Atam Valves coming with an IPO to raise up to Rs 4.50 crore

Atam Valves

• Atam Valves is coming out with an initial public offering (IPO) of 11,25,000 Equity Shares of face value of Rs 10 each for cash at a fixed price of Rs 40 per equity share.
• The issue will open on September 18, 2020 and will close on September 25, 2020.
• The shares will be listed on SME Platform of BSE.
• The share is priced 4.00 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 Natisha Choudhary.

Profile of the company

The company was originally incorporated as a Partnership Firm in 1982 which had Vimal Parkash Jain, as one of the Partners and commenced the business from mid-1982. Later, Vimal Parkash Jain founded and incorporated ‘Atam Valves Private Limited’, a private limited Company under the provisions of Companies Act, 1956 vide Certificate of Incorporation dated September 30, 1985 bearing Registration Number 6476 issued by Registrar of Companies, Punjab, HP & Chandigarh by taking over the entire business of Atam Valves, a Partnership Firm. Subsequently, the company was converted into a public limited Company pursuant to special resolution passed by the shareholders dated November 09, 2017 and the name of the company was changed to ‘Atam Valves Limited’ to reflect the legal status of the company pursuant to a fresh certificate of incorporation granted by the Registrar of Companies, Chandigarh, dated November 24, 2017.

Atam Valves, an ISO 9001:2015 and ISO 14001:2015 certified, is engaged in the business of manufacturing bronze, cast iron, cast steel, carbon steel, stainless-steel, forged steel as well as gun metal industrial valves of various types and size ranging from 8 mm up to 350 mm. It manufactures boiler mountings and supplies various types of valves and fittings, steam traps and strainers and has a significant customer base in the industry. The company is a manufacturer of reliable and quality valves. The company’s products are supplied in India as well as all over the world under its two brands, viz., ATAM and FEBI. Under brand ATAM, the company deals in Valves and fittings, steam traps and strainers. Under brand FEBI, it deals in Ball-Valves.

The company’s both manufacturing facilities in Jalandhar suit most of the manufacturing related requirements. Most of its valves are tailored to meet its customers’ specific requirements. It works in close tandem with its clients to match its valves to their most complex applications. Its valves have proved suitable, right from providing the most secure Safety Valves for the utmost critical requirements to customized valves as per customer needs. Many of company’s design innovations have been the direct result of working closely with its customers to solve difficult applications at their end.

Proceed is being used for:

• Repayment/ Prepayment of certain secured borrowings availed by the company.
• General corporate purposes.

Industry overview

The Indian Engineering sector has witnessed a remarkable growth over last few years driven by increased investments in infrastructure & industrial production. The Engineering sector, being closely associated with the manufacturing and infrastructure sectors, is of strategic importance to India’s economy. India on its quest to become a global superpower has made significant strides towards the development of its engineering sector. The Government of India has appointed the Engineering Export Promotion Council (EEPC) as the apex body in charge of promotion of engineering goods, products and services from India. India exports transport equipment, capital goods, other machinery/equipment and light engineering products such as castings, forgings and fasteners to various countries of the world. The Indian semiconductor industry offers high growth potential areas as the industries which source semiconductors as inputs are themselves witnessing high demand.

The turnover of capital goods industry in India is expected to grow to Rs 8.05 lakh crore ($115.17 billion) by 2025. India exports engineering goods mostly to US and Europe, which account for over 60 per cent of the total export. Engineering export for the period of FY20 stood at $76.26 billion. Index of industrial production (IIP) for electrical equipment industry stood at 105.5 in FY20. The engineering sector in India attracts immense interest from foreign players as it enjoys a comparative advantage in terms of manufacturing cost, technology, and innovation. The above, coupled with favourable regulatory policies and growth in the manufacturing sector, has enabled several foreign players to invest in India. The Foreign Direct Investment (FDI) inflow into India's miscellaneous mechanical and engineering industries between April 2000 and March 2020 stood at around $3.63 billion, as per the data released by Department for Promotion of Industry and Internal Trade (DPIIT).

Pros and strengths

Integrated manufacturing Facility: The company’s manufacturing facility is fully integrated and self-reliant. The raw materials and consumables are readily available. Further, all other utilities like fuel, power and human resources have posed no hurdle till date. All the raw-materials as well as equipments required for manufacturing the products are in place therein.

