Deem Roll Tech
- Deem Roll-Tech is coming out with an initial public offering (IPO) of 22,68,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 129 per equity share.
- The issue will open for subscription on February 20, 2024 and will close on February 22, 2024.
- The shares will be listed on NSE SME Platform.
- The share is priced at 12.90 times higher to its face value of Rs 10.
- Book running lead manager to the issue is Fedex Securities.
- Compliance Officer for the issue is Alka Kumari.
Profile of the company
Promoted by a technocrat and a first-generation entrepreneur, Deem Roll-Tech is one of the manufacturers of high-quality steel and alloy Rolls in India, which is the building block of the iron and steel rolling mill industry. The Rolls manufactured by the company finds its application in the iron and steel rolling mill industries in the domestic and international markets. With around 20 years of experience, the company has been synonymous with quality and reliability in the Roll manufacturing industry which it manufactures both under standard specification and tailored as per the customer specific requirements. The company supplies its Rolls directly to rolling mill manufacturers (OEMs) and in the replacement market to the iron and steel rolling mills through a network of dealers / distributors and agents. It exports its Rolls to over 10 countries, such as USA, Germany, Europe, Middle East, Oman, Saudi Arabia, South Africa, Nepal and Bangladesh.
The company manufactures its products from steel scrap, roll scrap, pig iron, nickel, ferro molybdenum, other ferro alloys, resin coated sand, etc. conforming to international standards. It has a highly sophisticated and technically competent manufacturing units located in Gandhinagar, Gujarat (Manufacturing Unit 1), Mehsana, Gujarat (Manufacturing Unit 2) and in Hoogly, West Bengal (Manufacturing Unit 3).
The company’s Manufacturing Unit 2 is ISO 9001:2015 certified by ISOQAR, Alcumus. Its Manufacturing Units consists of engineering & design, mold making, melting, casting, machining and dispatch sections backed by related quality testing and assurance equipment. Presently, it uses static cast and centrifugally cast technology for the manufacturing of Rolls. It is capable of casting a single Roll of up to 15 MT. The key factor in its manufacturing business is the user acceptance of its manufacturing process and manufacturing facilities, given the critical end use of the product. It has, in the last few years, been successful in obtaining various such acceptance. It shares a good client relationship with its customer and it receives majority of its business from repeat clients. Its Manufacturing Unit 2 have been inspected and accepted by third party inspection agencies. Further, the quality of its products has been accepted to be satisfactory in third party inspections.
Proceed is being used for:
- Funding capital expenditure towards expansion of its existing manufacturing facility at Plot No. 110/1,110/2, New Survey No. 202, Village Ganeshpura, Mehsana, Gujarat, India (Manufacturing Unit 2).
- Funding its working capital requirements.
- General corporate purpose.
Industry overview
For the first time ever, India surpassed China as the top developer of coal-based steel capacity in July 2023, according to the latest report from Global Energy Monitor (GEM). India’s steel production capacity has expanded rapidly over the past few years, growing at a CAGR of 3.96% from 122 MT in FY16 to 154 MT in FY23. The National Steel Policy 2017 has envisaged achieving up to 300 MT of production capacity by 2030-31. India will commission new steelmaking facilities with a capacity of about 40 MT per year by the 2025/2026 financial year. BF-BOF route is expected to contribute 65% of the capacity, while the remaining 35% is expected to come from EAF & IF routes. Expansion of production capacity to 300 MT will translate into additional investment of Rs 10 lakh crore ($156.08 billion) by 2030-31. Steel companies are looking to restart expansion projects on the back of surging steel process with a capacity addition of 29 MT.
India’s crude steel production in April-June 2023-24 stood at 33.88 million tonnes (MT) (Provisional) as compared to 31.03 million tonnes crude steel production in April-June 2022-23 i.e. increased by 9.18%. National Steel Policy, 2017 envisages a steel production capacity of 300 MT by 2030 by enhancing domestic per capita consumption to 160 kg by 2030. The crude steel capacity of the country is 161.30 MT in 2022-23. Meanwhile, India has become the 2nd largest consumer of finished steel in the world. The per capita steel consumption in the World is around 233 kg. However, the per capita consumption of steel in India is around 77.2 kg, gone up by 50% in last 8 years, which is 1/3rd of the average world per capita steel consumption. In 2022-23, consumption of steel in India stood at 108.1 MT (Provisional) as compared to 105.8 MT in 2021-22, i.e. up by 2.17%.
