Jainam Ferro Alloys (I) coming with an IPO to raise up to Rs 20 crore

Jainam Ferro Alloys (I)

• Jainam Ferro Alloys (I) is coming out with an initial public offering (IPO) of 28,02,000 Equity Shares of face value of Rs 10 each for cash at a fixed price of Rs 70 per equity share.
• The issue will open on September 28, 2021 and will close on September 30, 2021.
• The shares will be listed on the Emerge platform of NSE.
• The share is priced 7 times higher to its face value of Rs 10.
• Book running lead manager to the issue is Hem Securities.
• Compliance Officer for the issue is Aakash Agrawal.

Profile of the company

The company was originally incorporated as Jainam Infraways in March 2014. It is currently manufacturing two types of Ferro Alloys namely, Ferro Manganese (FeMn) and Silico-manganese (SiMn). Both the alloys are largely used in Steel industry. Ferro-manganese adds strength, toughness and other properties to steel. Silico manganese provides additional silicon which is a stronger De-oxidant in manufacturing steel. The company also generates revenue from its trading activities of manganese ore, used as a raw material in manufacturing Ferro alloys.  

The company started commercial production of Ferro alloys of the different grades with one furnace having designed capacity of 9 MVA with 5000 KVA power load. In June 2017, the company started another furnace having designed capacity of 6 MVA with 4000 KVA power load for the same manufacturing activity. The products manufactured by the company are primarily used in manufacturing of steel and in foundry activities. It is used as an alloying element which enhances some key physical properties of steel like elasticity, ultimate tensile, strength and toughness etc.

Sometimes addition of some elements in the form of alloys is done deliberately to liquid steel for developing abrasion resistance, wearresistance and corrosion resistance properties. Apart from using manganese alloys for alloying the steel, they are also widely used for deoxidizing, desulphurization & refining of steel. Phosphorus and other elements can also be controlled depending on customer specification. Smaller quantities of alloys are used as reductant in order to produce other metals. Besides their use in plain carbon steel and alloy steel plants, Ferro alloys are consumed by the foundries and electrode industries. A very specific application of refined manganese alloys is a constituent in the coating of welding electrodes. In ceramic industries, manganese alloys are used in small quantities.

Proceed is being used for:

• Meeting working capital requirements.
• General corporate purpose.
• Meeting offer related expenses.

Industry overview

Ferro-alloys are one of the important inputs in the manufacture of alloys and special steel. They impart special properties to steel. The alloys provide increased resistance to corrosion, improves hardness and tensile strength at high temperature, gives wear and abrasion resistance and increases creep strength, etc. The growth of Ferro-alloys Industry is, thus, linked with the development of the Iron and Steel Industry, Foundry Industry and to some extent Electrode Industry. The principal ferroalloys are chromium, manganese and silicon. The product series consists mainly of ferro-manganese, silico-manganese, ferro-silicon and ferro-chrome. Ferro-alloys are classified into two main categories, viz, bulk ferro-alloys and noble ferroalloys. Owing to high cost of power, Ferro-alloys Industry has not been operating to its full capacity in India. The Electricity cost accounts over 40 % to 70 % of total cost of production, depending on the Ferro Alloys produced. At present, major portion of the ferro-alloys produced is exported. Ferro-manganese, silicomanganese, ferro-silicon, high carbon ferro-chrome and charge-chrome are exported after meeting the domestic requirements. India has sufficient highly skilled technical manpower and the latest equipment technology for production of ferro-alloys.

Depending on the process of steel making and the type of steel being manufactured, the requirement of different ferroalloys varies widely. Indian Ferroalloys Industry has immense potential and capability to compete in the international market. On the positive side, India produces some of the finest ferroalloys in the world. Indian ferroalloys are extensively preferred in Europe. India exports potential is indeed bright with very high growth prospects. As per the steelworld report, ferroalloys Industry is estimated to grow at a CAGR of 5.9% between 2017 to 2025 and is expected to reach a valuation of $188.7 billion by 2025. India is expected to show strong growth in usage of steel in the coming years because of its robust economy, massive infrastructure needs and expansion of industrial production. India is expected to become one of the leading steel consuming nations in the next decade. In this scenario, the Ferroalloys Industry estimates that the consumption of ferroalloys will increase domestically and internationally in the coming years. Some of the Ferroalloy Producers have already gone for expansion and some new units are coming up. As per the National Steel Policy, 2017, Ferroalloy is a power intensive industry. Hence, captive power generation in the ferroalloys plants will be extensively supported. Since the demand for ferroalloys is likely to grow along with steel production in the country, the Industry would have to be encouraged to set up larger units to achieve adequate economies of scale. Efforts in the direction of providing necessary raw materials linkages and stable supply of power to the Ferroalloy units must be rendered priority.

Pros and strengths

Technical expertise and operational excellence: The company has experienced employees having technical and commercial backgrounds. The company feels that the strength of any successful organization lies in the experience and guidance of its team leaders and staff alike. A lot of care is taken in choosing the right people for the right job. Its management has gained efficiency in the application of marketing and distribution initiatives in this sector. Thus the whole team of the company has been instrumental in the growth of company’s sustainability. Its attention to process optimization to achieve the highest safety and quality has resulted in a culture of operational excellence. The strategic location of its factory facilitates with proper transportation of raw material and dispatch of finished goods, availability of power, fuel, water and other utilities.

