Quality RO Industries coming with an IPO to raise upto Rs 2.70 crore

Quality RO Industries

• Quality RO Industries is coming out with an initial public offering (IPO) of 530000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 51 per equity share.
• The issue will open on January 27, 2022 and will close on February 1, 2022.
• The shares will be listed on SME Platform of BSE.
• The share is priced 5.10 times higher to its face value of Rs 10.
• Book running lead manager to the issue is Shreni Shares.
• Compliance Officer for the issue is Narendra Gupta.

Profile of the company

The company is engaged in the business of manufacturing, marketing and supplying components for water purifiers and softener equipment. These water purifiers parts have been designed to make a proper fitting for RO Plants and Systems of different varieties, as it produces strictly according to industry standards.

The company is engaged in the business of supplying of various water treatment products as well as logistics services. As a supplier, it procures polypropylene raw materials and manufacture various types of softener equipment such as filter parts, premium filter cartridges, taps, membrane housing and also engage in contractual manufacturing for the water treatment industry. The company also makes sale through online platforms. In addition, it is also engage in providing logistics services on a contractual basis to a few local infrastructure companies. 

Proceed is being used for:

• Meeting the capital expenditure requirements.
• Meeting the Incremental working capital requirements.
• General corporate purpose.
• Public issue expenses.

Industry overview

Manufacturing Industry in India has emerged as one of the high growth sectors in India. The government has launched the ‘Make in India’ program to place India on the world map as a manufacturing hub and give global recognition to the Indian economy. Government aims to create 100 million new jobs in the sector by 2022. India’s gross domestic product (GDP) at current prices stood at Rs. 51.23 lakh crore ($694.93 billion) in the first quarter of FY22, as per the provisional estimates of gross domestic product for the first quarter of 2021-22. The manufacturing GVA at current prices was estimated at $97.41 billion in the first quarter of FY22. India has potential to become a global manufacturing hub and by 2030, it can add more than $ 500 billion annually to the global economy. The IHS Markit India Manufacturing Purchasing Managers' Index (PMI) stood at 53.7 in September 2021. As per the survey conducted by the Federation of Indian Chambers of Commerce and Industry (FICCI), capacity utilisation in India’s manufacturing sector stood at 72.0% in the second quarter of FY22, indicating significant recovery in the sector.

India is an attractive hub for foreign investments in the manufacturing sector. Several mobile phone, luxury and automobile brands, among others, have set up or are looking to establish their manufacturing bases in the country. The manufacturing sector of India has the potential to reach $1 trillion by 2025. The implementation of the Goods and Services Tax (GST) will make India a common market with a GDP of $2.5 trillion along with a population of 1.32 billion people, which will be a big draw for investors. The Indian Cellular and Electronics Association (ICEA) predicts that India has the potential to scale up its cumulative laptop and tablet manufacturing capacity to $100 billion by 2025 through policy interventions. With impetus on developing industrial corridors and smart cities, the Government aims to ensure holistic development of the nation. The corridors would further assist in integrating, monitoring and developing a conducive environment for the industrial development and will promote advance practices in manufacturing.

Pros and strengths

Repeat orders: The company has made efforts to ensure customer satisfaction by taking steps for meeting customer specific requirements, timely delivery of orders to its customers as well as maintaining consistency in quality and this has yielded results in the form of repeat orders from its customers. The repeat orders reflect the confidence reposed in it by its customers.

Existing relationship with suppliers: The company manufactures components of water purifiers and acquires raw materials from several suppliers and has enduring relationship with them for a long time. Its relationships with suppliers will enable it to continue to grow its business. Due to its relationships with its suppliers, it get quality and timely supplies of raw materials. This enables it to manage its inventories and supply quality products on timely basis to its customers. This in turn has enabled it to generate repeat business.

Cost effective production and timely fulfilment of orders: Timely fulfilment of orders is a prerequisite in the company’s industry. The company has taken various steps in order to ensure adherence to timely fulfilment and also to achieve greater cost efficiency. The company constantly endeavours to implement an efficient procurement policy for inputs required for production so as to ensure cost efficiency in procurement which in turn results in cost effective production.

