MCON Rasayan India coming with an IPO to raise Rs 6.84 crore

MCON Rasayan India

• MCON Rasayan India is coming out with an initial public offering (IPO) of 17,10,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 40 per equity share.  
  
• The issue will open for subscription on March 6, 2023 and will close on March 10, 2023.
  
• The shares will be listed on NSE Emerge Platform.
  
• The share is priced 4.00 times higher to its face value of Rs 10.
  
• Book running lead manager to the issue is GYR Capital Advisors.
  
• Compliance Officer for the issue is Kunal Ashok Borkar.
  

Profile of the company

The company is in the business of manufacturing, marketing and selling of modern building materials and construction chemicals with a suite of more than 80 products which includes a range of construction materials and construction chemicals in both powder and liquid forms. Its powder products such as ready mix plaster, tile adhesives, block adhesives, wall putty, micro concrete & polymer mortar, engineering non shrink grouts and floor hardeners are widely used in the building construction segment. Its liquid portfolio having products such as poly-urethane (PU) based liquid membrane, bonding agents, paints, anti-corrosive coatings, concrete admixtures and curing compounds. Its products are marketed and sold under the ‘MCON’ brand. 

The company has manufacturing plants, one each in Valsad and Navsari, Gujarat. Its plant at GIDC Sarigam, Valsad, Gujarat mainly manufactures admixtures, wall putty, tile adhesives, paints, concrete repair systems and waterproofing systems and has an installed capacity of 2,500 MTPA. Its other plant at Chikli, Navsari, Gujarat mainly manufactures readymix mortars, block adhesives and tile adhesives and has an installed capacity of 12,500 MTPA. Its third plant is a greenfield project under-construction at Ambethi, Valsad and is expected to be operational by the end of FY 2023. Its total installed manufacturing capacity will be 36,000 MTPA for powder products and 6,000 MTPA for liquid products by the end of FY 2023. Its manufacturing plants are situated at Valsad being the border of Maharashtra and Gujarat which is strategic location with respect to serving the western regional markets of the country.

Proceed is being used for:

• Funding the working capital requirements of the company.
  
• General Corporate Purposes.

Industry overview

The construction industry is a vital indicator of development for an economy as it creates investment opportunities across various sectors. With a share of around 7.9% in, the construction industry has been estimated to make contribution of Rs. 10.73 trillion to total Gross Value Added (GVA) in FY22.  In last decade, Indian Construction Industry has witnessed unparalleled growth. The construction industry is expected to remain upbeat due to growing demand from real estate and infrastructure projects. The GVA of construction segment had experienced slowdown since the start of FY20 due to factors such as general elections, extended monsoon. Slowdown got severe from March 2020 as a resultof the restrictive measures and lockdowns imposed by the Government to contain the spread of the COVID-19 pandemic, that led to a halt of economic activities and business operations. Thus, in FY21, Construction sector GVA (at basic price) fell by a sharp 7.3%  

Construction chemicals, as the name suggests, are chemicals formulation used to hold construction materials at the time of construction. These formulations are used with construction materials like cement, concrete and other construction materials. The construction could be residential, non-residential or non-building. These chemical compounds are sub-category of speciality chemicals. The main purpose of construction chemicals is to improve quality of building materials and add more sustainability and strength to the structures. The cost of construction chemicals imparts minimal percentage of total project costs, but the benefits realised are for more. Some of these chemicals help inminimizing the quantities of cement and water used in the construction and can be used for cross-linkingor liquid to solid phase change application. The Indian Construction chemicals market majorly consists of admixtures, flooring chemicals, waterproofing compounds, adhesives & sealants and repair and rehabilitation. The adhesives, sealants and admixtures segment own the majority of the share in this market, preceded by repair and rehabilitation segment. 

Pros and strengths

Comprehensive product portfolio: The company is engaged in the business of manufacturing and sales of modern building materials and construction chemicals. From the development of new buildings by developers to repair of existing buildings by contractors, its products provide a wide range of solutions for modern living. Innovative materials that provide strength, stability, durability and resistance to dampness and water is the ultimate objective of any modern building material. Its modern building materials and construction chemicals portfolio has more than 80 products which are manufactured to provide strength and stability, resistance to dampness and water, durability, comforts and conveniences. Its suite of products includes a range of construction materials and chemicals such as concrete admixtures, tile adhesives & grout, waterproofing system/products, concrete repairs, ready mix mortar, wall finishes and paints, anti-corrosive system/products, engineering grouts & industrial floors and concrete essentials. Its products are marketed and sold under the ‘MCON’ brand.

Diverse customer base: The company caters to modern building and development requirements of its clients like developers, civil contractors and architects. It has over the years established relationships with various clients and continues to serve them with its product offerings. It supplies its products through market intermediaries like dealers and distributors to institutional customers like builders & developers and large civil & engineering contractors involved in the construction of civil, commercial and infrastructure projects. It plays an important role in the entire life cycle of any construction whether it is a new construction where its products such as readymix plasters, tile adhesives, paints, wallputty and block adhesives used for development or in an old and dilapidating building or structure which requires re-enforcements like its micro concrete, polymer mortar, liquid polymers, epoxy mortars, crack fillers and corrosive protection to provide strength and stability to the existing structure.

