Resgen
Resgen is coming out with a 100% book building; initial public offering (IPO) of 60,00,000 shares of Rs 10 each in a price band Rs 45-47 per equity share.
The issue will open on February 28, 2023 and will close on March 02, 2023.
The shares will be listed on SME Platform of BSE.
The face value of the share is Rs 10 and is priced 4.50 times of its face value on the lower side and 4.70 times on the higher side.
Book running lead manager to the issue is Gretex Corporate Services.
Compliance Officer for the issue is Manisha Sharma.
Profile of the company
ResGen Limited was established in 2018 and is headquartered in Mumbai. It was envisioned to make environment saving projects commercially viable and highly scalable. Humanity has a massive problem, the usage of plastic, and the unavailability of a robust disposal and recycling ecosystem. The amount of plastics it uses cause various environmental hazards. Plastic reduction efforts cannot surpass the growing demand. Building sustainable steps towards a healthier environment needs its immediate attention. The company was founded on the idea of using plastic waste and converting it into a substitute for fuel. It has come up with an ingenious, eco-friendly solution, which uses each by-product to increase efficiency. It has taken a huge step towards seeing a pollution free India, and it hope it can leave a better pollution free future for its future generations.
The company is engaged in the process of manufacturing Pyrolysis Oil (a substitute for furnace oil) from all kinds of waste plastics. The company call this: PlasEco. During the manufacturing of PlasEco, it is able to repurpose the by-products generated, such as Carbon, which substitutes for coal; and Gas, which substitutes for LPG. The company has set up a Chemical Recycling Plant in Vikramgad (Palghar), Maharashtra, considering its proximity to the Municipal Corporations of Mumbai, Thane, Kalyan & Dombivli. The company has come up with an ingenious method, which is not only ecofriendly but also gives by-products which are very essential to one and all. The major by-product being combustible liquid and gaseous fuel, it can replace the diesel or furnace oils, which will directly reduce the need and impact of its combustible fuel resources. It uses a patented catalytic process to improve the efficiency, safety and scalability of the pyrolysis process.
Proceed is being used for:
Working capital requirements
Purchase of the land where its manufacturing facility is currently situated
General corporate purposes
Industry Overview
Waste management in India falls under the purview of the Union Ministry of Environment, Forests and Climate Change (MoEF&CC). By 2025, the waste management market size in India is projected to be worth $15 Billion, with annual growth around 7%. A growing economy, soaring urban population, rising living standards and increasing consumption levels are common trends in emerging economies across the globe. Similarly, in India, an increase in the purchasing power parity has led to more affordability, accessibility to resource use and a rapid surge in the waste volumes as well. Considering the current trend toward urbanization in India, the MSW quantum is expected to double the existing volumes within ten years. At approximately 80-85 MTs by 2030, presenting a business opportunity estimated at $20 Billion.
Meanwhile, India’s energy demand is expected to increase more than that of any other country in the coming decades due to its sheer size and enormous potential for growth and development. As of October 2022, India’s installed renewable energy capacity (including hydro) stood at 165.94 GW, representing 40.6% of the overall installed power capacity. The country is targeting about 450 Gigawatt (GW) of installed renewable energy capacity by 2030 - about 280 GW (over 60%) is expected from solar. The non-hydro renewable energy capacity addition stood at 4.2 GW for the first three months of FY23 against 2.6 GW for the first three months of FY22.
India’s ambitious renewables energy goals are transforming its power sector. Rising population and widespread electrification in rural homes is fuelling the demand for energy to power homes, businesses and communities. Cleanenergy will reduce pollution levels as villages become self- sustainable with their use of clean energy. In 2022, India’s renewable energy sector is expected to boom with a likely investment of $15 billion this year, as the government focuses on electric vehicles, green hydrogen, and manufacturing of solar equipment. It is expected that by 2040, around 49% of the total electricity will be generated by renewable energy as more efficient batteries will be used to store electricity, which will further cut the solar energy cost by 66% as compared to the current cost. Use of renewables in place of coal will save India Rs 54,000 crore ($8.43 billion) annually. Around 15,000 MW of wind-solar hybrid capacity is expected to be added between 2020-25.
Pros and strengths
Successfully decoded the formula for Pyrolysis: The pyrolysis process is complex and requires high operational and investment costs. After a 3 years of Research development and various tests the company has successfully decoded the method to convert the plastic waste and plastic scarp in Pyrolysis Oil. It has also been granted the patent for process of manufacturing. Its ability to manage to various resources, use of Technology, collaboration with potential partners and industry experts and most importantly its research-based approach to providing solution to customers’ problem area puts it ahead of competition and achieve the highest customer satisfaction.
Strategic location of manufacturing unit: The company has setup its manufacturing unit in the a very strategic area of Maharashtra. The basic raw material required for its manufacturing facility is the plastic waste and it is easily available at the industrial areas. These manufacturing facilities are in Maharashtra and are near to various industrial areas. The company source raw materials from the Industrials area and the consumption of its finish products are also done in the same industrial area. The company has selected the contract manufacturing facilities and suppliers as there are strategically located.
