AIK Pipes and Polymers
- AIK Pipes and Polymers is coming out with an initial public offering (IPO) of 16,88,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 89 per equity share.
- The issue will open for subscription on December 26, 2023 and will close on December 28, 2023.
- The shares will be listed on BSE SME Platform.
- The share is priced 8.90 times higher to its face value of Rs 10.
- Book running lead manager to the issue is Shreni Shares.
- Compliance Officer for the issue is Anshita Jain.
Profile of the company
AIK Pipes and Polymers is engaged in manufacturing of comprehensive range of HDPE (High density polyethylene) pipes, HDPE Fittings, MDPE (Medium density polyethylene) Pipes and PPR (Polypropylene random) Pipes for water distribution, gas transmission, sewerage system and telecom sector. The company is committed towards constant innovations in drinking water piping solutions, irrigation and sewerage technologies to meet the constantly increasing demands. It is an ISO 9001:2015, ISO 9001:2015, ISO 14001:2015, ISO 45001:2018, ISO 50001:2018 and Bureau of Indian Standards IS 4984:2016 certified company.
The company has a well-equipped manufacturing facility. It has the latest technology and equipment that helps in the production of high-quality HDPE pipes of different sizes. The company’s manufacturing facility is fully automated. The company also has a well-trained team of engineers, technicians and operators that helps in the production and quality control of the products. The products manufactured are approved by various agencies such as the Bureau of Indian Standards (BIS) and also from organisation, Central Institute of Petrochemicals Engineering and Technology, Indian Oil Corporation, and GAIL.
The company is registered vendor with government organizations such as Public Health Engineering Department and Rajasthan Water Supply & Sewerage Management Board all over Rajasthan. The company has always strived to provide its clients with the best HDPE pipes in the market. With the help of the latest technology and equipment, the company has been able to produce high-quality HDPE pipes that are not only durable but also affordable.
Proceed is being used for:
- Meeting working capital requirement
- Meeting the capital expenditure
- General corporate purpose
Industry overview
Indian plastic industry market is one of the leading sectors in the country’s economy. The history of the plastic industry in India dates to 1957 with the production of polystyrene. Since then, the industry has made substantial progress and has grown rapidly. The industry is present across the country and has more than 2,000 exporters. It employs more than 4 million people in the country and constitutes 30,000 processing units; among these, 85-90% belong to small and medium enterprises. India manufactures various products such as plastics and linoleum, houseware products, cordage, fishnets, floorcoverings, medical items, packaging items, plastic films, pipes, raw material, etc. The country majorly exports plastic raw materials, films, sheets, woven sacks, fabrics, and tarpaulin. The Government of India intends to take the plastic industry from a current level of Rs 3 lakh crores ($37.8 billion) of economic activity to Rs. 10 lakh crores ($126 billion) in 4-5 years.
Overall, the total plastics exports between April-September 2022 stood at $6.38 billion. During this time period, the exports of plastic raw materials, medical items, and pipes and fittings increased by 32.3%, 24.8% and 17.9% over the same time last year, respectively. The cumulative exports of plastics and related materials during 2021-22 were valued at $13.34 billion. This was a 33.4% increase from the 2020-21 exports valued at $10 billion. Plastic raw materials were the largest exported category and constituted 30.7% of the total exports in 2021-22; it recorded a growth of 26.5% over the previous year. Plastic films and sheets were the second largest category, comprised 15.2% of the total exports, and grew 32.7% over the previous year.
The global HDPE pipes market can be segmented based on geography, distribution channel, and material. More granularly, the market’s segmentation into product types, applications, and end-use industries is essential. It’s noteworthy that HDPE pipes are available in different strength variants, with PE80 and PE100 being the most commonly used. The Asia Pacific region is touted to be the largest market for HDPE pipes during the forecast period, with India accounting for a sizeable share of global demand. Analysis shows that India’s HDPE pipes market would experience growth of CAGR 10.41% at least until 2026, growing about 301.27th in volume in the same period. Going forward, the winds of change are influencing the global market for these pipes. Market players need to closely track which type of applications will be most attractive to buyers, and they need to be able to satisfy those needs with a cost-effective product. At the same time, they need to keep the impact of the COVID-19 pandemic in mind, for it could be a major disruptor in the global HDPE pipes market.
