D. K. Enterprises Global coming with an IPO to raise over Rs 8 crore

D. K. Enterprises Global

• D. K. Enterprises Global is coming out with an initial public offering (IPO) of 19,98,000 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 October 7, 2021 and will close on October 12, 2021.
  
• The shares will be listed on the Emerge platform of NSE.
  
• The share is priced 4 times higher to its face value of Rs 10.
  
• Book running lead manager to the issue is Beeline Broking.
  
• Compliance Officer for the issue is Amanpreet Kaur.
  

Profile of the company

The company is mainly engaged in manufacturing of Paper Based Packing Material, Self Adheshive Tapes (specialty tapes likes Masking, Siliconized, Medical and Surface protection Tapes), Laminated Products and flexible Packaging. The company is ISO 9001:2015, 45001:2018 certified company. It has been working almost exclusive with major multinational corporations in consumer space.

The company’s registered office and manufacturing facilities Unit I is located in Panchkula at Haryana and Unit II at Vadodra in Gujarat. It is proposing to commence manufacturing facilities at Baddi in Himachal Pradesh for manufacturing of Clear/Printed Bopp Tape, Masking/specialty tapes and Laminated Products. It is also proposing to installed machinery at Vadodara (Unit II) for manufacturing of Clear/Printed Bopp Tape, Masking/specialty tapes and Laminated Products.

Proceed is being used for:

• Setting up of new manufacturing unit at Baddi, Himachal Pradesh.
  
• Meeting incremental working capital requirements.
  
• General corporate purposes.
  
• Meeting public issue expenses.
  

Industry overview

Packaging plays a pivotal role in consumers’ experience with respect to the brand and the overall purchasing experience. There are four major functions of packaging - containment, protection, communication and utility - that are intended to maximise sales and profits while reducing losses and wastage; and all of them are critical for enhancing consumer experience. In a traditional brick-and-mortar commerce, packaging was used to create distinction and increase shelf presence through attractive and easy-to-spot colors, shapes and graphics. When damage is occurred in a brick-and-mortar store, it was easy for the consumer to keep the damaged product aside and pick an undamaged one placed right next to it. Loss of product was not necessarily compounded by the loss of sales or customer. In an e-commerce world, however, the effects of a damaged product are very different. A consumer makes a purchasing decision at the click of a button and to contend with a damaged product, after delivery wait time, can lead to a conclusive decision against the online retailer. As per eMarketer, 83% consumers are unlikely to purchase from an online retailer again after a poor experience.

The packaging sector is categorised into two major segments (by type) - rigid and flexible packaging, with rigid packaging accounting for 64% market share. In terms of packaging materials, 55% of the sector is dominated by plastics, followed by paper & cardboard (20%) and glass (10%). Packaging is now seen as a key bridge between consumers and brands to effectively communicate that hygiene is maintained, safety is prioritised and product or service quality is not being compromised. Packaging already had a pivotal role in consumer buying experience in the e-commerce world. And now, its impact has even grown bigger. This sector will continue to ride the e-commerce wave long into the future. Food processing is the largest consumer of packaging at 45%, followed by pharmaceuticals (25%) and personal care products (10%). Increasing demand from these end-user segments is creating a huge potential for expansion. Amid the e-commerce surge, the Indian packaging industry is witnessing steep growth and is one of the strongest growing segments. According to the Indian Institute of Packaging (IIP), packaging consumption in India increased 200% in the past decade, from 4.3 kgs per person per annum (pppa) to 8.6 kgs pppa. The industry is expected to reach $ 204.81 billion by 2025 from $ 50.5 billion in 2019 at 26.7% annually. The e-commerce segment of the packaging market was estimated at $ 451.4 million in 2019 and is forecast to reach $ 975.4 million by 2025 at 13.8% annually.

Pros and strengths

Long term relationship with MNC’s customers: The company has long term relationship with its customers especially MNC’s like Vodafone Idea, Patanjali Ayurvedic, Crompton Greaves Consumer Electrical, Godrej, Phonepey, ITC, Amul, etc. The business model is based on client relationships that are established over period of time rather than a project-based execution approach. A long-term client relationship with large clients fetches better dividends. Long-term relations are built on trust and continuous maintaining of the requirements of the customers. It forms basis of further expansion for the company, as it is able to monitor a potential product/ market closely.

