capacity of 3,960 tpa. The proposed project is estimated to commence commercial operations in the financial year 2022-23. The total estimated capital cost of the project is Rs. 33.81 crore out of which Rs 15.71 crore would be met through unsecured loans from holding company and third party, Rs 9.93 crore would be met through term loan and Rs 8.17 crore would be met through net proceeds.

The company had availed channel financing facility of upto Rs. 3 crore from Tata Capital Financial Services Limited via their Sanction Letter dated November 25, 2021. It plans to repay the aforementioned loan out of the net proceeds. As on November 18, 2022, the company had outstanding loan of Rs. 1.97 crore towards the said facility, which is proposed to be repaid out of the net proceeds. Additionally, it had also availed unsecured loans from holding company i.e. Sat Industries and DA Tradetech Private on time to time which are repayable on demand, to meet the capital expenditure for the project and for financing the acquisition of Fibcorp Polyweave Private Limited. As on November 18, 2022, the company had outstanding indebtedness from the aforementioned entities aggregating to Rs. 19.85 crore. The company proposes to repay Rs. 17.69 crore out of the net proceeds towards the outstanding loans of both the companies.

Strengths 

The company has a customer base across industries and geographies both at domestic and overseas market. It follows B2B customer segment catering the packaging requirements of agro pesticides industry, basic drug industry, cement industry, chemical industry, fertilizer industry, food products industry, textile industry, ceramic industry and steel industry. Further domestically it export products to 14 countries such as Algeria, Togo, Ghana, Poland, Portugal, France, Italy,Dominican Republic, USA, Australia,UAE, Palestine, UK and Ireland. In addition to direct sales, domestically it also sell products through commission agents and globally through overseas representatives and merchant exporter. Its customer base across various industries and at varied geographies reduces its dependence on any one industry or location and provides a natural hedge against market instability in a particular industry or location.

The company product mix has evolved over the past several years as it has entered into new product categories. Product portfolio includes FIBC container bag, PP woven fabric & HDPE woven fabric, woven sacks, PP fabric, box bags, fabric rolls, bags for flexible packaging. It engage in manufacturing of products based on the orders of customers to meet their requirements.

The polymers market size is expected to reach US$790 billion by 2027, after growing at a CAGR of 5.5% during 2022-2027.

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 of  2020-2025.Packaging is among the high growth industries in India and growing at around 22-25% per annum and becoming a preferred hub for packaging industry.

Weaknesses 

The company had reported negative cash flows from operations in fiscal 2022 and for three months ended June 2022.

One of its promoter group company, Aeroflex Industries Limited., is appearing in the RBI wilful defaluters list issued by CIBIL in relation to default in payment with respect to various facilities availed by the company in the past.

The company is dependent on a limited number of customers for a significant portion of its revenues. Revenues generated from sales to its top 10 customers was Rs. 17.58 crore, Rs. 53.92 crore, Rs. 3.44 crore and Rs. 36.80 crore which represented 61.72%, 65.83%, 66.57%, and 79.06% of its revenue from operations during the three months period ended June 30,2022, fiscal 2022, fiscal 2021 and fiscal 2020 respectively.

The industry segments in which it operate is fragmented and the company face competition from other large and small players, which may affect its business operations and financial conditions.

The company requires significant amounts of working capital and significant portion of its working capital is consumed in trade receivables and inventories.

The company require a number of approvals, NOCs, licences, registrations and permits for setting up new manufacturing unit as well as in the ordinary course for existing business and any failure to obtain the same will adversely affect operations, business and profitability.

Group Company, Italica Furniture Private limited and Fibcorp Polyweave Private Limited, its subsidiary is carrying on business activities similar to company business. This may be a potential source of conflict of interest and which may have an adverse effect on business, financial condition and results of operations.

The company business operations are subject to hazards such as risk of equipment failure, work accidents, fire or explosion and require individuals to work under potentially dangerous circumstances.

Introduction of alternative packaging materials caused by changes in technology or consumer preferences may affect demand for its existing products which may adversely affect financial results and business prospects.

There is an increased awareness towards controlling pollution and many economies including India who have joined in the efforts to ban plastic product. In case any plastic packaging products manufactured by the company are banned in India or in any of the markets where it export its products, it could have a material and adverse effect on business and results of operations.

Valuation 

For FY 2022, consolidated sales were up by 46% to Rs 80.51 crore. The OPM rose 320 bps to 8.7%, which led to 132% increase in operating profit to Rs 7.01 crore. Other income increased 164% to Rs 0.72 crore while interest cost rose 42% to Rs 1.24 crore and depreciation increased 25% to Rs 1.01 crore. PBT increased 239% to Rs 5.49 crore. Tax expenses were 219% higher at Rs 1.12 crore. Net profit increased 244% to Rs 4.38 crore.

For three months of April- June 2022, consolidated sales were Rs 27.22 crore. The OPM was 7.3% which led to operating profit of Rs 1.99 crore. Other income was Rs 37 lakh, while interest cost was Rs 36 lakh and depreciation Rs 28 lakh. PBT stood at Rs 1.72 crore. Tax expenses were Rs 47 lakh. Net profit stood at Rs 1.25 crore.

The EPS on post-issue equity works out to Rs 1.7. At the upper price band of Rs 65, PE works out to 38.3.

As of 28 December 2022, its listed peers such as Rishi Techtex trades at PE of 14.5 times of their consolidated FY2022 EPS, Jumbo Bag at 17.8 times, SMVD Poly Pack at 15.4 times, EMMBI Industries at 8.9 times, and Commercial Syn Bags at 19 times. 

For FY2022, Sah Polymers PBIDT and ROE stood at 9.6% and 16.4% respectively, compared to 6.3% and 17.8% for Rishi Techtex, 7.5% and 3.4% for Jumbo Bag, 8.1% and 4.7% for SMVD Poly Pack, 11.3% and 12.4% for EMMBI Industries and 10.9% and 0.2% for Commercial Syn Bags, respectively.