Baheti Recycling Industries coming with an IPO to raise Rs 12.42 crore

Baheti Recycling Industries

• Baheti Recycling Industries is coming out with an initial public offering (IPO) of 27,60,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 45 per equity share.
  
• The issue will open for subscription on November 28, 2022 and will close on November 30, 2022.
  
• The shares will be listed on NSE Emerge Platform.
  
• The share is priced 4.50 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 Mansi Harsh Darji.
  

Profile of the company

Incorporated in 1994, the company is an aluminium recycling Company, primarily engaged in processing aluminium based metal scrap to manufacture aluminium alloys in the form of ingots and aluminium de-ox alloys in the form of cubes, ingots, shots and notch bar. The versatile properties of aluminium and its alloys, results in it being used in various industries, which include automobiles, construction, electrical transmission application, food packaging etc. Aluminium alloys are used in automobiles components due to its stiffness, corrosion resistance and excellent strength to weight ratio. The Aluminium de-ox alloys are used as deoxidizer in steel manufacturing units.

It is a customer centric company, constantly striving to create value for its customers through products offered and committed deliveries. It primarily caters to the automotive parts and steel sector in India. Some of its esteemed customers includes ArcelorMittal Nippon Steel India, Tata Steel, Minda Corporation, Sigma Electric, Sunflag Iron & Steel Co. Ltd. etc. Currently, it markets its products to around 12 states & Union Territories in India of which majority portion of the revenue comes from the state of Gujarat, Maharashtra, Orissa and Jharkhand. The company also sells its products to the foreign buyers located in Japan, Canada, USA, China, Hong Kong, UAE, Taiwan etc. The company exports these products at the preferred location of the buyer, which is either the consignee’s country or buyer’s country. The company is also engaged in trading of scrap materials such as aluminium scrap, brass scrap, copper scrap, zinc scrap etc.

Proceed is being used for:

• Modernization and expansion of existing manufacturing unit.
  
• Meeting Working Capital requirements.
  
• General Corporate Purpose.
  
• Meeting issue expenses.
  

Industry overview

The Aluminium Industry in India is strategically well-placed and is one of the largest producers in the world with discernible growth plans and prospects for the future. India's rich bauxite mineral base renders a competitive edge to the indu stry as compared to its counterparts globally. Aluminium is more environment-friendly than steel, plastic and other materials. Aluminium has widespread uses throughout the economy and is equally important to both the industrial and consumer sectors. Aluminium is used in the Aerospace Industry as well as other industries requiring light metal. On the industrial side, aluminium is heavily used in electrical power transmission, machinery & equipment and construction. Aluminium usage in automobiles is rising and is expected to increase internationally. Over the past five years considerable progress has been made in aluminium-intensive vehicle production.

The demand for Aluminum has increased at CAGR of 6.77%. The production has also increased from 3.3 MnT in 2015 to 5 (approx.) in 2019 with a CAGR of 11.19%. Considering the growing demand for aluminium in future, there will be heavy dependence on domestic production and imports to meet that demand. In light of the fact that aluminium is an energy intensive sector, the demand for fuel, i.e coal, being the main energy source for aluminum extraction and processing, will also increase. Such dependence on nonrenewable resources is not in line with global sustainable development goals and will lead to high carbon footprints. Also, meeting the growing demand by imports would lead to a trade imbalance. Thus, Recycling becomes a good alternative as it requires 95% less energy to recycle aluminium than to produce primary aluminium.

Pros and strengths

In-house manufacturing facility supported by technology driven process: The company presently carries all its manufacturing operations through its production facility located at Dehgam (Gandhinagar, Gujarat) which has an installed capacity of 12,000 MT for processing aluminium scrap. It has been able to setup an efficient, technology driven manufacturing process that has helped it to manufacture its products in accordance with the requirements and specifications of its customers in a cost-effective manner. For instance, it uses equipment such as burners and metal circulation furnaces and Bailing Machines which help it in saving fuel costs and enable better recovery from scrap and dross generated on account of the melting process. For segregation of scrap, it uses Magnetic Separator, eddy current separators and breaker machine to ensure that the materials being fed into the furnaces are devoid of most impurities.

Diversified Client Base and long standing relationship with its customers: The company serves a diversified client base ranging from steel manufacturers to automotive ancillaries units, electrical equipments units, cable and conductor manufacturing units and other units engaged in manufacturing or distribution of aluminium products. It generally do not enter into long term agreements with its customers, however, it has developed long-standing relationships with these customers some of whom have been with it for over five years. Maintaining strong relationships with its key customers is essential to its business strategy and to the growth of its business. Owing to its strong customer relationships and service, it has been able to retain a number of its customers for a long period of time ensuring uninterrupted supplies of its products to them.