Infrastructure and integrated capabilities: The company is in requirement of new machinery and it need to be updated with the new technology, with its updated staff members and customer demand it does updation as and when required. Its aim is to continuously earn customer's trust and confidence through personal attention, and hence the output of the product as per customer requirement is the foremost thing which shall be considered and attended through technology mode. The company provides quality products to its customers. It is devoted to quality assurance. The quality checks ensure that no defective products reached the customer and ensure reduced process rejection.

Provide customized packaging solution: The company has high level of knowledge about the needs of customers, resulting from continuous two-way communication between its representatives and customers. It has been engaged in the business by providing customized product as per the respective requirement of the customer. The wide variety of products enables it to cater its customer taste and preference. Also, it has well established systems and procedures for staffing and the implementation of current and long term objectives so it will able to market its products more effectively.

Risks and concerns

Depends on few numbers of customers for sales: The company’s top ten customers namely HUL, ITC, Godrej, Patanjali, Amul, Philips, reckitt/Dettol, phone pe and Vodafone VI Contributes almost 74.63% and 58.91% of its total sales for the year ended March 31, 2021 and 2020 respectively on consolidated basis. Any decline in its quality standards, growing competition and any change in the demand, may adversely affect its ability to retain them. It cannot assure that it shall generate the same quantum of business, or any business at all, and the loss of business from one or more of them may adversely affect its revenues and results of operations. However, the composition and revenue generated from these customers might change as it continue to add new customers in the normal course of business. Though it will not face substantial challenges in maintaining its business relationship with them or finding new customers, there can be no assurance that it will be able to maintain long term relationships with such customers or find new customers in time.

Requires significant amount of working capital: The company’s business is working capital intensive primarily on account of credit period given to customers, amounts blocked in Finished Goods. The Company intend to continue growing by expanding its export operations and widening its products base. All these factors may result in increase in the quantum of current assets. Its inability to maintain sufficient cash flow, credit facility and other sources of fund, 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.

Face competition: The company’s products face competition from products commercialized or under development by competitors in all of its product portfolios. It compete with local companies, multi-national corporations and companies from the rest of world. If its competitors gain significant market share at its expense, its business, results of operations and financial condition could be adversely affected. Many of its competitors may have greater financial, manufacturing, research and development, marketing and other resources, more experience in obtaining regulatory approvals, greater geographic reach, broader product ranges and stronger sales forces.

Outlook

Incorporated in 2019, D.K. Enterprises Global manufactures paper-based packing material, self-adhesive tapes (Masking, Siliconized, Medical and surface protection tapes), Laminated products, and flexible packaging. It has long term relationship with its customers especially MNC’s like Vodafone Idea, Patanjali Ayurvedic, Crompton Greaves Consumer Electrical, Godrej, Phonepey, ITC, Amul, etc. Its manufacturing facility Unit I is located at Panchkula, Haryana, and Unit II is in Vadodra, Gujarat. It provides products with competitive rates. It has developed internal procedure of checking the products at each stage of production right from receipt of raw material to dispatch of its products. The company focuses on consistently delivering qualitative products, thereby building customer loyalty for its product. Further, the company’s management has adequate and rich experience in its line of business.  On the concern side, while the company has not experienced any unrest or dispute in the company in the past, it cannot be certain that it will not suffer any disruption to its operations due to strikes, work stoppages or increased salary demands in the future. The company’s business is dependent on its continuing relationships with its customers. The company neither has any long-term contract with any of customers. Any change in the buying pattern of its end users or disassociation of major customers can adversely affect the business of the company. 

The company is coming out with a maiden IPO of 19,98,000 equity shares of Rs 10 each at a fixed price of Rs 40 per equity share to mobilize Rs 7.99 crore. On the performance front, the revenue from operations for the FY 2020-21 on consolidated basis was Rs 6,483.89 lakh as compared to Rs 4,511.24 lakh during the FY 2019-20 showing an increase of 43.73%. Income from operations increased on account of increase in volume of products of the company and subsidiary firm. Profit after Tax (PAT) increased from Rs 149.51 lakh in the FY 2019-20 to Rs 243.86 lakh in FY 2020-21 which is 3.75% of total revenue for FY 2020-21. The company is proposing to commence manufacturing facilities at Baddi in Himachal Pradesh for manufacturing of Clear/Printed Bopp Tape, Masking/specialty tapes and Laminated Products. It is also proposing to installed machinery at Vadodara (Unit II) for manufacturing of Clear/Printed Bopp Tape, Masking/specialty tapes and Laminated Products. Besides, the company constantly endeavors to improve its production process, skill up gradation of workers, modernization of plant and machineries to optimize the utilization of resources.