Pyramid Technoplast

Industrial Packaging Company

Expanding IBC capacities to around 30,000 IBC units per month

Incorporated in 1997, Pyramid Technoplast is an industrial packaging company engaged in the business of manufacturing polymer based molded products (polymer drums) mainly used by chemical, agrochemical, speciality chemical and pharmaceutical companies for their packaging requirements.

The Promoters of the company are Bijaykumar Agarwal, Jaiprakash Agarwal, Yash Synthetics Private Limited, Credence Financial Consultancy LLP, Pushpa Devi Agarwal and Madhu Devi Agarwal.

It is one of the leading manufacturers of rigid Intermediate bulk containers (IBC) in India manufacturing 1,000 litre capacity IBC. IBCs are industrial-grade containers engineered for the mass handling, transport, and storage of liquids, semi-solids, pastes, or solids. It also manufactures MS Drums made of mild steel (MS) used in the packaging and transport of chemicals, agrochemicals, and speciality chemicals.

The company use blow molding technology to manufacture polymer drums and IBCs. Injection molding technology is used for manufacturing caps, closures, bungs, lids, handles, lugs, etc. for in-house use. Its products are marketed and sold under brand name Pyramid.

The company started commercial production in the year 1998 in Unit I. Presently, it has six strategically situated manufacturing units out of which four are in Bharuch, GIDC, Gujarat and two are situated at Silvassa, UT of Dadra and Nagar Haveli. The seventh manufacturing unit is under construction at the Bharuch, GIDC, Gujarat, adjacent to the existing six units.

The total installed capacity of its polymer drum manufacturing units is 20,612 tonne per annum (tpa). The total installed capacity of its IBC manufacturing unit is 12,820 tpa and the total installed capacity of MS Drums unit is 6,200 tpa. Its product offering in polymer-based packaging by way of drums ranges from 20 litres to 250 litres and IBC which is 1,000 litres. It also has a fleet of 51 trucks which enables on time delivery of its products to customers. These trucks are also used to internal transfer of raw materials and products used for captive consumption between its units thereby streamlining production schedules.

The company intend to continue its focus on IBC by expanding its existing capacity by adding new manufacturing unit (Unit VII) at Bharuch, Gujarat, near its existing manufacturing units. It has already acquired land from GIDC (Gujarat Industrial Development Corporation), Bharuch. The civil construction work for manufacturing Unit VII has been completed. It plans to install two lines of IBC in this new manufacturing unit. The installation of machinery at Unit VII is still in process which is expected to be completed by Q2 of FY2024. It will in aggregate have 4 lines of production of IBC with an aggregate capacity of around 30,000 IBC units per month once the Unit VII is fully operational. Further, it has obtained provisional consent to establish from Gujarat pollution control Board for setting up of Unit VII. Further, it has initiated the process of installing machinery and equipment and has also made an application to Industrial Safety and Health, Bharuch on July 12, 2023, under the Factories Act, 1948, and rules made thereunder to obtain license to run and operate Unit VII and the approval is yet to be received.

Polymer drums formed 51.68% of total revenues in FY2023 while IBC formed 31.94%, MS drums formed 8.83% and others segment (which include sale of raw material, scrap and accessories connected to products) formed 7.55% of total revenues in FY2023.

The company has obtained UN certification for IBC and MS Drums to meet safety levels outlined by United Nations recommendations on the transport of dangerous goods, to transport them safely (by road, rail, sea and air). Its manufacturing units are ISO 9001:2015/ ISO 14001:2015/ISO 45001:2018 certified by quality, environment, health and safety management systems for the manufacture of polymer drums, carboys, jerry cans, IBC & MS drums and accessories connected thereto. Further, its MS Drums meet quality standards as per IS 1783:2014 (Part 1 and 2) laid down by Bureau of Indian Standards.