Pros and strengths
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. The company establishs long-term relationships with its customers for multi-layered engagement with various departments and divisions of the customer's organizations. The company’s product offerings help it to cross-sell to its existing customers as well as to acquire new customers. The company also conducts regular senior management reviews with its key customers to engage with them for feedback and future opportunities.
Scalable business model: The company’s business model is order driven, and comprises of optimum utilization of its existing resources. This business model has proved successful and scalable for the company in the last few financial years. It has adequate capacity to scale upward and it also undertakes aggressive marketing of its products along with maintaining superior quality.
Cost effective production and timely fulfillment of orders: Timely fulfilment of the orders is a prerequisite in its industry. The company has taken various steps in order to ensure adherence to timely fulfilment and also to achieve greater cost efficiency. The company constantly endeavours to implement an efficient procurement policy for inputs required for production so as to ensure cost efficiency in procurement which in turn results in cost effective production.
Risks and concerns
Maximum revenue comes from few clients: The company’s top ten customers have contributed 100%, 99.78%, 99.85% & 100% of its revenues for the period ended June 30, 2023, March 31, 2023, March 31, 2022, March 31, 2021, respectively based on Restated Financial Statements. However, its top customers may vary from period to period depending on the demand and thus the composition and revenue generated from these customers might change as it continues to add new customers in normal course of business. Since its business is concentrated among relatively few significant customers, it could experience a reduction in its results of operations, cash flows and liquidity if it loses one or more of these customers or the amount of business, it obtains from them is reduced for any reason, including but not limited on account of any dispute or disqualification.
Top ten suppliers contribute majority of its purchases: The company’s top ten suppliers contributed approximately 99.63%, 96.80%, 98.89% and 94.07% of its total purchases for the period ended June 30, 2023, March 31, 2023, March 31, 2022, March 31, 2021 based on Restated Financial Statements. However, its top suppliers may vary from period to period depending on the demand-supply mechanism and thus the supply process from these suppliers might change as it continues to seek more cost-effective suppliers in normal course of business. Since its business is concentrated among relatively few significant suppliers, it could experience a reduction in its purchases and business operations if it loses one or more of these suppliers, including but not limited on account of any dispute or disqualification.
Depend on third parties for major portion of transportation needs: The company relies on third party transportation and other logistic facilities at every stage of its business activity including for procurement of raw material from its suppliers and for transportation from its finish products to its customers. For this purpose, the company hires services of transportation companies. However, the company has not entered into any definitive agreements with any transport service providers and engage them on a need basis. Additionally, availability of transport solutions in the market it operates in is typically fragmented. It does not enter into written documentation in relation to the transportation services it hires which poses various additional risks including its inability to claim insurance. Further, the cost of its goods carried by such third party transporters is typically much higher than the consideration paid for transportation, due to which it may be difficult for it to recover compensation for damaged, delayed or lost goods.
Outlook
AIK Pipes and Polymers manufactures pipes, HDPE fittings, MDPE pipes and PPR pipes for the water distribution, gas transmission, sewerage systems, and telecommunication sectors. The company has 3 manufacturing facilities in Jaipur, Rajasthan which are operated on a lease basis. The company has a competent team of engineers, technicians and operators who play an important role in the production and quality control of the products. On the concern side, the company’s top ten customers contribute majority of its revenues from operations. Any loss of business from one or more of them may adversely affect its revenues and profitability. Moreover, the company’s top ten suppliers contribute majority of its purchases. Any loss of business with one or more of them may adversely affect the business operations and profitability.
The company is coming out with an IPO of 16,88,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 89 per equity share to mobilize Rs 15.02 crore. On performance front, the company’s revenue from operations had increased by 49.26% from Rs 2042.25 lakh in Fiscal 2022 to Rs 3048.23 lakhs in Fiscal 2023. This increase was due to increase in sales of products during the year. The company reported a net profit of Rs 187.74 lakh in Fiscal 2023 as compared to a net profit of Rs 87.90 lakh in Fiscal 2022 which got increased due to higher revenue from operation during the year. Going forward, the company intends to improve efficiencies to achieve cost reductions so that they can be competitive. This can be done through domestic presence and economies of scale. Increasing its penetration in existing regions with diversified range of products, will enable it to penetrate into new catchment areas within these regions and optimize its infrastructure. As a result of these measures, the company will be able to increase its market share and profitability.
