Mega Flex Plastics
Mega Flex Plastics has come out with an initial public offering (IPO) of 28,50,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 40 per equity share.
The issue opened on September 06, 2022 and will close on September 09, 2022.
The shares will be listed on NSE Emerge Platform.
The share is priced 4 times higher to its face value of Rs 10.
Book running lead manager to the issue is Finshore Management Services.
Compliance Officer for the issue is Parul Mantri.
Profile of the company
Mega Flex Plastics is primarily engaged in manufacturing of Leno Bags which is used for packaging of agricultural produces like potatoes, onions, garlic, coconuts, fruits and vegetables. In addition to Leno Bags, the company is also manufacturing Woven Fabric and Sutli (Fibrillated Twisted Thread). The product which it majorly manufacture i.e., Leno Bags is made from Plastic Granules and is used multiple times for storage of fruits and vegetables. The said product is widely used in Cold Storages and warehouses for storage of various products. The company’s state-of-the-art plant for manufacturing PP Leno Bags is situated at Sudha Ras Food & Poly Park (Industrial Park), Howrah in the state of West Bengal, India. The plant is strategically located on NH-6, about 120 km from international all-weather port of Haldia and around 30 kms from Kolkata port, which gives it excellent connectivity and transport facilities.
The company started with state of art manufacturing facility with production capacity of 23.08 million Bags per year by installing 27 Leno looms in the year 2007. It gradually increased its production capacity by adding looms to its factory and till date, its factory has 60 looms with a production capacity of 51.30 million Bags per year. The core machinery comprising of an Extrusion Tape Line (melt capacity of 450 kg/hr) and 60 Leno Looms. The efficient and motivated workforce and with thrust on maintaining machine efficiency, it was able to achieve optimum level of production year after year. Strict production supervision and special focus on quality control ensured that only quality Leno bags products reached to the customers. Its bags are trusted upon by the customers. Its brands include Lenoflex, Kisan, Kisan Regular, Goldflex, Goldflex Lite, Tiger, Tiranga, Hena. The Lenoflex is most preferred brand for storage of potato when the farmer looks for the quality. It also exports Leno Bags to European countries and its quality is well accepted there also. It is also capable to produce Sutli (fibrillated Twisted Thread) as per the demand.
Proceed is being used for:
Industry overview
The Indian plastics industry made a promising beginning in 1957 with the production of polystyrene. Thereafter, significant progress has been made, and the industry has grown and diversified rapidly. The industry spans the country and hosts more than 2,000 exporters. It employs about 4 million people and comprises more than 30,000 processing units, 85-90% of which are small and medium-sized enterprises. In FY20, plastic and linoleum export from India stood at $7.55 billion. During April 2019 to January 2020, plastic export stood at $7.045 billion with the highest contribution from plastic raw material at $2.91 billion, plastic sheets, films, and plates at $1.22 billion and packaging materials at $722.47 million. India exported plastics raw materials worth $ 813 million in October 2020, and the export during April 2020 to October 2020 was $5.58 billion. India exported plastics worth $237.16 million in January 2021, and the export during April 2020 to January 2021 was $2.76 billion. The total plastic and linoleum export during April 2020 to February 2021 was $6.73 billion and for the month of February 2021, it was $630.94 million.
The Indian plastics industry produces and export a wide range of raw materials, plastic-moulded extruded goods, polyester films, moulded/ soft luggage items, writing instruments, plastic woven sacks and bags, polyvinyl chloride (PVC), leather cloth and sheeting, packaging, consumer goods, sanitary fittings, electrical accessories, laboratory/ medical surgical ware, tarpaulins, laminates, fishnets, travel ware, and others. The Indian plastics industry offer excellent potential in terms of capacity, infrastructure, and skilled manpower. It is supported by many polymer producers, plastic process machinery and mould manufacturers in the country. Among the industry’s major strengths is the availability of raw materials in the country. Thus, plastic processors do not have to depend on import. These raw materials, including polypropylene, high-density polyethylene, low-density polyethylene, and PVC, are manufactured domestically.
Pros and strengths
Smooth flow of operations: The company has maintained good relationship with its major customers. It is successful in building a strong client base for its business. Its existing relationships help it to get repeat business from its customers. This has helped it to maintain a long-term working relationship with its customers and improve its customer retention strategy. Its existing relationship with its clients represents a competitive advantage in gaining new clients and increasing its business.
Well-defined organizational structure: The company has a qualified and experienced management that has decision making powers. It is expected to benefit from the management’s ability to ensure smooth flow of operations. The company is managed by a team of competent personnel having knowledge of core aspects of its Business. Its senior management has pioneered its growth and fostered a culture of innovation, entrepreneurship and teamwork within its organization. Its personnel policies are aimed towards recruiting talented employees and facilitating their integration into its organization and encouraging the development of their skills and expertise. Its experience, knowledge and human resource will enable it to drive the business in a successful and profitable manner for decades to come. It is dedicated to the development of expertise and know-how of its employees and continue to invest in them through training and skills.