Key raw materials required by the company for manufacture of its products include polymers, masterbatches, CRCA (cold rolled close annealed steel) coils and GP (galvanized plain) coil. The company procure various types and grades of polymers for manufacture of different products. The main polymers used by it include high density polyethylene (HDPE) of different grades, poly propylene (homo polymer) and poly propylene (co polymer) of different grades. Besides, it also uses low density polyethylene (LDPE), PET (polyethylene terephthalate), ABS (acrylonitrile butadiene styrene), nylon andpolycarbonet. Masterbatches provide colour to the product manufactured using blow molding or injection molding process.

The Offer and the Objects

The offer comprises fresh issue of 5500000 equity shares aggregating up to Rs 91 crore at upper price band of Rs 166 and Rs 83 crore at lower price band of Rs 151 by the company and an offer for sale of up to 3720000 equity shares aggregating Rs 62 crore at the upper price band of Rs 166 and Rs 56 crore at lower price band of Rs 151.

Promoter Credence Financial Consultancy LLP (formerly Credence Financial Consultancy Private Limited) has offered sale of up to 3720000 equity shares which shall led its post-issue shareholding decrease to 9.5% from 23.06% pre issue shareholding.

The company proposes to utilize the net proceeds of the fresh issue towards repayment and/or pre-payment, in full or part, of certain outstanding borrowings availed by the company amounting Rs 40 crore, funding working capital requirements of the company amounting Rs 40.21 crore and balance towards general corporate purposes prepayment. As on July 31, 2023, total borrowings (including loan equivalent LER/hedging exposure limit and letter of credit) amounted to Rs 93.27 crore.

Strengths

The company offers complete bulk industrial packaging solutions to its clients since it manufacturespolymer based bulk packaging drums and IBC, as well as MS Drums for packaging.

The company enjoys long-term relationships with most of its clients and the repeat business from them allows it to have strong visibility on future revenues and a stable client base. It has served more than 376 customers on a regular basis during the past three financial years.

The company has long term relationships with distributors or vendors, both domestic and international, and have multiple vendors for components rather than relying on single sources to de-risk itself from supply chain problems. This also allows it to ensure availability for its raw materials as well as enables it to secure the best possible prices for its products.

The company manufacturing units are situated in the industrial belts of Bharuch, Gujarat and Silvassa, UT (Union territories) of Dadra and Nagar Haveli which are manufacturing hubs for various industries like chemicals, agrochemicals, pharmaceuticals, lubricants, edible oil, etc. Proximity to these industries enables easy accessibility and delivery of products to these industries in these industrial regions. Since, it is a B2B supplier of products, being close to end-user market provides various advantages including lower freight costs and improved customer relationships. Also, the location of units is in proximity to Mumbai and major industrial zones having good connectivity to ports, airports and highways which enhances its capability of supplying products in time and on a cost-effective basis to clients.

The company products undergo stringent quality tests to meet industry standards before they are delivered to clients. It undertakes various strength tests like hydrostatic testing and pneumatic testing on containers for leakages and ruptures, environmental stress cracking resistance test and such other tests. These tests ensure that products meet the industry standards required by clients for safety, durability and environment. It also undertakes met flow index test, which is carried on raw materials like HDPE, HMHDPE (high molecular high-density polyethylene) and master batches to ensure the quality of these raw material. Further, it undertakes tests such as drop test, leakage test and hydraulic pressure test in case of MS Drums.

The company serves clients from diverse industries, such as chemicals, agrochemicals, pharmaceuticals, IBC, and MS drums. This diversification ensures a more stable and resilient business model, as fluctuations in one industry can be balanced out by steady demand from others.

The polymer drums market of India is expected to grow in terms of revenue at CAGR (compounded annual growth rate) of 9.87% from year 2022 to 2030 to Rs 2709.38 crore and the MS Drums market of India is expected to grow in terms of revenue at CAGR of 7.95% from year 2022 to 2030 to Rs 5177.95 crore. The India IBC market of India is expected to grow in terms of revenue at CAGR of 10.56% from year 2022 to 2030 to Rs 89319.02 crore.

