Pentagon Rubber
- Pentagon Rubber is coming out with a 100% book building; initial public offering (IPO) of 23,10,000 shares of Rs 10 each in a price band Rs 65-70 per equity share.
- The issue will open for subscription on June 26, 2023 and will close on June 30, 2023.
- The shares will be listed on NSE Emerge.
- The face value of the share is Rs 10 and is priced 6.50 times of its face value on the lower side and 7.00 times on the higher side.
- Book running lead manager to the issue is Beeline Capital Advisors.
- Compliance Officer for the issue is Shubhi Kishore.
Profile of the company
The company is an ISO 9001:2015 and engaged in manufacturing of Rubber Conveyor Belt, Transmission Belts, Rubber Sheets and Elevator Belts. Its products are ever evolving & continually perfected using latest developments in raw materials. Its competence and expertise to Business-to-Business partners in a number of areas. This is carried from its material handling and ore transportation systems across to complete system integration, and it offers its products which meet the quality benchmark of various industries.
The company has set up its manufacturing plant and managed under able guidance of a pool of seasoned professionals, the organization has installed the best quality infrastructure and facilities. With a wide-spread network of stockiest and importers, it has expanded its business relations across boundaries having earned a good clientele in many countries. The company operates from its Registered Office situated Gulabgarh Road, Village Behra Dist. S.A.S. Nagar Derabassi Mohali Punjab.
The manufacturing unit of Pentagon Rubber is located in Dera Bassi, Punjab, which is 25 KMS from Chandigarh city. It has installed one of the longest conveyor belting presses in India, with a production capacity of 21mtr in a single stroke. This technology allows it to produce conveyor rubber belting up to 3150KN/m, making it one of the top manufacturers in India. The production capacity is over 300 sq km of conveyor rubber belt per year, and it has a modern laboratory of international standards that can produce conveyor belts as per DIN, BS, IS, ISO, SABS, AS, GOST, and CAN standards. It has a complete QAP & QC system that is followed in its manufacturing process, which includes rigorous and complete testing of in-process belts and finished belts.
Proceed is being used for:
- Meeting Working Capital Requirement.
- General Corporate Purpose.
- Meeting the Issue Expenses.
Industry overview
Indian rubber industry is characterized by the co-existence of a well-established rubber production sector and a fast growing rubber products manufacturing and consuming sector. The Rubber Industry value chain begins from Natural Rubber plantations and ends with a huge range of dry rubber and latex based products. Historically, Natural Rubber was a regulated commodity with strong tariff protection and domestic market regulations. The key factors which have contributed to the growth of Indian rubber industry are positive intervention of institutional agencies aiming at self-sufficiency and import substitution. Finance Minister announcement in Budget of 2020 for Infrastructure development of Rs. 50,000 crore will be done for evacuation of enhanced Coal India Limited’s (CIL) target of 1 billion tons coal production by 2023-24 plus coal production from private blocks. This will include Rs 18,000 crore worth of investment in mechanised transfer of coal (Conveyor Belts) from mines to railway sidings. This measure will also help reduce environmental impact.
Most of the rubber products including tyres require blends of Natural Rubber and Synthetic Rubber. Consumption of SR is mainly determined by end product composition, technological change and relative prices. Consumption of SR in India in rubber products manufacturing sector increased from 411,830 tonne in 2010-11 to 633,975 tonne in 2017-18. Currently, there are four companies producing SR and production increased from 110,340 tonne in 2010-11 to 331,221 tonne in 2017-18. Styrene Butadiene Rubber and Poly Butadiene Rubber accounted for 63% and 34% of SR production in the country. Import of SR amounted to 338,189 tonne in 2017-18. Consumption of SR in India is projected to reach 1.2 million tonne by 2025. India is currently the sixth largest producer of Natural Rubber in the world with one of the highest productivity (694,000 tonnes in 2017-18). The production capacity in India is around 900,000 tonnes, of which around 75% is tapped. Out of the total area under rubber in India of around 822,000 ha, 614500 ha is a mature yielding crop.
Pros and strengths
Existing client relationship: The company has earned reputation based upon which it has been successful in retaining its reputed clients. It constantly tries to address customer needs around its products offered by it in field of Rubber Conveyor Belting. Its existing customer relationship helps it to get repeat business from its customers. This has helped it maintain a long-term working relationship with its customers and improve its customer retention strategy. Its relationship with the existing customers represents a competitive advantage in gaining new customers and increasing its business.
Quality Assurance and Quality Control of its Products: Quality Assurance and Quality Control are integral part of its manufacturing operations. Its engineers inspect the entire process ensuring quality of its products is maintained. Its manufacturing facility has experienced and qualified staff to carry out quality check and inspections at all the stages of its manufacturing process. Its technical experts follow the protocol of incoming material quality control through physical and metallurgical parameters, process controls through product audit, process audit system audit and in-stage inspection at the final stage of pre dispatch control through qualified packing. 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.
