Polysil Irrigation Systems
- Polysil Irrigation Systems is coming out with an initial public offering (IPO) of 32,28,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 54 per equity share.
- The issue will open for subscription on February 8, 2024 and will close on February 13, 2024.
- The shares will be listed on NSE Emerge Platform.
- The share is priced at 5.40 times higher to its face value of Rs 10.
- Book running lead manager to the issue is Fedex Securities.
- Compliance Officer for the issue is Neha Gupta.
Profile of the company
Polysil Irrigation Systems, incorporated in 1985, is a fully integrated player within the drip irrigation and sprinkler irrigation sectors, with presence in micro irrigation industry. The company’s products are reckoned to meet high quality standards and its brand is associated with providing value based irrigation solutions to its end customers and are subject to BIS standards. The company is engaged in manufacturing and sale of HDPE pipes, fittings and micro irrigation systems, such as drip irrigation system and sprinkler irrigation system, its components, accessories and allied products. As a manufacturer and seller of drip and sprinkler irrigation system its product range includes HDPE Pipes, pipe fittings and irrigation equipment’s, including disc filters, screen filters, hydro-cyclone filters, sand filters (gravel), compression fittings, valves (electrical and mechanicals), fertilizer tanks, Digital Controllers, Pressure Gauges, etc. The company sells these products under the brand “Polysil”.
The company sells its products through institution markets and open market sale. Under the open market sale, it sells its products through distributors and dealers, who then resell the products to customers i.e. farmers. As of August 15, 2023, the company sold its products through 9 distributors and around 425 dealers in India. The company’s end customers are eligible to receive government subsidy, the process for disbursal of such subsidy is managed by its distributor / dealers and/or its customers. The company operates in the state of Gujarat, Tamil Nadu, Maharashtra, Andhra Pradesh, Karnataka, Madhya Pradesh, Uttar Pradesh, Rajasthan and Haryana. It operates in the State of Maharashtra, Madhya Pradesh and Rajasthan through its dealer / distributor network and in the State of Andhra Pradesh, Gujarat, Tamil Nadu, Haryana and Uttar Pradesh under institutional model.
The company’s current Promoters, who are the driving force behind the growth of the company, between themselves have in-depth knowledge and good experience of the micro irrigation industry. Its Promoters share various functional responsibilities amongst themselves for effective management and are well supported by qualified and experienced professionals at different levels with appropriate functional responsibilities. As on December 31, 2023, its overall staff strength is 52 employees including skilled and unskilled labour, administrative staff and management team.
Proceed is being used for:
- Funding working capital requirements.
- General corporate purpose.
Industry overview
The Indian Agricultural Irrigation Machinery market is projected to register a CAGR of 5.3% during the forecast period. Water scarcity being the major concern in the current agricultural scenario is the foremost driving factor for the growth of this sector followed by the awareness about the micro-irrigation system, and the need for high productivity to meet the food demand due to the increased population. According to the press released by the Ministry of Agriculture and Farmer’s Welfare, 2021, the net irrigated area in the country is 68,649 thousand hectares. The agricultural land covered under micro-irrigation is 12,908.44 thousand hectares. Micro irrigation system contributes around 18-20% of the total irrigation, consisting of both drip irrigation and sprinkler irrigation systems. States like Karnataka, Gujrat, Andhra Pradesh, Rajasthan, Maharashtra, and Haryana are some major states utilizing micro-irrigation systems attributed to the large cultivable area and area under irrigation. The Indian micro-irrigation market is highly competitive, with large and small-scale drip and sprinkler irrigation equipment producers and marketers across numerous states in India. Current agricultural scenario water scarcity has been a major challenge in India and is, thereby, a critical driver for the use of micro-irrigation machinery systems.
Agricultural Irrigation Machineries are a system that distributes water under low pressure through a piped network and applies it as a small discharge to each plant. Micro-irrigation uses less pressure and water flow than sprinkler irrigation. The report presents a deeper analysis of Industry, Growth, and trend of Agricultural irrigation machinery with respect to India. The India Agricultural Irrigation Machinery Market is Segmented by Type into Sprinkler Irrigation, Drip Irrigation, and Pivot Irrigation and by Application into Crop and Non-Crop. The report offers the market size and forecasts for volume in (units) and value in (USD million) for all the above segments.