Risks and concerns

Rely on suppliers for raw materials for manufacturing of products: The company relies on suppliers for raw materials. In the event that there are any delays or disruptions in the supply of raw materials from its suppliers, its ability to deliver the products may be affected. Any of its supplier’s failure to adhere to agreed timelines, whether due to their inability to comply with, or obtain, regulatory approvals, or otherwise, may result in delays and disruptions to its sales, increased costs, delayed payments for its products and damage to its reputation leading to an adverse effect on its results of operations. In the event these its suppliers for raw materials cease to be available to it at terms acceptable to it or it experience problems with, or interruptions in, such supplies, and it is unable to find other suppliers to provide similar raw materials on comparable terms and on a timely basis, its operations may be disrupted and its results of operations and financial condition may be adversely affected.

Do not have long-term contracts with its customers: Some part of the company’s business is conducted on purchase order basis, depending on the requirements of the client preferences and demand. It does not have long-term contracts with its customers and there can be no assurance that it will continue to receive repeat orders from any of them. Further, even if it was to continue receiving orders from its clients, there can be no assurance that they will be on the same terms, and the new terms may be less favorable to it than those under the present terms. In Addition to above, it received orders through online portal from its customer all over in India. The Products of the Company are listed on online portals where any of the prospective customer can place order for the required products. Any disruption in its online listing of products, negative publicity of its products on such portal and any ineffective management of queries and concerns of its customers over the portal may impact the business operations and sales of the company.

Shortage or non-availability of power: The company’s manufacturing process requires substantial amount of power facilities. The quantum and nature of power and fuel requirements of its industry and Company is such that it cannot be supplemented/ augmented by alternative/ independent sources of power supply since it involves significant capital expenditure and per unit cost of electricity produced is very high. It sources the power requirements for its manufacturing facilities mainly from state electricity boards. It is exposed to fluctuations in prices of power. It intends to install solar power project at its manufacturing facility to battle increased electricity costs. Although it generally attempt to pass on increases in energy costs to its customers, its ability to do so is dependent upon the rate of increase, competitive pressures and market conditions for its products. Its inability to pass on any increased costs to the customers, may adversely affect its profitability.

Outlook

Quality RO Industries is engaged in the business of supplying of various water treatment products as well as logistics services. As a supplier, it procures polypropylene raw materials and manufacture various types of softener equipment such as filter parts, premium filter cartridges, taps, membrane housing and also engage in contractual manufacturing for the water treatment industry. The company also make sales through online platforms. In addition, it is also engage in providing logistics services on a contractual basis to a few local infrastructure companies. The company’s management team and other Key Managerial Personnel are well qualified with significant market experience and have been responsible for the growth in its operations and has enabled it to extend its operational capabilities, improve the quality of services provided, continuously upgrade its process and achieve its growth in the industry. On the concern side, the company is governed by various laws and regulations for its business and operations. It is required, and will continue to be required, to obtain and hold relevant licenses, approvals and permits for doing its business. The approvals, licenses, registrations and permits obtained by it may contain conditions, some of which could be onerous. Besides, it is dependent upon the availability of equity, cash balances and debt financing to fund its operations and growth. Any fluctuations in interest rates may directly impact the interest costs of such loans and, in particular, any increase in interest rates could adversely affect its results of operations.

The company is coming out with a maiden IPO of 530000 equity shares of Rs 10 each at a fixed price of Rs 51 per equity share to mobilize Rs 2.70 crore. On the performance front, The company’s total income which includes from sale of products during the stub period ended on November 30, 2021 was Rs 16.78 lakh. The restated net profit during the stub period ended on November 30, 2021 was Rs 1.47 lakh representing 8.76% of the total revenue of the company. The company intends to improve efficiencies to achieve cost reductions so that they can be competitive. It intends to also reduce its cost of power consumed, for this it intends to install Solar Power Project with approximately 1450 kwh Capacity to battle the electricity costs. Besides, it intends to invest in logistic assets (viz. Trucks) and engage in contractual logistics services to local infrastructure companies, thereby generating carting income in the process.