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 the business. Its senior management has pioneered its growth and fostered a culture of innovation, entrepreneurship and teamwork within its organization. A motivated and empowered employee base is key to its competitive advantage. 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. The company’s experience, knowledge and human resource will enable it to drive the business in a successful and profitable manner for decades to come. The company is dedicated to the development of expertise and know-how of its employees and continue to invest in them through training and skills.
Risks and concerns
Limited operating history: The company has been incorporated in the year 2018. Its manufacturing process had some crucial research and development which was carried out in the initially year of incorporation. It took 2 years to achieve the quality of the product that was saleable commercially. Hence, it started the commercial operations in the year 2021-2022. It’s been just two financial years since the company has been generating revenue from its core business operations. In order to maintain and grow its business and to effectively compete with its competitors in potential markets, it will need to establish new customer base and maximise the production and increase the sales and maintain the lower costs for its entire operations. Since the company has limited experience of operating in the core business, it cannot assure it would have a successful business operation in the future, there may be instances or market condition which could put it in situation which has not been faced by the company in its initial year of production and which would make it difficult to accurately assess its future growth prospects and may negatively affect its business, financial condition, cash flows and results of operations.
Significant revenue comes from few customers: The company derives a significant portion of its revenues from a limited number of customers which operate in the. For the financial year ended on March 31, 2022, its top 5 customers cumulatively accounted for around 100% of its total revenue from operations as per the Restated Financial Statements. And for the stub period ended on December 05, 2022 the, its top 5 customers cumulatively accounted for around 100% of its total revenue from operations. In the event any one or more customers cease to continue doing business with it, the company’s business may be adversely affected. The loss of such customers may be caused mainly because of competition and technological advancements. There may be factors other than its performance, which may not be predictable, which could cause loss of customers. Further, any significant reduction in demand for its oil from its key customers, any requirement to lower the price offered by these customers, or any loss or financial difficulties caused to these customers, change in relationship with the customers could have a material adverse effect on its business, result of operations, financial condition and cash flow.
Business is capital intensive: The company’s business requires a significant amount of working capital which is based on certain assumptions, and therefore, any change of such assumptions would result in changes to its working capital requirements. In many contracts, significant amounts of working capital are required to finance the purchase or manufacturing of materials, mobilization of resources and other work on projects before payment is received from clients. The company’s working capital requirements may increase due to an increase in the size of its operations and the number and size of projects that are required to be executed within a similar timeframe. The company’s capital expenditure requirements and growth strategy thus require continued access to significant amounts of capital on acceptable terms. It cannot assure that market conditions and other factors will permit future project and acquisition financings, debt or equity, on terms acceptable to it. The company’s ability to arrange financing and the costs of such financing are dependent on numerous factors, including general economic and capital market conditions, credit availability from financial institutions, the amount and terms of its existing indebtedness, investor confidence, the continued success of current projects and laws that are conducive to its raising capital in this manner.
Outlook
ResGen is engaged in the process of manufacturing Pyrolysis Oil (a substitute for furnace oil) from all kinds of waste plastics. The company was founded on the idea of using plastic waste and converting it into a substitute for fuel. The company has come up with an ingenious, eco-friendly solution, which uses each by-product to increase efficiency. This not only offers alternate use of plastic waste but add an additional solution for fuel. On the concern side, the company’s business is substantially dependent on its key customers from whom it derives a significant portion of its revenues. The loss of any significant clients may have a material and adverse effect on its business and results of operations. Moreover, the company has a limited experience and operating history in its core business activity, which makes it difficult to accurately assess its future growth prospects and may negatively affect its business, financial condition, cash flows and results of operations.
The company is coming out with an IPO of 60,00,000 equity shares of face value of Rs 10 each. The issue has been offered in a price band of Rs 45-47 per equity share. The aggregate size of the offer is around Rs 27 crore to Rs 28.20 crore based on lower and upper price band respectively. Minimum application is to be made for 3000 shares and in multiples thereon, thereafter. On performance front, the company’s revenue from operations is Rs 480.81 lakh for the financial year 2021-22 as compared to Rs 2.00 lakh for the financial year 2020-21 representing a 240-fold jump on account of incline in sales due to rapid recovery in business after the pandemic. The company’s profit after tax surged significantly to Rs 73.50 lakh for the financial year 2021-22 from Rs 0.63 lakh for the financial year 2020-21, reflecting a net increase of Rs 72.87 lakh.
Going forward, the company’s focus is on increasing sales volume through expansion, diversification and spread in geographical outreach. Its growth in local market can fetch it new business expansion and opportunities. It is currently catering mainly in Maharashtra because of capacity constraints but has started connecting to other states to understand their requirement. The company is pursuing lot of opportunities to increase its production capacity. With this increased production capacity, it shall be able to grow its client base geographically also.