The agriculture sector in India is expected to generate better momentum in the next few years due to increased investment in agricultural infrastructure such as irrigation facilities, warehousing, and cold storage. Furthermore, the growing use of genetically modified crops will likely improve the yield for Indian farmers. India is expected to be self-sufficient in pulses in the coming few years due to the concerted effort of scientists to get early maturing varieties of pulses and the increase in minimum support price. In the next five years, the central government will aim US$ 9 billion in investments in the fisheries sector under PM Matsya Sampada Yojana. The government is targeting to raise fish production to 220 lakh tonnes by 2024-25. Going forward, the adoption of food safety and quality assurance mechanisms such as Total Quality Management (TQM) including ISO 9000, ISO 22000, Hazard Analysis and Critical Control Points (HACCP), Good Manufacturing Practices (GMP), and Good Hygienic Practices (GHP) by the food processing industry will offer several benefits. Through the Ministry of Food Processing Industries (MoFPI), the Government of India is taking all necessary steps to boost investments in the food processing industry in India. Government of India has continued the umbrella PMKSY scheme with an allocation of Rs. 4,600 crore ($559.4 million) till March 2026.
Pros and strengths
Strong marketing and distribution network: The company’s success depends upon its strong Marketing and distribution network in the Open Market where it directly approaches to farmers for installation of MIS after analyzing and studying their requirements. In the Open Market, it accesses direct and indirect sales channels for marketing of its products. Under direct sales, its marketing team approach directly to large end users whereas under indirect sales channel, it has dealers and distributors for marketing of its products. As of August 15, 2023, it has 425 dealers and around 9 distributors covering 6 states viz Maharashtra, Madhya Pradesh, Gujarat, Haryana, Tamil Nadu and Uttar Pradesh. The company has a strong distribution system which includes different stock points at various places across these States. These stock points enhance the reach and access of the products at the door step of the farmers.
Robust and scalable business model: The company’s micro irrigation business is dependent on government subsidy. It operates in open market as well as the institution and project market. In open market, it sells its products to channel partners or dealer who pays it upfront or with minimum credit period. The company’s dealers in turn sells it to farmers and after completion of installation and verification, receive subsidy payment from government agencies. In institution and project market, it directly gets work orders from nodal agencies of various states after loan tie ups/Contribution by farmers and determination of subsidy eligibility by the nodal agencies and in case of project market it participates in the tender floated by various agencies. Micro irrigation system is installed only after receipt of the work order from the nodal agencies which enables it to secure release of payments under the institution and project market. At present, it operates on institution and project market basis in the states of Andhra Pradesh, Gujarat, Tamil Nadu, Haryana and Uttar Pradesh.
Diversified customer base: The company has a well-diversified customer base all over India, wherein it provides the products and the services as per their requirements. This reduces the intensity of any significant single customer’s contribution in its revenues. Its products are used in various industries like agriculture, horticulture sector. Further, its customer base is widely spread and it is not dependent on few customers.
Risks and concerns
Maximum revenue comes from top 10 customers: The company’s top ten customers contribute Rs 4082.82 lakh (74.79%), Rs 1946.43 lakh (51.74%) and Rs 2654.58 lakh (60.50%) of its revenue from operations for the FY21, FY22 and FY23, respectively, whereas Rs 991.39 lakh (95.28%) of its revenue from operations for the period ended August 15, 2023. The company will continue to be reliant on its top customers for the foreseeable future. There can be no assurance that its top customers will continue to place similar orders with it in the future as they had placed in the past. A significant decrease in business from such top customers, whether due to circumstances specific to such customer or adverse market conditions or the economic environment generally, may materially and adversely affect its business, results of operations and financial condition. There is no guarantee that it will retain the business of its existing key customers or maintain the current level of business with each of these customers. It cannot assure that it will be able to maintain historic levels of business from its significant customers, or that it will be able to significantly reduce customer concentration in the future.
