Pattech Fitwell Tube Components coming with an IPO to raise Rs 12 crore

Pattech Fitwell Tube Components

• Pattech Fitwell Tube Components is coming out with an initial public offering (IPO) of 24,00,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 50 per equity share.
  
• The issue will open for subscription on April 5, 2023 and will close on April 12, 2023.
  
• The shares will be listed on NSE Emerge Platform.
  
• The share is priced 5.00 times higher to its face value of Rs 10.
  
• Book running lead manager to the issue is Fedex Securites.
  
• Compliance Officer for the issue is Anita Digbijay Paul.
  

Profile of the company

The company is manufacturer of forging products for the non-automotive sector. It has total installed capacity of 14104.13 MTPA for manufacturing of forged flanges, complex and specialized machined components, welded assemblies in the area of open die forgings. The company converts semi-finished / raw products to finished products by carrying its value-added process such as forming, bending, drilling, cutting, inspection, polishing, painting, blasting, welding, punching, marking, testing and packaging. The company manufactures these products from carbon steel, alloy steel and stainless-steel pipes, coils, plates, structures and forgings conforming to international standards. At present, it has highly sophisticated and technically competent plant divided into two parts namely Part A –- located at Survey Ansons Limbani Estate, Near GETCO 66 K.V. sub-station, G.I.D.C, Por, Dist., Vadodara, Gujarat, India and Part B located at Ansons Limbani Estate, Near GETCO 66 K.V. substation, G.I.D.C, Por, N.H-08, Dist.: Vadodara, Gujarat, India.

The company has been in the business of manufacturing of a wide range of forged and machined components that is used in pipes and tube fittings like Elbows, Flanges, Tees, Reducers, Caps, pipe spools and other fabrication works being used in various industries like fertilizers, petrochemical, power, chemical & pharmaceutical, food processing, oil & gas, desalination & water treatment, ship building, defense, fabrication of process equipments, instrumentation etc. Its Promoters between themselves have in-depth knowledge and good experience in the forging and forming industry. Its Promoters share various functional responsibilities amongst themselves for effective management and are well supported by qualified and experienced professionals at different levels with appropriate functional responsibilities.

Proceed is being used for:

• Funding working capital requirements.
  
• General corporate purposes.
  

Industry overview

One of the primary forces behind industrialization has been the use of metals. Steel has traditionally occupied a top spot among metals. Steel production and consumption are frequently seen as measures of a country’s economic development because it is both a raw material and an intermediary product. Therefore, it would not be an exaggeration to argue that the steel sector has always been at the forefront of industrial progress and that it is the foundation of any economy. The Indian steel industry is classified into three categories – major producers, main producers and secondary producers.

As of April 2022, India was the world’s second-largest producer of crude steel, with an output of 10.14 MT. In FY22, the production of crude steel and finished steel stood at 133.596 MT and 120.01 MT, respectively. In April-Oct 2022, the production of crude steel and finished steel stood at 71.56 MT and 68.17 MT respectively. The growth in the Indian steel sector has been driven by the domestic availability of raw materials such as iron ore and cost-effective labour. Consequently, the steel sector has been a major contributor to India’s manufacturing output. The Indian steel industry is modern, with state-of-the-art steel mills. It has always strived for continuous organized it of older plants and up-gradation to higher energy efficiency levels.

In the past 10-12 years, India’s steel sector has expanded significantly. Production has increased by 75% since 2008, while domestic steel demand has increased by almost 80%. The capacity for producing steel has grown concurrently, and the rise has been largely organic. In FY22, the production of crude steel and finished steel stood at 133.596 MT and 120.01 MT, respectively. The consumption of finished steel stood at 105.751 MT in FY22. In April 2022, India’s finished steel consumption stood at 9.072 MT. In April-July 2022, the production of crude steel and finished steel stood at 40.95 MT and 38.55 MT respectively. In FY22, exports and imports of finished steel stood at 13.49 MT and 4.67 MT, respectively. In FY22, India’s export rose by 25.1% YoY, compared with 2021. In FY21, India exported 9.49 MT of finished steel. In July 2022 exports of finished steel stood at 3.80 lakh MT.

