Lead Reclaim and Rubber Products coming with an IPO to raise Rs 4.88 crore

Lead Reclaim and Rubber Products

• Lead Reclaim and Rubber Products is coming out with an initial public offering (IPO) of 19,50,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 25 per equity share.
• The issue will open for subscription on February 09, 2023 and will close on February 13, 2023.
• The shares will be listed on NSE Emerge Platform.
• The share is priced 2.5 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 Arti Totla.

Profile of the company

The company is in the business of manufacturing of reclaimed rubber, crumb rubber powder and rubber granules. The company focus on a) saving valuable natural resources by way of recycling; and b) helping its customers fulfil their circularity aspirations through use of its reclaimed rubber products. The company is one of the few companies in its reclaimed rubber industry that can process radial rubber, scrap tyre and tube rubber. The company’s manufacturing facility employs an extensive and stringent quality control mechanism at each stage of the recycling process to ensure that its finished product conforms to the exact requirement of its customers. The company’s manufacturing facility is accredited with ISO 9001:2015 certifications for quality management system. It is also the member of Rubber Manufacturers’ Welfare Association.

Its product portfolio offers a diversified product range which includes variety of grades, thickness, widths and standards of various grades of whole tyre reclaim rubber, butyl reclaim rubber and natural reclaimed rubber. Currently, it sells its products to OEM’s, Tier I companies in the automotive manufacturing sector, distributors and dealers. It also sells its products to foreign buyers located in Sri Lanka, Argentina, Turkey, China, etc. through merchant exporters. The company’s revenue from exports (including sales through merchant exporter) for the six months period ended September 30, 2022 and for the FY 2022 and FY 2021 has been Rs 162.60 Lakh, Rs 522.39 Lakh and Rs 15.75 Lakh, respectively which constituted 33.02%, 50.71% and 2.24% of its revenue from operations for the respective fiscal.

Proceed is being used for:

• Funding its working capital requirements
  
• Purchase of plant and machinery for augmenting its manufacturing facility
  
• General corporate purposes

Industry overview

The Rubber Goods Industry excluding tyres and tubes consists of 4550 small and tiny units generating about 5.50 lakh direct jobs. The rubber industry manufactures a wide range of products like rubber cots and aprons, contraceptives, footwear, rubber hoses, cables, camelback, battery boxes, latex products, conveyor belts, surgical gloves, balloons, rubber moulded goods etc. The main raw materials used by the rubber goods manufacturing industry are Natural Rubber, various types of Synthetic Rubber, Carbon Black, Rubber Chemicals etc. The estimated export of rubber goods during 2021-22 is Rs. 12407 crore as against Rs 9388 crore in 2020-21. The estimated of import of rubber goods during 2021-22 is Rs 21382 crore as against Rs 15549 core in 2020-21. The performance of rubber goods industry hardly needs any emphasis. From healthcare to footwear, high performance tyres to conveyer belts are indispensable for country’s infrastructure.

Domestic Tyre Industry fulfils practically 100% requirement of tyres making it a true champion of ‘AatmaNirbhar Bharat’. Nearly 25% of the total domestic tyre production was exported in FY21. Some of the domestic tyre companies are already amongst the top 30 global tyre companies. Tyres play an integral role to ensure mobility including movement of passengers and essential goods across the urban and rural landscape of the country using all types vehicles ranging from carts, tractors, trucks and buses to the latest generation passenger cars that ply on the modern expressways. Various types of tyres are manufactured in India that includes Moped tyre weighing 1.5 Kg to Off the Road tyres for Earthmovers which weigh 1.5 tonnes, Bias Ply tyres to rugged all steel radial truck tyres to high performance passenger car radial and tubeless tyres etc. India is one of the few countries worldwide which has attained self-sufficiency in manufacturing a wide range of tyres for all applications.

Pros and strengths

In-house manufacturing facility: The company presently carries all its manufacturing operations through its production facility located in Gujarat which has a total approve installed capacity of 5520 MT for processing nylon tyre srap, butyle tube scrap, natural tyre scrap and radial tyre scrap. It has been able to setup an efficient, technology driven manufacturing process that has helped it to manufacture its products in accordance with the requirements and specifications of its customers in a cost-effective manner. The company’s infrastructure in the manufacturing facility gives it the flexibility to process various types of whole tyre and rubber scrap, and manufacture recycled rubbers in line with the required composition.

