Cool Caps Industries coming with an IPO to raise upto Rs 11.63 crore

Cool Caps Industries

• Cool Caps Industries is coming out with a 100% book building; initial public offering (IPO) of 30,60,000 shares of Rs 10 each in a price band Rs 36-38 per equity share.
  
• The issue will open for subscription on March 10, 2022 and will close on March 15, 2022.
  
• The shares will be listed on NSE Emerge Platform.
  
• The face value of the share is Rs 10 and is priced 3.60 times of its face value on the lower side and 3.80 times on the higher side. 
  
• Book running lead manager to the issue is Holani Consultants.
  
• Compliance Officer for the issue is Arijit Ghosh. 
  

Profile of the company

The company is mainly engaged in the business of manufacturing of a wide range of Plastic Bottle Caps and closures which includes plastic soda bottle caps, plastic soft drink bottle caps, plastic mineral water bottle caps and plastic juice bottle caps from units situated in Howrah, West Bengal and Kotdwar, Uttarakhand. Apart from plain closures, it also manufactures embossed, debossed and printed closures as per client specifications. The company is also in the business of manufacturing face masks and the products include Mask on Plus N95 FFP2 Mask, Mask on N95 FFP2 Mask and N95 FFP2 Mask from unit situated in Howrah, West Bengal.

Over the past couple of years, the company has outgrown itself into a distinguished large-scale organization specializing in pet bottle caps of various shapes, sizes and colours along with cap handles having plentiful applications. The company manufactures caps and closures in Continuous Compression Molding Machine imported from Sacmi Inc, Italy with Cool + Technology using 100% virgin food grade quality material. Production takes place in an enclosed dust proof environment with quality testing at regular intervals. The products are packed in corrugated boxes with proper bursting strength inside plastic liners. Overall color migration test, heavy metal testing and analysis is done to ensure quality product.

In addition to the supply of pet bottle caps, the company also trades in Shrink film as an additional service to its existing customers. This product has a demand within its existing customer base and therefore, to provide one-stop solution to their needs, it had started selling this product. Shrink films are manufactured by its associate concern, Airborne Technologies. Furthermore, the company is also involved in trading of plastic granules besides using it as a raw material for its own consumption. Plastic granules are made up of particles that are formed as a result of the progressive enlargement of primary particles that change their original identity. These granules can be utilized in the production of a vast range of plastic products, such as chairs, mugs, bottles, tanks, to name a few and are known for their fine finishing and easy malleability. The company provides a wide range of granules such as Polypropylene Granule, High Density Polyethylene (HDPE) Granules, Low Density Polyethylene (LDPE), Linear Low-Density Polyethylene (LLDPE) Granules and many more. The plastic granules are procured domestically and also imported from foreign countries.

Proceed is being used for:

• Funding the working capital requirements.
  
• General corporate purposes.
  

Industry overview

In India polyethylene terephthalate (PET) has become the primarily preference in the packaging sector owing to the rigidity it offers, its eco-friendly attribute and recyclable nature. The demand for PET in the packaging of food and beverages witnessed a steep inclination after the sudden outbreak of Coronavirus in the final quarter of FY 20. This astonishing increase in demand is a ripple effect of the increasing awareness of hygiene, prompting an enhanced procurement of disposable and packaged items to reduce the chances of infection by any means. Moreover, the increasing preference for PET bottles over aluminum and glass packaging, in rapidly expanding Indian pharmaceutical sector owing to its quality standard and safety is anticipated to further propel the demand for PET in the forecast period. As the healthcare and pharmaceutical sectors are likely to witness a robust expansion due to increasing requirement for equipment and medications after the Pandemic, the need for PET bottles for medical packaging is perceived to witness an incredible surge in the coming years.

Growing at 18 per cent per annum, country's plastic packaging industry is expected to reach $73 billion in the next four years. The size of the industry in India is about $32 billion, which constitutes only 4 per cent of the global packaging industry. The per capita packaging consumption in India is quite low at 4.3 kg, compared to countries like Germany and Taiwan where it is 42 kg and 19 kg, respectively. In the coming years it is expected to grow at 18 per cent per annum. The overall packaging industry in India has a huge growth potential and is expected to reach $73 billion in the year 2020. The industry is driven by key factors like rising population, increase in income levels and changing lifestyles. Demand from rural sector for packaged products is being fueled by increasing media penetration through the means of internet and television. Organized retail and boom in e-commerce will fuel growth of plastic packaging and per capita consumption to be doubled in five years. India is a growing market for plastics and consumes about 12.8 million tonnes of plastics annually against the global consumption of 285 million tonnes per year. The plastics and polymer consumption are growing at an average rate of 10 per cent. About 30,000 processing units with 1,13,000 processing machines have created manufacturing capacity of 30 million tonnes per annum in India.