Strategic location of manufacturing unit: The company’s manufacturing facility is located in Urla Industrial Area, Raipur. Being strategically located, it gets easy access to labors having experience in ferro alloy industry as well as local raw material supplies. Its Plant is has good connectivity to raods which facilitates ease transportation of raw material and finished goods. Due to aforesaid reasons, the location of its manufacturing unit brings cost efficiencies in procurement of manpower and raw material and also reduce logistic cost which helps it to achieve economies of scale.

Strong & long-term relationship with clients: The company maintain long terms relationships with its key customers by providing quality products as per their requirements and specifications. Its long standing partnerships with its customers are also built on its successful execution of prior orders. Its track record of timely delivery of quality products has helped in forging strong relationships with its customers.

Risks and concerns

High working capital requirements: The company’s business requires significant amount of working capital and major portion of its working capital is utilized towards debtors, inventories, security deposits and cash and cash equivalents. It has been sanctioned financing facilities of Rs 6100 lakh (including Fund and Non-Fund based limits of Cash Credit, Bank Guarantee, Buyers Credit and LCBD) from Kotak Mahindra Bank and State Bank of India. Its inability to maintain sufficient cash flow, credit facility and other sources of funding, in a timely manner, or at all, to meet the requirement of working capital or pay out debts, could adversely affect its financial condition and result of its operations. Further, it has high outstanding amount due from its debtors which may result in a high risk in case of non-payment by these debtors. In case of any such defaults from its debtors, it may affect its business operations and financials.

Dependent on continuing relationships with customer: The products of the company are used in manufacturing of steel and in foundry activities. Though it has had repeat orders from customers and has developed relationships with certain customers, it does not typically enter into long-term contracts with its customers. In the absence of long-term contracts, there can be no assurance that its existing customers will continue to purchase its products that may have a material adverse effect on its business, results of operations and financial condition. It is also exposed to risks of lower sales volume or lower price realization on such volumes depending on prevailing market conditions. The company has had long standing business relationships with certain customers and has been supplying its products to such customers, for several years. However, it has not entered into any contracts with any of its customers and it cater to them on an order-by-order basis.

Face competition: India is the company’s primary market and it face competition in its business from local as well as nationwide manufacturers of ferro alloys. The products that it sells are of industrial nature, i.e. there are a large number of players manufacturing same or similar products. Thus, competition in these markets is based primarily on demand and price. As a result, to remain competitive in its market, it must continuously strive to reduce its procurement, transportation and distribution costs, improve its operating efficiencies and secure its materials requirements. If it fail to do so, other manufacturers and suppliers of similar products may be able to sell their products at prices lower than its prices, which would have an adverse effect on its market share and results of operations.

Outlook

Jainam Ferro Alloys (I) has been engaged in the manufacturing of two types of Ferro Alloys - Ferro Manganese (FeMn) and Silico manganese (SiMn), largely used in the Steel industry. The company also generates revenue from its trading activities of manganese ore, used as a raw material in the manufacturing of Ferro alloys. The company is dedicated towards quality of its products, processes and input raw material. The company had been accredited with “ISO 9001:2015” Certification for Quality Management System and “ISO 14001:2015” Certification for Environmental Management System for Manufacturing of Ferro Alloys such as Ferro Manganese & Silico Manganese. It adhere to quality standards as prescribed by its customers to meet the desired chemical composition; hence it gets repetitive orders from its buyers. Delivering Quality products on time is one of its prime objective. On the concern side, the company’s business is dependent upon its ability to manage its manufacturing facilities, which are subject to various operating risks, including those beyond its control, such as the breakdown and failure of equipment or industrial accidents and severe weather conditions and natural disasters. Any significant malfunction or breakdown of its machinery may entail significant repair and maintenance costs and cause delays in its operations. The company’s factory has significant electricity requirements and any interruption in power supply to its factory may disrupt its operations.

The company is coming out with a maiden IPO of 28,02,000 equity shares of Rs 10 each at a fixed price of Rs 70 per equity share to mobilize Rs 19.61 crore. On the performance front, total income for the financial year 2020-21 stood at Rs 10,251.73 lakh whereas in Financial Year 2019-2020 the same stood at Rs 12,233.62 lakh representing a decrease of 16.20%. The company reported Restated profit after tax for the financial year 2020-21 of Rs 311.77 lakh in comparison to Rs 86.41 lakh in the financial year 2019-20. The company's strategy is to operate the business in an efficient & effective way so as to supply quality products that satisfy its customer's needs and add value to its business. The focus of the company will be to increase the contribution on the products by reducing the cost of production, control over logistics and command high prices through gradual shifting to value added products and to ensure long term sustainability of the company. It intends to cater to the increasing demand of its existing customers and also to increase its existing customer base by enhancing the distribution reach of its products in different parts of the country.