Customer base: The company has long-standing relationships with customers for whom it has executed repeat orders over an extended period of time, which have been established and are strengthened by its infrastructure and its ability to meet Clients’ requirements for customized products. In order to strengthen relationship with customers, it has agents and distributor at most of its major client / consultant locations for handling day to day activities at their respective location. The agents and distributor are responsible to generate business from their respective geographical region, liaising with existing customers, solving their queries and providing after sales service to the client. All the activities are taken place in close co-ordination with the client. Necessary technical help is provided to its representatives for conducting business on its behalf.

Constant focus on developing novel, innovative products: For any company, innovation, novelty, procedural as well as technical progress are key factors for its success in the long term. The company constantly encourages its people to innovate and develop new products for catering to demands of its customers. It constantly traces its clients in order to assess their requirements for increasing their process efficiency. This has helped it to become a customer-oriented manufacturing concern.

Risks and concerns

Dependent on top ten customers: The company’s top ten customers contribute approximately 35.65% and 39.21% of its revenue for the years ended March 31, 2020 and March 31, 2019 respectively. Any decline in company’s Quality standards, growing competition and any change in the demand for its services by these customers may adversely affect its ability to retain them. It cannot assure that it will generate the same quantum of business, or any business at all, from these customers, and loss of business from one or more of them may adversely affect its revenues and profitability. However, the composition and revenue generated from these clients might change as it continue to add new clients in normal course of business.

Face significant competition: In India, Valves industry is highly competitive and fragmented with major veteran players. If the company fails to create a position or its existing position deteriorates, the operating results or financial condition will get adversely affected. Aggressive discounting and marketing by competitors may also adversely impact its performance for a temporary period and to certain extent. It may in future experience increased competition from existing or new players in Valves industry. Due to increase in competition, it may temporarily experience downward pressure on prices, lower demand for its products, reduced margins and a loss of market share, all of which would have an adverse impact on company’s business and results of operations.

Dependent upon few suppliers: The main raw material is majorly consisting of iron, casting. The company’s top ten suppliers contribute 83.10 % and 76.46 % of its total purchases for the year ended March 31, 2020 and March 31, 2019 respectively. It is completely dependent on third party suppliers for the supply of raw materials. If suppliers fail to provide it timely delivery of raw materials then the manufacturing process will be stopped. The discontinuation of any of this large supplier will significantly affect its operations, revenue and profitability.

Outlook

Incorporated in 1982, Atam Valves is engaged in the business of various types of valves. The company's product range includes boiler mountings and various types of valves and fittings, steam traps and strainers. It manufacture bronze, cast iron, cast steel, carbon steel, stainless-steel, forged steel as well as gun metal industrial valves in various sizes. The company’s products are supplied across India as well as all over the world under its two brands, viz., ATAM and FEBI. Under brand ATAM, it deals in Valves and fittings, steam traps and strainers. Under brand FEBI, it deals in Ball-Valves. The Promoters of the company has significant experience in the Valves Industry and have been instrumental in the growth of company’s performance. On the concern side, in the future, the company may also not be unable to compete with other larger companies for suitably skilled personnel due to their ability to offer more competitive compensation and benefits. Besides, it may require additional capital from time to time depending on its business needs.

The company is coming out with a maiden IPO of 11,25,000 equity shares of Rs 10 each at a fixed price of Rs 40 per equity share to mobilize Rs 4.50 crore. On the performance front, the company’s total revenue for the Financial Year 2019-20 is Rs 1632.54 lakh whereas for the Financial Year 2018-19 is Rs 1841.34 lakh showing a decrease of 11.34%. The decrease is due to decline in sale of manufactured goods, duty drawback and other export incentives, Freight and other receipts, interest income, Net gain on Foreign currency Transaction, etc. The profit after tax for the Financial Year 2019-20 is Rs 49.43 lakh which is 3.03% of the total revenue whereas for Financial Year 2018-19 is Rs 65.21 lakh showing a decrease by 24.19%. The company intends to build its brand primarily through continued investment in product innovation supported by various initiatives, marketing activities and the establishment of long-term relationships with its clients. It also intends to have close interaction with its customers in a bid to strengthen relationships with them and enabling it to understand the market perception and demand.