Existing supplier relationship: The company’s existing supplier relationship protects the business with terms of supply and pricing of the products, the quality of the products offered etc. The company, being a small and medium size organization sign annual memorandum of understanding (MOU) with some big polymer suppliers for smooth supplies. The company enjoys excellent relationship with its suppliers.
Risks and concerns
Increasing pollution control norms and imposition of ban on Plastic material for packing products: There is an increased awareness towards controlling pollution and many economies including India have joined in the efforts to ban plastic product. In this regard Government of India has list out single use plastics items, imposing ban on their usage effective July 1, 2022. Plastic in any form takes many years to decompose and is very dangerous for other living beings. Therefore, in case any plastic packaging products manufactured by the company are banned in India or in any of the markets where the company export its products, it could have a material and adverse effect on the business and results of operations. Furthermore, many countries around the world are finding alternatives to the use of plastic products, if such a situation arise and If the Government of India legislates against the use of plastic products or if regulations for the manufacture and use of plastic packaging products are made more stringent, it could have a material and adverse effect on the business of the company and results of operations.
Geographical concentration: The company derives a significant proportion of its revenue from the state of West Bengal. The total contribution from West Bengal was Rs 4143.79 lakh, Rs 2877.19 lakh and Rs 3055.51 lakh comprising of 89.17%, 97.56% and 97.01% respectively, to its revenue from operations in Fiscal 2022, Fiscal 2021 and Fiscal 2020. Such geographical concentration of company’s business in this region heightens its exposure to adverse developments related to competition, as well as economic and demographic changes in this region, which may adversely affect business prospects, financial conditions and results of operations of the company. Further, the company cannot assure its investors that it will be able to reduce its dependence on operations in state of West Bengal, or that such dependence will not increase in the future. Moreover, inability to expand into other areas may adversely affect business prospects, financial conditions and results of operations of the company.
Highly dependent on sale of leno bags: The company’s revenue majorly derives from sales of Polypropylene Leno Bags. For the financial year 2022, 2021 and 2020, its revenue from sales of Leno Bag was Rs 4099.66 lakh, Rs 2759.39 lakh and Rs 3029.35 lakh comprising of 88.22%, 93.56% and 96.18% respectively of its revenue from operations. As a result, the business of the company is exposed to risks related to product concentration. Company’s inability to produce sufficient quantities of the existing products offered to its customers in a timely manner or at all, or the company’s failure to develop new products that meet the evolving demands of end consumers or to obtain the regulatory approvals for such products, the development of successful products by its competitors and general economic conditions. In addition, the business, financial condition, results of operations and prospects could be materially and adversely affected if one or more of these uncertainties or disruptions occur.
Outlook
Mega Flex Plastics is primarily engaged in manufacturing of Leno Bags which are used for packaging agricultural products like potatoes, onions, garlic, coconuts, fruits and vegetables. The company is also manufacturing Woven Fabric and Sutli (Fibrillated Twisted Thread). The company operates in two segments: Manufacturing of Leno Bags, PP Fabrics, Sutli (Fibrillated Twisted Thread) and trading of Polypropylene Granules. The company's plant is strategically located on NH-6, about 120 km from the international all-weather port of Haldia and around 30 km from Kolkata port, which gives it excellent connectivity and transport facilities. The company's brands include Lenoflex, Kisan, Kisan Regular, Goldflex, Goldflex Lite, Tiger, Tiranga, and Hena. The company's Leadership team consists of its promoters who have several decades of experience in the field of packaging solutions. This has made the company a highly acclaimed and trusted enterprise with a focus on innovation and sustained growth. On the concern side, any failure or defect in packaging products could result in a claim for damages, regardless of the responsibility for such a failure or defect. Although the company attempt to maintain quality standards, it cannot assure that all items would be of uniform quality, which in turn could adversely affect the value of brand, and sales could be diminished if the company is associated with negative publicity. Besides, the company cannot be certain that it will not suffer any disruption of operations due to strikes, work stoppages or increased wage demands in the future.
The company has come out with a maiden IPO of 28,50,000 equity shares of Rs 10 each at a fixed price of Rs 40 per share to mobilize around Rs 11.40 crore. On performance front, during the FY 2021-22 the revenue from operation and other income of the company has been increased to Rs 4739.16 lakh as against Rs 3108.53 lakh in the FY 2020-21 representing an increase of 52.46% from last year. This increase is driven by increase in sale of Leno Bags manufactured by the Company and other operating income. The company has earned profit of Rs 265.93 lakh in FY 2021-22 as against profit of Rs 128.87 lakh in the FY 2020- 21. Meanwhile, as a part of the company’s growth strategy its focus is on increasing sales volume through expansion, diversification and spread in geographical outreach. The company is in the process of tapping big buyers in other states and has started seed marketing. In FY 2021-22 it could successfully tap few big customers in Rajasthan, Karnataka and Uttar Pradesh and have supplied few consignments of highest quality bags at very competitive prices to penetrate the market. This effort will bear the fruits very soon and would make the base for new market when the capacity increases further.