Pros and strengths

Diversified customer base and long-standing relationship with customers: The company has a well-diversified customer base all over India, wherein it provides the products and the services as per their requirements. This reduces the intensity of any significant single customer’s contribution in revenues. Its products are used in various industries like fertilizers, petrochemical, power, chemical & pharmaceutical, food processing, oil & gas, desalination & water treatment, ship building, defense, fabrication of process equipments, instrumentation etc. Its top ten customers contribute 100% of its revenue from operations as of the for the period from August 22, 2022 to November 30, 2022. It has relationships spanning around 5 years with its top ten customers by contribution to revenue from operations.

Diversified Product portfolio: The company manufactures wide range of forged and machined components that is used in pipes and tube fittings like Elbows, Flanges, Tees, Reducers, Caps and other fabrication works catering to fertilizers, petrochemical, power, chemical & pharmaceutical, food processing, oil & gas, desalination & water treatment, ship building, defense, fabrication of process equipments, instrumentation, etc. With presence in most of the allied products in these industries, the company caters to wide range of customers.

Well Established Manufacturing Facility designed to serve multiple products range: The company is presently manufacturing a wide range of forged and machined components that is used in pipes and tube fitings like Elbows, Flanges, Tees, Reducers, Caps, pipe spools and other fabrication works and have manufacturing unit catering to the different product portfolios. Its products are used in various industries like fertilizers, petrochemical, power, chemical & pharmaceutical, food processing, oil & gas, desalination & water treatment, ship building, defense, fabrication of process equipment, instrumentation etc. Its manufacturing plant is divided into 2 parts which are spread across a plant area of 40911 sq. ft. (Part A) and 146303.72 sq. ft. (Part B) respectively having a closed shed as well as open area. Part A is mainly designed for manufacturing processes of products like cutting, forming, forging, heat treatment, machining, marking etc., whereas Part B is designed to carry out blasting, painting and fabrication works.

Risks and concerns

Highly dependent on suppliers for uninterrupted supply of raw-materials: The company procures its supply of raw materials from various vendors in the market. It has not entered into any long-term supply agreement for supply of major raw materials. Currently, it has been able to secure timely supply of required raw material for its existing activity. Raw material is easily available in the domestic market and no difficulty is envisaged in sourcing of the raw material. In case of any disruption in supply of raw materials from these suppliers/vendors or its procurement of raw materials on terms that are not favorable to it; will adversely affect its operations and financial cost. Further in case the company is unable to procure the requisite quantities of raw materials well in time and at competitive prices due to volatility in the prices of raw materials, the performance of the company may be affected, thus adversely affecting its business, prospects, results of operations and financial condition.

Requires significant amounts of working capital:  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 the company decide 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.

Dependent on third party transportation providers: The company depends on third-party transportation to receive input materials required for its products and to deliver its finished products to its customers. The company use 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. The occurrence of all or any of the above factors will result in delays in deliveries to its customers which could further causes a shutdown in the customer’s production processes exposes it to damage and penalties, adversely affect its reputation, cause a loss of business and adversely impact its results of operations.

Outlook

Pattech Fitwell Tube Components is the leading manufacturing company producing all type of Pipe and Tube Fittings in C.S, A.S, and S.S like Elbow, Tee, Reducer, Cap, Spool, Stub End and Flanges etc. The company has a total installed capacity of 14104.13 MTPA for manufacturing forged flanges, complex and specialized machined components, welded assemblies in the area of open die forgings. It convert semi finished/raw products to finished products by carrying out various value-added processes like forming, bending, drilling, cutting, inspection, polishing, painting, blasting, welding, punching, marking, testing, and packaging.  On the concern side, the company’s operation are labour intensive is dependent on labour force for carrying out its manufacturing operations. Shortage of skilled/unskilled personnel or work stoppages caused by disagreements with employees could have an adverse effect on its business and results of operations.

The company is coming out with a IPO of 24,00,000 equity shares of Rs 10 each at a fixed price of Rs 50 per share to mobilize Rs 12 crore. On performance front, the company’s total revenue increased by 22.65% from Rs 1,844.93 lakh for the Financial Year ended March 31, 2021 to Rs 2,262.87 lakh for the Financial Year ended March 31, 2022. The company has recorded a profit after tax of Rs 144.45 lakh for the Financial Year ended March 31, 2022 from a loss of Rs 1.16 lakh for the Financial Year ended March 31, 2021. Meanwhile, the company intends to cater to the increasing demand of its existing customers and also to increase its existing customer base by enhancing its product portfolio. The company intends to focus on adhering to the quality of its offerings. This is necessary so as to make sure that it maintain the high-quality standards for its offerings and get repeat orders from its customers.