The Blue-Sky program of China to realize green GDP has led to the shutdown of several chemical plants in China. This, in turn, is expected to result in higher production and export of several chemicals from India. Further, the Production Linked Incentive (PLI) scheme of the GOI for sectors like pharmaceutical and chemicals would provide new business opportunities to the company as the scheme aims to give companies incentives for incremental sales from products manufactured in domestic units.

The Indian packaging sector will expand significantly. Rising awareness of the need for clean water, safe food, and pharmaceuticals, as well as the adoption of next-generation digital technologies, will aggressively enter and drive the Indian packaging business. The sector is developing at a CAGR of 22% to 25%, according to the Packaging Industry Association of India (PIAI). Furthermore, the Indian Institute of Packaging (IIP) reports that packaging consumption in India has surged 200% over the last decade, going from 4.3 kilograms per person per annum (pppa) in FY2010 to 8.6 kg pppa in FY2020. Despite the high increase over the previous decade, there is substantial space for growth in this sector when compared to other developed areas across the world.

Weaknesses

Plastics products being a global industry face competition from various domestic and international manufacturers and traders.

Polymer including polypropylene and polyethylene is primary raw material consumed by the company for polymer based molded products including IBCandpolymer drums. Polymer is a derivative of crude oil and any substantial increase in price of crude oil or decrease in the supply of polymer could materially adversely affect the business. Further, while importing polymer, it may subject to risks arising from foreign exchange rate movements.

Mild steel (MS) is the primary raw material required to manufacture MS Drums. MS is manufactured by using iron ore and sponge iron and substantial increase in price of iron ore and sponge iron or decrease in the supply of iron ore and sponge iron could materially adversely affect the manufacturing of MS Drums.

The company operates in a labor-intensive industry. Hence it may face labor disruptions and other planned and unplanned outages which could interfere or temporarily disrupt its operations.

The company operation is subject to extensive government regulations and is required to obtain and maintain many statutory and regulatory permits and approvals under central, state, and local government rules in India, generally for carrying out business. Any inability to renew these approvals may have an adverse effect on its operations.

Polymer-based products are widely used by nearly everyone, either in plastic bags, bottles, household items, and many others. This means that a substantial majority of products are being replaced by these polymer products. However, they are posing a threat to the environment by triggering processes including thermal deterioration, oxidation, hydrolysis, photo-oxidation, environmental weathering, the discharge of compounds linked to plastic from rubber and plastics, toxicity of deteriorated polymers, and degradation by-products.

Biopolymers have emerged as a viable alternative to non-biodegradable plastic in food and beverage applications and in a variety of industrial uses. Also, companies are introducing a biopolymer specially developed for extrusion blown molding that can be processed in conventional lines.

Valuation

For FY2023, consolidated sales were up by 20% to Rs 480.03 crore. OPM fell10 bps to 10.4% which led to 18% increase in operating profit to Rs 49.83 crore. Other income decreased 10% to Rs 2 crore while interest cost fell 16% to Rs 4.05 crore and depreciation increased 11% to Rs 4.93 crore. PBT increased 22% to Rs 42.85 crore. Tax expenses were 23% higher at Rs 11.05 crore. Net profit increased 21% to Rs 31.76 crore.

FY2023 EPS on post-issue equity works out to Rs 8.6. At the upper price band of Rs 166, P/E works out to 19.

As of 14August 2023, its listed peers such as Time Technoplast trades at TTM P/E of 26.9, TPL Plastech TTM P/E of 19.9 andMold-Tek Packaging trades at TTM P/E of 40.3.

For FY2023, Pyramid TechnoplastEbitda margin and ROE stood at 10.8% and 29.6% respectively, compared to 13.5% and 9.6% for Time Technoplast, 11.4% and 13.9% for TPL Plastech and18.7% and 14.4% for Mold-Tek Packaging respectively.