Customer satisfaction and revenues from long standing customer relationships: The company has long-standing relationships with its customers. This is, in part, due to the high criticality of its product and technical knowhow to many of its customer's business needs. It establishes long-term relationships with its customers for multi-layered engagement with various departments and divisions of the customer's organizations. Its product offerings help it to cross-sell to its existing customers as well as to acquire new customers. It also conducts regular senior management reviews with its key customers to engage with them for feedback and future opportunities.
Risks and concerns
Intense competition: The company operates in a competitive industry that experiences rapid technological developments, and changes in customer requirements. Its competitors include the big and mid-sized competitors in the various geographic markets. It may faces competition from companies that grow in size or scope as the result of strategic mergers or acquisitions, which may result in larger competitors with significant resources that benefit from economies of scale and scope. Such events could have a variety of negative effects on its competitive position and its financial results, including reducing its revenue, increasing its costs, and lowering its gross margin percentage. If its competitors develop and implement methodologies that yield greater efficiency and productivity, they may be able to produce products similar to it’s at lower prices without adversely affecting their profit margins.
Do not have long-term agreements with most of suppliers or customers: The primary raw materials used for its manufacturing process are purchased from third parties. It typically does not enter into long-term supply contracts with any of its suppliers with respect to its raw material requirements and typically place orders with them in advance of its anticipated requirements. Efficient inventory management is a key component of the success of its business, results of operations and profitability and to that end it maintain a reasonable level of inventory of raw materials, work in progress and finished goods at its manufacturing facility. While it forecast the demand and price for its products and accordingly, plan its production volumes, any error in its forecast due to inter alia the domestic scale of its operations and demand for its products, could result in a reduction in its profit margins and surplus stock, which may result in additional storage cost and such surplus stock may not be sold in a timely manner, or at all.
Significant ongoing funding requirements: The company’s major fund based and non-fund based financial assistance has been sanctioned by the bank, i.e. the HDFC and Axis Bank on the security of assets. The Company is dependent on the Banks for its Working Capital requirement and any default under such arrangement with such lender may create problem for operation of the Company, which may affect the financial stability of the Company. Additionally, this may result into difficulty in arranging for funds for re-payment and may also affect the financial position of the Company. If it is unable in the future to generate sufficient cash flow from operations or borrow the necessary capital to fund its future capital expenditures, it will be forced to limit its growth. In addition, it may not be able to service its existing customers or to acquire new customers. The inability to raise additional capital on acceptable terms could have an effect on its business, results of operations and financial condition.
Outlook
Incorporated in 2004, Pentagon Rubber manufactures Rubber Conveyor belts, Transmission belts, Rubber Sheets, and Elevator belts. The manufacturing unit of the company is located in Dera Bassi, Punjab, 25 km from Chandigarh City. It has one of India's longest conveyor belting presses, with a production capacity of 21mtr in a single stroke. The production capacity of the manufacturing unit is over 300 sq km of conveyor rubber belts per year. The company has a modern laboratory of international standards that can produce conveyor belts as per DIN, BS, IS, ISO, SABS, AS, GOST, and CAN standards. Its manufacturing plant is managed by a team of experienced professionals. It has invested in top-of-the-line infrastructure and facilities to ensure the highest quality products. Its business has expanded domestically & globally through its approved vendor Status with various government & multinational corporations and importers, and it has earned a strong reputation and a loyal client base domestically & across many countries. On the concern side, the company’s manufacturing activities are dependent on availability of skilled and unskilled labour. Non-availability of labour at any time or any disputes with them may affect its production schedule and timely delivery of its products to customers. Besides, the company’s revenue from operations is effected by foreign exchanges fluctuations. Because of its foreign currency exposures, exchange rate fluctuations, can have a material impact on its results of operations, cash flows and financial condition.
The company is coming out with an IPO of 23,10,000 equity shares of face value of Rs 10 each. The issue has been offered in a price band of Rs 65-70 per equity share. The aggregate size of the offer is around Rs 15.01 crore to Rs 16.17 crore based on lower and upper price band respectively. On performance front, revenue from operations has increased by 51.21% from Rs 2316.39 lakh in Fiscal 2021 to Rs 3502.65 lakh in Fiscal 2022. The company reported a net profit of Rs 308.66 lakh in Fiscal 2022 as compared to a net profit of Rs 110.30 lakh in Fiscal 2021. Meanwhile, the company aims to continue to improve ongoing operational effectiveness and efficiencies to achieve cost reductions including overheads. This can be done through continuous business process review and timely corrective measures in case of diversion and technology up gradation with proper analytics base. As a result of these measures, the company will be able to increase its market share and profitability. It also intends to expand its geographical reach and enter the large domestic as well as global market for growth opportunities of its business.