Diversified customer base: The company serves a diversified customer base ranging from tyre and tube manufacturers to automobile parts manufacturers, rubber part manufacturers, conveyor belt manufacturers and agricultural products manufacturer. It generally does not enter into long term agreements with its customers; however, it has developed long-standing relationships with these customers some of whom have been with it for over five years. The company’s out of top 10 customer contribute around 90% of its sales. The company has catered its domestic customers and has also exported its products in Sri Lanka, Argentina, Turkey, China, etc. (including sales through merchant exporter) for the six-month period ended September 30, 2022 and for the FY 2022 and FY 2021 has been Rs 162.60 lakh, Rs 522.39 lakh and Rs 15.75 lakh, respectively which constituted 33.02%, 50.71% and 2.24% of its revenue from operations for the respective fiscal.

Stringent quality control mechanism ensuring standardized product quality: Quality assurance and quality control are integral part of its manufacturing operations. The company’s testing laboratory is equipped with all necessary infrastructure to test raw material and finished goods. It inspects the entire process ensuring quality of its products is maintained. Keeping in view of the expectations of its customers for the quality of its products, it takes special care from procuring raw material to packing of finished goods. Stringent quality control mechanism ensuring standardized product quality.

Risks and concerns

Maximum revenue comes from top 10 customers: The company’s top ten customers contribute 94.20% to a substantial portion of its revenues for the year ended March 31, 2022. However, the composition and revenue generated from these clients might change as it continues to add new customers in normal course of business. The company’s reliance on a limited number of customers for its business exposes it to risks, that may include, but are not limited to, reductions, delays or cancellation of orders from its significant customers, a failure to negotiate favourable terms with its key customers or the loss of these customers, all of which would have a material adverse effect on the business, financial condition, results of operations, cash flows and future prospects of the company. Any decline in its quality standards, growing competition and any change in the demand for its products by these customers may adversely affect its ability to retain them.

Significant working capital requirement: The company’s business is working capital intensive. A significant portion of its working capital is utilized towards inventories and trade receivables. 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. If it decides to raise additional funds through the incurrence of debt, its interest and debt repayment obligations will increase, and could have a significant effect on its profitability and cash flows and it may be subject to additional covenants, which could limit its ability to access cash flows from operations. Any issuance of equity, on the other hand, could result in a dilution of shareholding. Accordingly, continued increases in its working capital requirements may have an adverse effect on its financial condition and results of operations.

Significant dependence on third party transportation: The company depends on third-party transportation to receive input materials required for its products and to deliver its finished products to its customers. It uses third-party logistics providers for all of its product distribution and input materials procurement. This makes it dependent on such third-party transportation providers. Weather-related problems, strikes, or other events which affects third-party transportation could impair its ability to receive the raw materials and/or deliver the requisite quantities of products in time to its customers, which could adversely affect the performance of its business, results of operations and cash flows.

Outlook

Lead Reclaim and Rubber Products is in the business of manufacturing reclaimed rubber, crumb rubber powder, and rubber granules. The product diversification of the company allows it to fulfill the requirements of varied customers. Their product range varies in grades, thickness, widths, and standards of various grades of whole tyre reclaim rubber, butyl reclaims rubber and natural reclaimed rubber. On the concern side, the company’s top ten customers contribute 94.20% of its revenues for the year ended March 31, 2022. Any loss of business from one or more of them may adversely affect its revenues and profitability.

The company is coming out with an IPO of 19,50,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 25 per equity share to mobilize Rs 4.88 crore. On performance front, the company’s total revenue increased by 46.82% to Rs 1,036.93 lakh for FY22 from Rs 706.26 lakh for FY21. This was primarily attributable to increase in demand for reclaim rubber products after Covid 19, restriction on imports and end user follows Make in India concept. Moreover, the company’s profit after tax increased by 110.53% to Rs 47.87 lakh for Fiscal 2022 from Rs 22.74 lakh for Fiscal 2021. Going forward, the company is aiming to increase its manufacturing capability of reclaimed rubber products from radial and tubeless tyre. The company has one manufacturing facility for the production of its products. Its total approved installed capacity as on September 30, 2022 was 5520 MT of reclaimed rubber products. The increased production capacity of reclaimed rubber will make the company one of the major players in the industry. Further, reclaimed rubber has higher realization value and thus increasing its margin and profitability.