Strong and diversified supplier base for sourcing raw material: One of the critical factors to grow and develop in the company’s business is the ability to source raw materials. The essential raw material used by its manufacturing facility for production of aluminium alloy and de-ox alloy is aluminium based metal scrap, which are mostly imported by it. The company has been procuring aluminium scrap from various global suppliers located in USA, UK, Europe, Middle East and Australia, among others, as well as from certain domestic suppliers. Given that raw material expense constitutes a significant portion of its overall cost, it benefit majorly from a globally spread out and diversified supplier base. This enables it to negotiate favorable terms and even avail better discounts. Further, since metal scrap prices vary in international markets, a diverse base of suppliers allows it to selectively buy metal scrap and limit the adverse effects of the changing prices across metal scrap on account of the various global and domestic market conditions.

Risks and concerns

Significantly dependent upon the steel and automotive-parts industry: The revenue generated from its customers engaged in steel sector and auto-components sector constituted approximately 38.5% and 41.8% respectively of its revenue from operations during Fiscal 2022, which implies that its revenues are significantly dependent on the performance of the steel sector and automotive sector in India and overseas. Any downturn or cyclical fluctuation in both these sectors could reduce the demand for its products which can adversely impact its business, results of operations, cash flows and financial condition. In the steel industry, the steel prices fluctuate based on a number of factors, such as, the availability and cost of raw material inputs, fluctuations in domestic and international demand and supply of steel and steel products, international production and capacity, fluctuation in the volume of steel imports, transportation costs, protective trade measures and various social and political factors, in the economies in which the steel producers sell their products. Any adverse change in these factors causing downturn in steel sector, may result in decreased demand for its products, which can have a material adverse affect on its business, results of operations, financial condition and prospects.

Geographical constraints: The manufacturing operations of the company are carried in the state of Gujarat in taluka Dehgam, Gandhinagar. Due to the geographical concentration of the company’s manufacturing operations in Gujarat, its operations are susceptible to local, regional and environmental factors, such as social and civil unrest, regional conflicts, civil disturbances, economic and weather conditions, natural disasters, demographic and population changes, and other unforeseen events and circumstances. Such disruptions could result in the damage or destruction of a significant portion of its manufacturing abilities, significant delays in the transport of its products and raw materials, loss of key managerial personnel, and/or otherwise adversely affect its business, financial condition and results of operations.

Face competition: The market for the company’s products is competitive on account of existence of both the organized and unorganized players. Competition occurs generally on the key attributes such as quality of products, sales network, pricing and timely delivery. Some of its competitors have longer industry experience and greater financial, technical and other resources, which may enable them to adopt faster in changing market scenario and remain competitive. Moreover, the unorganized sector can offers their products at highly competitive prices which may not be matched by it and consequently affect its volume of sales and growth prospects. Growing competition may result in a decline in its market share and may affect its margins which may adversely affect its business operations and its financial condition.

Outlook

Incorporated in 1994, Baheti Recycling Industries is an aluminium recycling company. The company is primarily engaged in processing aluminium-based metal scrap to manufacture aluminium alloys in the form of ingots and aluminium de-ox alloys in the form of cubes, ingots, shots and notch bar. The company is also engaged in trading of scrap materials such as aluminium scrap, brass scrap, copper scrap, zinc scrap etc. The company’s manufacturing unit is situated at Dehgam (Gandhinagar, Gujarat) and has a 12,000 MT installed capacity for processing aluminium scrap.  It employs an extensive and stringent quality control mechanism at each stage of the manufacturing as well as its recycling process including a multi-stage check of raw materials, K mould test, spectrometer analysis and density index check, which are required to ensure that its finished product conforms with the exact requirement of its customers and successfully passes allvalidations and quality checks. On the concern side, the company’s manufacturing facility is subject to operating risks, such as the breakdown or failure of machinery, power supply or processes, performance below expected levels of efficiency, obsolescence of equipment or machinery, labour disputes, natural disasters, industrial accidents and the need to comply with the directives of relevant government authorities.

The company is coming out with an IPO of 27,60,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 45 per equity share to mobilize Rs 12.42 crore. On performance front, total income for the financial year 2021-22 stood at Rs. 24926.06 lakh whereas in Financial Year 2020-21, the same stood at Rs. 12780.02 lakh representing an increase of 95.04%. The Restated Profit after tax for the financial year 2021-22 was Rs.291.97 lakh as compared to Restated Profit after Tax of Rs. 47.79 lakh during the financial year 2020-21. Meanwhile, the company will continue to focus on further increasing its operations and improving operational effectiveness at its production facility. Higher operational effectiveness results in greater production volumes and higher sales which allows it to reduce its fixed cost and thereby, increasing its profit margins. Going forward, the company intends to continue making investments in capacity expansions and modernization of its equipment and facilities.