Shri Balaji Valve Components coming with IPO to raise upto Rs 21.60 crore

Shri Balaji Valve Components

• Shri Balaji Valve Components is coming out with initial public offering (IPO) of 21,60,000 shares of Rs 10 each in a price band Rs 95-100 per equity share.
• The issue will open for subscription on December 27, 2023 and will close on December 29, 2023.
• The shares will be listed on SME Platform of BSE.
• The face value of the share is Rs 10 and is priced 9.50 times of its face value on the lower side and 10.00 times on the higher side. 
• Book running lead manager to the issue is Hem Securities. 
• Compliance Officer for the issue is Aniruddha Shrikant Deshmukh.

Profile of the company

The company, an ISO 9001-2015 certified company, is engaged in the business of manufacturing of ready to assemble valve components catering to manufacturing of the valves which are used in different industries and in different size depending on the customer’s specifications. It manufactures and supply various types of valve components which are used in manufacturing of ball valves, butterfly valves and other valve including forging products. The company manufacture different components like ball, stems, body of the valve, connectors, trunnion, flanges, housings, rings, shafts, bonnets, discs, sleeves etc. which are used in different types of valves like Ball Valve, Butterfly Valve, Control valve, globe, gate & check valves. The components are designed to meet low/ high pressure application requirements in varied industries. Apart from this, it also manufactures forging components which are used in valve manufacturing. Its valve components are used to manufacture valves which serve industries which are in different sectors. Further, its manufacturing system have been certified for establishment and application of the Quality management system for manufacturer of materials according to directives 2014/68/EU by PED & the products manufactured by closed die forging have been certified to comply with the requirements specified by NORSOK.

The company is into machining of components and delivering ‘Ready to assemble’ valve components according to customers designs and specifications. Currently, the company is operating from its 2 manufacturing facilities located at Pune, Maharashtra. One of its manufacturing facilities is located at Bhosari, Pune which is equipped with the forging capabilities and heat treatment capabilities, the second manufacturing facility is located at Chakan MIDC, Bhamboli, Pune which undertakes the machining work. Most of its valves components are made as per the requirements specified by its customers’. It works in close connections with its clients, so that its valve components match with the customers’ requirement and can handle the desired applications. Over the years, its valve components have proved suitable and safe for many operations requirements. It manufactures valve components using the forging method, bar routing method and casting methods. In case of any casting products, it generally gets the casts manufactured from the customers nominated vendors or outsourcing. The use of methods depends upon the manufacturing plans, customer requirements, component manufactured, material complexity etc. 

Proceed is being used for:

• Funding Capital Expenditure towards installation of additional plant and machinery
• Meeting working capital requirements. 
• General Corporate Purpose.

Industry Overview

The global industrial valves market size was valued at $48.1 billion in 2020 and is projected to reach $85.7 billion by 2025. It is expected to grow at a Compound Annual Growth Rate (CAGR) of 12.3% during the forecast period. Increasing demand for valves from the pharmaceuticals industry due to the outbreak of the COVID-19 pandemic, growing focus on the development of smart cities globally, rising need for connected networks to maintain and monitor industrial equipment, and surging requirement for establishing new nuclear power plants and revamping existing ones are the key driving factors for the industrial valves market. An increase in demand from the energy & power sector is also likely to drive the industrial valves market for the energy & power enduse industry gradually from 2021 to 2025. Metallic valves are non-ferrous & ferrous castings depending upon applications, are fast consuming items and the area of application for these items are vast due to their certain inherent advantages of mechanical and chemical properties. 

The industrial valves market is segmented on the basis of type, function, material, accessories, size and application. The growth among segments helps to analyze niche pockets of growth and strategies to approach the market and determine core application areas and the difference in target markets. On the basis of size, the industrial valves market is segmented into 1 inch to 6 inch, 6 inch to 12 inch, 12 inch to 24 inch, 24 inch to 48 inch and above 48 inch. On the basis of application, the industrial valves market is segmented into oil and gas, water and waste treatment, chemical, energy and utilities, food and beverages, pharmaceutical, agriculture, marine, automotive, metals and mining, paper and pulp and others.

Performance of Steel sector during April-May, FY24 has been encouraging. The production of crude steel at 22.30 million tonnes (MT), finished steel at 21.48 MT and consumption of finished steel at 20.31 MT during April-May, FY24 was the highest in corresponding period of last five years. The month-wise production and consumption indicates to an overall increasing trend with month-on-month fluctuations and that the production and consumption of steel increased in May 2023 over their respective levels in April 2023. Export-Import Scenario: During the month of May 2023, the exports and imports of finished steel decreased as compared to previous month.

Pros and strengths

Integrated manufacturing capabilities: Currently, the company is operating from its 2 manufacturing facilities located at Pune, Maharashtra having the required machines which are capable of forging, heating and machining capabilities. One of its manufacturing facilities is located at Bhosari, Pune which is equipped with the forging capabilities and heat treatment capabilities, the second manufacturing facility is located at Chakan MIDC, Bhamboli, Pune which undertakes the machining work. Its manufacturing facilities are equipped with standard machines suitable for carrying out its manufacturing operations smoothly and efficiently. Its manufacturing facility situated at Bhosari, Pune is equipped with forging plant of upto 1.5 metric tonne closed die hammer & 28 kgs along with electric PLC controlled pusher type continuous furnace with a capacity of around 120 kg/hr. heating capabilities which can be used for functions like annealing, hardening, tempering and normalizing. Also, its second manufacturing unit at Chakan MIDC, Bhamboli, Pune is equipped with machines like CNC Machines, VMC Machines, SPM Ball Machines, MC Machines, Ball Grinding Machines, CNC VTL Machines & VTL Machine along with different supporting machineries like cranes, lifts etc. It has over the years have built capability to produce most of its products with the aid of its manufacturing facilities and being capable of performing in-house manufacturing operations. This gives the company an edge in terms of faster deliveries, better quality and reduced costs of operations. 