The steel industry has emerged as a major focus area given the dependence of a diverse range of sectors on its output as India works to become a manufacturing powerhouse through policy initiatives like Make in India. With the industry accounting for about 2% of the nation's GDP, India ranks as the world's second-largest producer of steel and is poised to overtake China as the world's second-largest consumer of steel. Both the industry and the nation's export manufacturing capacity have the potential to help India regain its favourable steel trade balance. The National Steel Policy, 2017 envisage 300 million tonnes of production capacity by 2030-31. The per capita consumption of steel has increased from 57.6 kgs to 74.1 kgs during the last five years. The government has a fixed objective of increasing rural consumption of steel from the current 19.6 kg/per capita to 38 kg/per capita by 2030-31. As per Indian Steel Association (ISA), steel demand will grow by 7.2% in 2019-20 and 2020-21. Huge scope for growth is offered by India's comparatively low per capita steel consumption and the expected rise in consumption due to increased infrastructure construction and the thriving automobile and railways sectors.
Pros and strengths
Diversified and established product: The company manufactures wide range of Rolls that is used in iron and steel rolling mills that manufacturers long products, flat products and seamless tubes. With presence in most of the allied products in these industries, the company caters to wide range of customers. Further, being in the Roll manufacturing business for more than 2 decades the company is well-known amongst its customers such as the rolling mill manufacturers and the iron and steel industry, who are its ultimate customers in India and overseas. Having kept pace with the changing needs of the steel plants, the company has created a niche for itself which is reflected with a huge customer base of 370 Rolling mills as on March 31, 2023. Additionally, the company has experienced growth in export segment which is because of the wide acceptance of its Rolls by its customers. The company’s export contributes around 20.00% of its revenue from operations for the Fiscal 2023, thus establishing as a global player.
Well established manufacturing facility designed to serve multiple products range: The company manufactures wide range of Rolls that is used in iron and steel rolling mills that manufacturers long products, flat products and seamless tubes and have 3 Manufacturing Units catering to different product portfolio and manufacturing process. Its Manufacturing Unit 1 is spread across a plant area of 4,000 sq. mtrs. and follows the centrifugally cast process. The installed capacity at its Manufacturing Unit 1 is 1200 MTPA. This unit is mainly designed for manufacturing of Metal Rolls. Its Manufacturing Unit 2 is spread across a plant area of 2119 sq. mtrs. and use static cast manufacturing process. The installed capacity at its Manufacturing Unit 2 is 8400 MTPA. This unit is mainly designed for manufacturing of Metal Rolls. Its Manufacturing Unit 3 is spread across a plant area of 15,000 sq. mtrs. and use static cast manufacturing process. The installed capacity at its Manufacturing Unit 3 is 2400 MTPA. This unit is mainly designed for manufacturing of Metal Rolls.
Quality assurance and accreditations: The company is well equipped with in-house testing laboratory to test the products as per quality standards and relevant chemical composition. The finished products are also subjected to various physical and chemical tests to ensure that they meet the required specifications. The company’s in-house testing laboratory is approved by DISR dated May 23, 2022. It follows strict manufacturing practices and standards and its Manufacturing Units benefits from the quality benchmarking certifications such as (i) ISO 9001:2015, certified by Alcumus ISOQAR, for manufacturing and supply of its products; and (ii) Certificate of Importer-Exporter Code (IEC) from Ministry of Commerce and Industry, which is a requirement for supply in all countries. Its certifications and industrial expertise favorably position it in servicing client requirements across all segments of the iron and steel rolling mills.
Risks and concerns
Maximum revenue comes from few customers: The company is engaged in the business of manufacturing of steel and alloy Rolls. The company served around 159 customers during the last ten years. It has also served around 48 new customers between April 1, 2022 and March 31, 2023. During the six-month period ended as on September 30, 2023 and for the Fiscal 2023, Fiscal 2022 and Fiscal 2021 it served around 87 customers, 159 customers, 150 customers and 124 customers, respectively. Its top ten customers contribute 54.46%, 49.62%, 51.10% and 53.93% of its revenue from operations for the six-month period ended as on September 30, 2023 and for Fiscal 2023, Fiscal 2022 and Fiscal 2021, respectively. It has relationships spanning more than 5 years with 9 of its top ten customers by contribution to revenue from operations as of the Financial Year ended March 31, 2023. The actual sales by the company may differ from the estimates of its management due to the absence of any supply agreements. The loss of one or more of these significant customers or a reduction in the amount of business it obtains from them could have an adverse effect on its business, results of operations, financial condition and cash flows. It cannot assure that it will be able to maintain historic levels of business and/or negotiate favourable terms that are commercially viable with its significant customers or that it will be able to significantly reduce customer concentration in the future.