Rely significantly on Dealers/Distributors network for sale of products: The company sells its products in open market through its network of distributors & dealers. The company has around 425 dealers and around 9 distributors spread across the country. Its dealers and distributors are the connect between it and its customer i.e. farmers whom it bills directly also. Furthermore, its business growth in open markets depends on its ability to attract additional dealerships to its distribution network. While the company has good relations with its dealers, there is no assurance that its current dealers will continue to do business with it or that it can continue to attract additional dealers to its network. If it does not succeed in maintaining the stability of its dealership network, its market share may decline, materially affecting its results of operations and financial condition.
Demand of products is seasonal and largely depends on the farm produce and subsidy cycle: The success of its business depends to a large extent on its ability to estimate the demand for its products so as to effectively manage its inventory. The company’s end customers are farmers, whose procurement cycle largely depends on the season and the farm produce during a particular year. An optimal level of inventory is important to its business as it allows it to respond to demand effectively and to maintain a full range of products for supply to its dealers and distributors. Ensuring availability of its products requires prompt turnaround time and a high level of coordination across all functions, including raw material procurement, manufacturing and warehousing. Further, it may be required to offer discounts to clear unsold inventory, which may adversely impact its margins. There can be no assurance that it will not face inventory mismatch in the future. Its inability to accurately plan production of its products and manage its inventory may have an adverse effect on its business, financial condition and results of operations.
Outlook
Polysil Irrigation Systems Limited was established in 1985 and manufactures and distributes HDPE pipes, fittings, and micro irrigation systems, such as drip irrigation systems and sprinkler irrigation systems as well as their components, accessories, and related products under the brand name Polysil. The company's product range includes HDPE pipes, pipe fittings, and irrigation equipment, including disc filters, screen filters, hydro cyclone filters, sand filters (gravel), compression fittings, valves (electrical and mechanical), fertilizer tanks, digital controllers, pressure gages, etc. The company perates in Gujarat, Tamil Nadu, Maharashtra, Andhra Pradesh, Karnataka, Madhya Pradesh, Uttar Pradesh, Rajasthan and Haryana. The company sells its products through institutional markets and the open market. As of August 15, 2023, the company sold its products through 9 distributors and around 425 dealers in India. On the concern side, the company is dependent on the success of its relationships with customers. It generally does business with customers on purchase order basis and does not enter into long term contracts with its customers. Any loss of one or more of its top customers, or the deterioration of their financial condition or prospects, or a reduction in their demand for its products, could adversely affect its business, results of operations, financial condition and cash flows.
The company is coming out with an IPO of 32,28,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 54 per equity share to mobilize Rs 17.43 crore. On performance front, the company’s revenue from operations increased by 16.62% to Rs 4,387.66 lakh for Fiscal 2023 from Rs 3,762.27 lakh for Fiscal 2022. The increase in revenue from operations was primarily due to addition in capacity utilization and increase in its dealership network and greater operational efficiencies. Moreover, the company reported profit after tax for the Fiscal 2023 of Rs 113.53 lakh in comparison to Rs 33.75 lakh in the Fiscal 2022.
The company intends to cater to the increasing demand of its existing customers and also to increase its existing customer base by enhancing its product portfolio. Enhancing its presence in additional regions will enable it to reach out to a larger market. Currently the company is operation in 9 states viz. Gujarat, Tamil Nadu, Maharashtra, Andhra Pradesh, Karnataka, Madhya Pradesh, Uttar Pradesh, Rajasthan and Haryana. Through its dealer/distributor /agents network in future, it intends to enter and capture new markets in the states of Punjab, Bihar, Orrisa, Chhattisgarh and Telangana and increase its geographical presence, especially in the African countries like Uganda, Kenya and Tanzania and thereby increase its customer base. Going forward, the company intends to focus on adhering to the quality of its offerings. This is necessary so as to make sure that it maintains the high-quality standards for its offerings and get repeat orders from its customers. This will also aid it in enhancing its brand value and further increase the business.
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