Arrowhead Seperation Engineering coming with IPO to raise Rs 13.00 crore

Arrowhead Seperation Engineering

• Arrowhead Seperation Engineering is coming out with an initial public offering (IPO) of 5,58,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 233 per equity share.
• The issue will open for subscription on November 16, 2023 and will close on November 20, 2023.
• The shares will be listed on SME Platform of BSE.
• The share is priced 23.30 times higher to its face value of Rs 10.
• Book running lead manager to the issue is Aryaman Financial Services.
• Compliance Officer for the issue is Radhika Bhootra.

Profile of the company

The company is primarily engaged in design and manufacture of various chemical process Equipments with specialization in continuous drying and cooling system equipment. The company has a vision to develop Equipment and provide solution which matches with the global standard. The company has its registered office with manufacturing facility at Survey No 39, Village Mundhegaon, Tal Igatpuri, Nashik, Maharashtra. The factory is equipped with all requisite manufacturing facilities & managed by experienced and skilled managerial as well as workshop staff. It has a corporate office located at T.T.C Industrial Area, Village Pawane, Thane Belapur Road, Navi Mumbai. It conducts pilot trials on client’s material to arrive at suitable drying solution for their application.

The company is in dryer manufacturing business for more than two decades now and its team with its experience has been instrumental in driving growth and business strategies of the company. It has been continuously focusing on upgrading with better designs and team to be able to cater the needs of client and provide them with quality equipment. It has established network and healthy client base due to its quality product with customization as per client’s requirements. Its Factory is a workshop where the process of welding, grinding and machining is done as and when the customer order is received. It even gets its work done through sub-contracting and even employing contractual labors.

Proceed is being used for:

• Repayment of loan from NBFC’s.
• Funding working capital requirements.
• General corporate purpose.

Industry overview

Manufacturing is emerging as an integral pillar in the country’s economic growth, thanks to the performance of key sectors like automotive, engineering, chemicals, pharmaceuticals and consumer durables. The Indian manufacturing industry generated 16-17% of India’s GDP pre-pandemic and is projected to be one of the fastest growing sectors. Drying is an integral part of the process industry. Drying is used in the manufacturing of products. There are several industrial dryers available in the global market and they are vividly used in multiple industries. Flash dryer and Vacuum pump dryer are at a slow growing stage in the product lifecycle owing to limited use in the industry. On the other hand, Rotary dryers which find application in construction materials, minerals, chemical industries etc. have reached a maturity stage whereas Fluidized bed dryer and Spray dryer are at a growing stage of the product lifecycle.

India’s manufacturing exports for FY22 reached an unprecedented $418 billion, an overall growth of more than 40% compared to the $290 billion from the previous year. By 2030, Indian middle class is expected to have the second-largest share in global consumption at 17%. The average replacement rate of industrial dryers per year is expected to be around 7% to 9%. The global industrial dryer market was estimated to be valued at more than $2,500 million by 2016 end and is expected to touch nearly $3,415 million by the end of 2024, expanding at a CAGR of 3.5% over the forecast period. The global industrial dryer market is projected to represent incremental opportunity of more than $830 million between 2016 and 2024.

The Government of India has taken several initiatives to promote a healthy environment for the growth of manufacturing sector in the country. Startups incorporated within a time-period and meeting other conditions can deduct up to 100% of their profits; the end of this period has been extended from March 31, 2023 to March 31, 2024. In addition, the period within which losses of startups may be carried forward has been extended from seven to ten years. To avoid cascading of taxes on blended compressed natural gas, excise duty on GST-paid compressed bio-gas contained in it has been exempted from excise duty. Customs duty exemption has been extended to import of capital goods and machinery required for manufacture of lithium-ion cells for batteries used in electric vehicles.

Pros and strengths

Customized product for each client: The Company offers customization facilities to all the customers as per their particular requirements and specifications. The company’s strength and goodwill is generated from its continued focus on customer satisfaction and it has been a key attribute in the growth of its business. Its team focuses on each order and defines the process and plan accordingly. This provides complete satisfaction to its customer and helps them to achieve their purpose from the product in impromptu and systematic manner and also enable it to expand its business from existing customers to new clients through mouth publicity.

Qualified and experienced executive directors: It is a concise organization with its Executive Directors taking the lead in day-to-day business activities. The dedication to build a successful organization percolates to each department and employee. Its Board of Directors comprises individuals with significant experience across this industry and its functions. The company is managed by its Managing Director Ajit Mundle and Whole-time Director Jyoti Mundle each have more than three decades of experience in engineering industry which has been instrumental in growth of its business.

Relationship with customers & suppliers: The Company enjoys long standing relationship with key Customers & Suppliers. These long standing relationships are result of its commitment to quality, timely delivery, promptness in payments and adaptability etc. It benefit immensely from this. Its business and growth are significantly depending on its ability to maintain the client relationship.

Risks and concerns

Heavily dependent on certain suppliers: In the Financial year 2022-23 and 2021-22 its purchases from top 10 suppliers comprised of 62.52% and 72.77% of its total purchases. It mainly procures its raw materials and bought out items from suppliers on daily basis. However, the fact that it is so heavily dependent on these manufacturers exposes it indirectly to the risks that these manufacturers face. Any failure of the manufacturers to deliver these goods in the necessary quantities or to adhere to delivery schedules or specified quality standards and technical specifications would adversely affect its business operations and its ability to deliver orders on time and at the desired level of quality.

Dependent on third party transportation: It relies substantially on third party transportation providers for the supply of its products to its customers. Transportation strikes / non-availability of Transportation could have an adverse effect on its ability to deliver the same to its customers. Increase in transportation costs or unavailability of transportation services for its products, as well the extent and reliability of Indian infrastructure may have an adverse effect on its business, financial condition, results of operations and prospects.

Competitive market: The capital goods industry is highly competitive, coupled with the large number of players and also the existence of amortization players. Also, several national and international dryer manufacturers and brand owners have set-up their own distribution arms / have distribution tie-ups in India. With the high level of competition, its results of operations are sensitive to, and may be materially and adversely affected by, competitive pricing, services offered, brand recognition and other factors. Competition may result in pricing pressure, reduced profit margin or a failure to increase its market share, any of which could substantially harm its business and results of its operations.

Outlook

The company is primarily engaged in design and manufacture of various chemical process Equipments with specialization in continuous drying and cooling system equipment. The company is in dryer manufacturing business for more than two decades and its team with its experience has been instrumental in driving growth and business strategies of the company. On the concern side, the capital goods industry is highly competitive, coupled with the large number of players and also the existence of amortization players. Competition may result in pricing pressure, reduced profit margin or a failure to increase its market share, any of which could substantially harm its business and results of its operations. 

The company is coming out with an IPO of 5,58,000 equity shares of Rs 10 each at a fixed price of Rs 233 per share to mobilize Rs 13.00 crore. On performance front, in fiscal 2023, its total income increased by 98.91%, from Rs 1,091.73 lakh in fiscal 2022 to 2,171.57 lakh in fiscal 2023. The increase in the year 2023 was due to delivery of equipments in both International market and Domestic market. Profit after tax increased by 1744.18%, from Rs 9.17 lakh in fiscal 2022 to Rs 169.18 lakh in fiscal 2023. Meanwhile, it intends to outsource or lease certain key equipment’s and machinery required for process from outside vendors having the necessary abilities and bandwidth with respect to equipment, which will enable it to utilize advanced technologies, including system formworks, to increase productivity and maximize asset utilization in its construction activities.