Pros and strengths

Established manufacturing facility: The company’s registered office and the manufacturing facility are located at Howrah in West Bengal. It has set up a new manufacturing unit in Kotdwar, Uttarakhand which has been made operational from August 13, 2020 onwards. Its both manufacturing units are equipped and capable to carry out end to end manufacturing activities starting from designing of products to production and testing of finished goods and packaging thereafter. The entire process is carried out under one roof. Its dynamic setup not only gives it better control over quality but also benefits it with cost advantages compared to its competitors who resort to job work for various activities in the complete manufacturing process.

Focus on quality and safety: The company manufactures products in Continuous Compression Molding Machine that was imported from Sacmi Inc, Italy which with Cool+ Technology using 100% virgin food grade produce quality material. Production takes place in an enclosed dust proof environment with testing at regular time periods for conforming to the quality. The final products are packed in corrugated boxes with proper bursting strength inside plastic liners. Its products undergo quality check at various levels of production to ensure that any quality defects or product errors are rectified on real time basis. It also has an in-house laboratory for conducting various tests. Overall color migration test, heavy metal test and analysis is done to ensure quality product and its in-house testing laboratory regulates and monitors the same to ensure the requisite quality and strength of boxes so that they can safely carry products for its end use.

Cost leadership and time bound execution: The company promotes cost leadership and timely execution of client’s orders. The timely fulfillment of the orders is a prerequisite in its industry and the cost leadership entails cost efficient manufacturing processes. Its management has carried out various steps for the purpose which involves identification of quality raw materials, harmonious relations with workforce, aligning the manufacturing process i.e., the supply of products with the demand and the use of latest and highly efficient manufacturing facilities which enhanced its ability to meet large and varied orders on a timely basis. The company has also sustained good relations with its vendors and consequently, it enjoy the benefit of timely supply of the raw materials which has been one of the major reasons why it has been able to achieve timely fulfillment of client’s orders. The company constantly endeavors to implement an efficient procurement policy for inputs required for manufacturing so as to ensure cost efficiency in procurement which in turn results in cost effective manufacturing.

Risks and concerns

Requires significant amounts of working capital: The company’s business requires a significant amount of working capital for smooth functioning. It intends to continue growing by expanding its business operations. This may result in increase in the quantum of current assets particularly trade receivables and inventories. The results of operations of its business are dependent on its ability to effectively manage its inventory and stocks. To effectively manage its inventory, it must be able to accurately estimate customer demand and supply requirements and manufacture and trade inventory accordingly. It estimate its sales based on the forecast, demand and requirements and also on the customer specifications.

Face competition: The market for company’s products is competitive on account of both the organized and unorganized players. Players in this industry generally compete with each other on key attributes such as technical competence, quality of products, distribution network, pricing and timely delivery. Some of its competitors may have longer industry experience and greater financial, technical and other resources, which may enable them to react faster in changing market scenario and remain competitive. Moreover, the unorganized sector 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.

Business is subject to season volatility: The company’s major sales of its products are made to packaged mineral water supplier companies and soft drinks providers. The sales of these items are at peak in summer seasons and lower in winter seasons as per industry practices. As the company products are supplied to these vendors, its major sales are done in summer seasons and lesser sales in winter seasons. In case of any variation is sales its number for any quarter or half year may not reflect true affairs of the company and any reliance placed on it might affect investors and other stake holders in general.

Outlook

Cool Caps Industries is engaged in the business of manufacturing a range of plastic bottle caps and closures such as plastic soda bottle caps, plastic soft drink bottle caps, plastic mineral water bottle caps, and plastic juice bottle caps. It further manufactures embossed, debossed, and printed closures as per customers' specifications. The firm also manufactures face masks i.e., Mask on Plus N95 FFP 2 Mask, Mask on N95 FFP2 Mask, and N95 FFP2 Mask. The firm also engages in the trading of plastic granules such as Polypropylene Granule, High-Density Polyethylene (HDPE) Granules, Low-Density Polyethylene (LDPE), Linear Low-Density Polyethylene (LLDPE) Granules, etc. On the concern side, the company may require additional capital from time to time depending on its business needs. Any issue of shares or convertible securities would dilute the shareholding of the existing shareholders and such issuance may be done on terms and conditions, which may not be favorable to the then existing shareholders. The company has not obtained insurance coverage in respect of all risks. In absence of any coverage of insurance the company faces the risks of loss of profit due to product defect / liability risk, loss of profits, losses due to terrorism, etc.

The issue has been offered in a price band of Rs 36-38 per equity share. The aggregate size of the offer is around Rs 11.02 crore to Rs 11.63 crore based on lower and upper price band respectively. On the performance front, the company’s total revenue has increased by 21.53% to Rs. 3,129.84 lakh for financial year 2020-21 from Rs 2,575.33 lakh for financial year 2019-20 bifurcated into revenue from operations and other income. The company’s profit after tax decreased by Rs 28.93 lakh, showing a percentage decrease of (9.02%). The company intends to improve operating efficiencies to achieve cost reductions to have a competitive edge over the peers. It intends to have close interaction with its customers to strengthen its relationships with them and enabling it to understand the market perception and demand for its products. It seeks to continue to work towards the up gradation and modernization of its infrastructure and technology in future as well for sustaining its growth in the subsequent periods.