Diversified range of products: The company has a diversified product portfolio of industrial valves components catering to different industries in sizes ranging from ½ inch to 60 inches. It manufactures and supply various types of ball valve components, butterfly valve components and other valve components including forging products and have a significant customer base in the valve manufacturing industry developed over the years. The industry sectors it serves includes companies in the oil and gas sector, power generation sector, Petro-chemical industry, construction equipment manufacturing industry along with pharmaceuticals, food and beverage industry. It deals in a wide range of products, which enables it to cater to a widespread customer base across India and also expand its reach in international locations like Dubai, Germany, Singapore, Taiwan, Italy, South Africa, USA, United Kingdom, Qatar & Pennsylvania. Further, it has necessary resources, experience, and network that can be customized and leveraged to cater to wider range of valve components as per requirements of the customers. Its promoter has an operating history of more than three decades, it is primarily known for its wide range of quality products at a competitive price. 

Long Standing Relationship with key 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 benefits immensely from this. Its business and growth are significantly depending on its ability to maintain the client relationship. Having many years of experience in the industry and being able to identify these players would give it a competitive advantage in the business segment. These long-standing relationship with customers and suppliers has helped in establishing its reputation as a trusted business player in manufacturing industry. As on March 2023, its top 5 customers were 43.02% of total revenue from operations and top 5 suppliers were 49.97% of total purchases. It has long-standing relationships with its customers for whom it has executed repeat orders over an extended period of time, which have been established and are strengthened by the dedicated infrastructure and its ability to meet Clients’ requirements for customized products. 

Risks and concerns

Dependent upon few suppliers: The company’s top five suppliers contributed approximately 65.14%, 49.97%, 46.23% and 61.35% of its total purchases for the period June 30, 2023, March 31, 2023, March 31, 2022 and March 31, 2021 based on restated financial statements. However, its top suppliers may vary from period to period depending on the demand-supply in the market 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 at present 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 them there may be an adverse effect its purchases and business operations.

Rely on contract labour:  In order to retain flexibility and control costs, the company appoints independent contractors who in turn engage on-site labour for performance of certain of its operations in its manufacturing facilities. Although it does not engage these laborers directly, it may be held responsible for any wage payments to be made to such laborers in the event of default by such independent contractor. Any requirement to fund their wage requirements may have an adverse impact on its results of operations and financial condition. Further, it is yet to apply for registration under the Contract Labour Regulation & Abolition Act, 1970. In addition, there are certain conditions under the Contract Labour (Regulation and Abolition) Act, 1970, as amended, which it is required to adhere to and in the event of any non-compliance by contractors with statutory requirements, legal proceedings may be initiated against it. Thus, any such order from a regulatory body or court may have an adverse effect on its business, results of operations and financial condition. 

High working capital requirement: The company’s business requires significant amount of working capital and major portion of its working capital is utilized towards operating expenses, inventories and cash and cash equivalents. As on June 30, 2023, its working capital facility stood at Rs 900 lakh from HDFC Bank. Its growing scale and expansion, if any, may result in increase in the quantum of current assets, which will increase its working capital requirements. Its inability to maintain sufficient cash flow, credit facility and other sources of funding, in a timely manner, or at all, to meet the requirement of working capital or pay its debts, could adversely affect its financial condition and result of its operations. Further, it has high outstanding amount due from its debtors which may result in a high risk in case of non-payment by these debtors. In case of any such defaults from its debtors, may affect its business operations and financials. 

Outlook

Shri Balaji Valve Component has been one of the principal manufacturers and suppliers of valve components. The company’s product portfolio is enriched with a wide range of valve components which include all types of Balls (Trunnion mounted ball, soft seated balls) shafts, stems, bonnets, flange bonnet, flanges, seat rings, trunnion plates, discs, retainer rings, stem housing, trunnion, sleeves, piston rod, body, body adaptor, glande flange, actuator stem, plug, etc. It is also ready to explore something new which is not there in its portfolio. Its valve components are customized as per customers’ specific needs meeting all quality checks for zero defects. The company’s state-of-the-art facilities at Pune are powered by 200+ highly advanced machineries and leading-edge, dynamic and robust inspection and testing procedures, and the facilities are governed by a team of 250+ highly qualified, efficient and progressive engineers who are piloting the design and engineering activities. On the concern side, the company uses third party transportation for delivery of its raw materials and finished goods. Though its business has not experienced any disruptions due to transportation strikes in the past, any future transportation strikes may have an adverse effect on its business. These transportation facilities may not be adequate to support its existing and future operations. 

The issue has been offered in a price band of Rs 95-100 per equity share. The aggregate size of the offer is Rs 20.52 crore to Rs 21.60 crore based on lower and upper price band respectively. On performance front, total income for the financial year 2022-23 stood at Rs 6294.10 lakh whereas in Financial Year 2021-22 the same stood at Rs 3906.05 lakh representing an increase of 61.14%. The company’s profit after tax increased by 319.07% to Rs 643.15 lakh in financial year 2022-23 form net profit Rs 153.47 lakh in financial year 2021-22. Meanwhile, the company intends to cater to the increasing demand of its existing customers and also to increase its existing customer base by enhancing the reach of its products in different parts of the country. The company operates from Pune, Maharashtra in India. It proposes to enter into new geographies and increase its marketing and sales team which can focus on different regions and also maintain and establish relationship with customers. It aims to achieve this by adding value to its customers through quality assurance, timely delivery and reliability.