Strategic location of manufacturing units: The company has two manufacturing units out of which one is situated at GIDC Sarigam, Valsad, Gujarat which are industrial belts which is a manufacturing hub for various industries like chemicals, agrochemicals, pharmaceuticals, lubricants, food, edible oil, etc. Its other plant is situated at Chikli, Navsari, Gujarat. Its third plant is a Greenfield project under-construction at Ambethi, Valsad, Gujarat and will be operation by the end of FY 2023. It intends to cease operations at the Chikli plant once its Valsad plant reaches its full operational potential. In addition to being in or around industrial belts, it is close to the Maharashtra-Gujarat border and being close to its end-user market provides various advantages including lower freight costs and improved customer relationships. The location of these units with proximity to Gujarat and Maharashtra and has good connectivity to ports, airports and highways/expressways which enhances its capability of supplying its products in time and on a cost-effective basis to its clients.

Risks and concerns

Business is subject to seasonal variations: The company’s business is subject to seasonal variations on account of lower demand for modern building materials and chemicals during the monsoon season. Consequently, its revenues recorded during the months of June to September could be relatively lower compared to other periods. During the monsoon season, construction activity is curtailed and it may continue to incur operating expenses, but its revenue from the sale of its products may be delayed or reduced. It utilises this period of subdued demand to plan the annual shutdown and maintenance of its manufacturing units in order to improve efficiency during peak periods. However, as a result of such fluctuations, its sales and results of operations may vary by fiscal quarter, and the sales and results of operations of any given fiscal quarter may not be relied upon as indicators of the sales or results of operations of other fiscal quarters or of its future performance.

Substantial working capital requirements: The company’s business requires significant amount of working capital. It requires significant amount of its working capital for purchasing key raw materials. Though, presently it has sanctioned working capital limits from the existing lenders and its Objects of the Issue is to meet its future working capital requirements, it may need additional debt in the future to satisfy its working capital needs. It strives to maintain strong relationships with banks and non-banking financial institutions to increase its financing flexibility. Its credit profile often enables it to obtain financing on favourable terms from financial institutions. However, it cannot assure that its relationships with lenders will not change or that lenders will continue lending practices it is familiar with. Its lenders may implement new credit policies, adopt new pre-qualification criteria or procedures, raise interest rates or add restrictive covenants in loan agreements, some or all of which may significantly increase its financing costs, or prevent it from obtaining financings totally.

Face competition: The company faces competition from various domestic manufacturers and dealers. Competition emerges from organised as well as unorganised players in the modern building materials and chemicals industry. The organised players in the industry compete with each other by providing high quality, consistent and time bound products, customization and innovation. It has a number of competitors offering products similar to it. It ensures the product quality, timely delivery, product innovation, customization in products which helps it to maintain strong relationship with its customers which in turn provides edge over its competitors. It intends to continue competing vigorously to increase its market reach and sales volumes to manage its growth in an optimal way.

Outlook

MCON Rasayan India is a decade old company in the field of Civil Engineering and Construction Chemicals. Today, it is the leading manufacturer and supplier of high quality Construction Chemicals & Building Finishing Products to the Indian Industry and Overseas Markets. It has maintained the highest level of Quality and Consistency by following Systems is certified as an ISO 9001 : 2015, ISO 14001:2015 & ISO 18001:2015 Company.  After gaining foothold in Construction Chemicals, it has diversified its product range with focus on client’s need into Paint industry with premium quality Wall Putty and External Texture Paint. This has been achieved by continuous R&D to cope up with changing dynamics in construction and infrastructure industry. On the concern side, the company depends on third-party suppliers, vendors and other partners to provide the necessary equipment and services that it will need for its continuing operations. It cannot assure that it will be able to continue to obtain equipment on commercially acceptable terms, or at all, or that its suppliers, vendors and partners will continue to enter into or honour the contracts for their services.

The company is coming out with a IPO of 17,10,000 equity shares of Rs 10 each at a fixed price of Rs 40 per share to mobilize Rs 6.84 crore. On performance front, the total income of the company for fiscal year 2022 was Rs 1,922.36 lakh against Rs 899.78 lakh total income for Fiscal year 2021. An increase of 113.65% in total income. Profit after tax for the Fiscal 2022 was at Rs 44.40 lakh against profit after tax of Rs 18.68 lakh in fiscal 2021, a 137.69% increase. Meanwhile, the company continues to seek to increase its market and strengthen its position in the industry. It proposes to achieve this by setting up a greenfield manufacturing plant at Ambethi, Valsad, Gujarat with a fresh capacity of 18,000 MTPA. The company intends to further expand its institutional sales business by developing relationships with large real estate developers, civil and infrastructure contractors and government bodies.