Dependent on outside parties for adequate and timely supply of raw materials: The company’s ability to remain competitive, maintain costs and profitability depend, in part, on its ability to source and maintain a stable supply of raw materials at acceptable prices. It procures some of its primary raw materials, such as steel scrap, roll scrap, pig iron, nickel, ferro molybdenum, other ferro alloys, resin coated sand and other raw materials required in manufacturing process on a purchase order basis and have not entered into long term contracts for the supply of such raw materials. The company’s raw materials consumed for the six-month period ended as on September 30, 2023 and for the FY 2023, FY 2022 and FY 2021 was Rs 3,109.80 lakh, Rs 6,285.34 lakh, Rs 4,949.15 lakh and Rs 3,519.19 lakh which, constituted 62.10% ,60.80%, 53.97% and 55.16% of its revenue from operations for such periods. While it is not dependent on any single raw material supplier, raw material supply and pricing can be volatile due to a number of factors beyond its control, including global demand and supply, transportation and labour costs, labour unrest, natural disasters, competition, import duties, tariffs and currency exchange rates, and any unanticipated variation in any of these factors could have a material adverse effect on its operations.
Exposed to foreign currency exchange risks: The company also exports its products to over 10 countries, such as USA, Germany, Europe, Middle East, Oman, Saudi Arabia, South Africa, Nepal and Bangladesh, Japan, Ukraine, Ghana, Brazil, Egypt, Greece. It has material exposure to foreign exchange related risks since a significant portion of its revenue from operations are in foreign currencies. In the last three Fiscals, it has had customers across over 15 countries including the USA, Germany, Europe, etc. During the six-month period ended as on September 30, 2023 and the Fiscals 2023, 2022 and 2021, revenue from export of its products its exports of products accounted for Rs 860.74 lakh, Rs 2067.69 lakh, Rs 1,550.50 lakh and Rs 1056.27 lakh resulting into 17.19%, 20.00%, 16.91% and 16.56% of its total revenue, for such periods respectively. The company’s revenues from exports have grown at a CAGR of 39.91% between Fiscals 2021 and 2023. Any appreciation or depreciation of the Indian Rupee against these currencies can impact its results of operations.
Outlook
Deem Roll Tech manufactures steel and alloy rolls that are exported to more than 10 countries, including the USA, Germany, Europe, the Middle East, Oman, Saudi Arabia, South Africa, Nepal, and Bangladesh. As of September 30, 2023, the company has served over 340 domestic customers and 30 export customers. The company has three manufacturing Units one of which is located in Mehsana, Gujarat, the second unit is located in Dadpur, Hoogly, West Bengal and the third unit is located in Ahmedabad, Gujrat. The manufacturing unit comprises several sections, including engineering & design, mould making, melting, casting, machining, and dispatch, all of which are supported by related quality testing and assurance equipment. On the concern side, the company heavily reliant on a few customers and it derives a significant part of its revenue from selected customers. The loss of any significant customer may have a material adverse effect on its business and results of operations. Moreover, the company is dependent on third party transportation and logistics service providers. Any increase in the charges of these entities could adversely affect its business, results of operations and financial condition.
The company is coming out with an IPO of 22,68,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 129 per equity share to mobilize Rs 29.26 crore. On performance front, total income increased by 13.42% to Rs 10448.56 lakh for the Financial Year 2023 from Rs 9212.12 lakh for the Financial Year 2022 due to increase in revenue from operations. Moreover, the company recorded an increase of 68.88% in its profit for the year from Rs 409.78 lakh in Fiscal 2022 to Rs 692.05 lakh in Fiscal 2023.
The company served around 30 international customers and have 15 sales agents and dealers. Its export sales as on for the six-month period ended September 30, 2023 is Rs 860.74 lakh and as on for March 31, 2023 is Rs 2067.69 lakh and constitutes 17.19% and 20.00% of its revenue from operations. While it has sales network, it intends to build its physical presence across different geographies for ease of access to its clients and their requirements. Its physical presence in these locations will allow it to service and grow in overseas markets more efficiently by becoming a local supplier to global customers. Proximity to new customer groups will provide it with a strategic advantage in ensuring cost effectiveness, quicker delivery and faster turnaround times. Accordingly, the company intends to set-up international warehousing facilities and distribution operations, based on demand and delivery logistics in various geographies, to fuel its growth going forward.
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