Platinum Industries coming with IPO to raise upto Rs 235.32 crore

Platinum Industries 

• Platinum Industries is coming out with a 100% book building; initial public offering (IPO) of 1,37,61,225 shares of Rs 10 each in a price band Rs 162-171 per equity share.
• Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
• The issue will open for subscription on February 27, 2024 and will close on February 29, 2024.
• The shares will be listed on BSE as well as NSE.
• The face value of the share is Rs 10 and is priced 16.20 times of its face value on the lower side and 17.10 times on the higher side.
• Book running lead manager to the issue is Unistone Capital.
• Compliance Officer for the issue is Bhagyashree Amit Mallawat.  

Profile of the company

The company is a multi-product company engaged in the business of manufacturing stabilizers. Its business segment includes PVC stabilizers, CPVC additives and lubricants. It operates in the speciality chemicals industry. Its products find their application in PVC pipes, PVC profiles, PVC fittings, electrical wires and cables, SPC floor tiles, Rigid PVC foam boards, packaging materials, etc. The company provides customized products and solutions directly to its customers and also through its network of distributors. It also undertakes trading activities of associated commodity chemicals such as titanium dioxide and PVC/CPVC resin. It exports its products to other countries also. It has a distribution network of 12 spread across India.

The company’s manufacturing facility is located at Palghar, Maharashtra which is spread across an aggregate parcel of land admeasuring about 21,000 sq. ft. Its Manufacturing Facility has obtained ISO 9001:2015 certification for quality managemenat systems. Its Manufacturing Facility which is strategically situated in close proximity to JNPT (Nhava Sheva) Port, Maharashtra (JNPT) from where it receives its supply of imported raw materials as well as export out finished goods to the international market. 

The company invest in R&D activities to create a differentiating factor and sustainability in its products and services vis-a-vis its competitors. In addition to its manufacturing facilities at Palghar, Maharashtra it has a dedicated in-house R&D facility located at village Dhansar, Palghar, Maharashtra (R&D Facility). Its R&D Facility is equipped with analytical laboratory infrastructure for various developmental activities which includes process, finished products and other raw materials. It shares its R&D facility with its group companies. 

Proceed is being used for:

• Investment in Subsidiary, Platinum Stabilizers Egypt LLC (PSEL) for financing its capital expenditure requirements in relation to the setting up of a manufacturing facility for PVC Stabilizers at SC Zone, Governorate of Suez, Egypt (Proposed Facility 1 (Egypt)).
• Funding of capital expenditure requirements of the company towards setting up of a manufacturing facility for PVC Stabilizers at Palghar, Maharashtra, India (Proposed Facility 2 (Palghar)).
• Funding working capital requirements of the company.
• General corporate purposes.

Industry overview

The Indian chemical industry is a key constituent of the country’s economy, accounting for 2.28% of the GVA (including pharmaceuticals) for all economic activities in fiscal 2020 compared with 2.23% in fiscal 2015. In 2020, it ranked sixth in the world in terms of revenue (excluding pharmaceuticals) and accounted for 2.7% of the global chemical industry compared with 2.5% in fiscal 2010. The Indian chemical industry is expected to double at 9.3% CAGR over fiscals 2019-25. India is the world's sixth-largest chemical manufacturer, and accounts for 3.4% of worldwide chemical production in 2023. The Indian chemical industry was valued at $252 billion in fiscal 2023 and is expected to grow to $349 billion by 2027. The country’s chemical sector is extremely diverse, with over 80,000 products, over 2 million people employed and a strong foundation for innovation because of a network of 200 national laboratories and 1,300 research and development (R&D) centres.

The Department of Chemicals and Petrochemicals (DCPC) has identified around 100 chemicals / intermediates imported in large value, and these chemicals are used in manufacturing products that have substantial export potential. These 100 chemicals are proposed to be supported under the production linked incentive (PLI) scheme for the chemical sector. The proposed PLI scheme aims at incentivising domestic production of intermediates and raw materials for agrochemicals, dyestuffs, and pharmaceuticals with emphasis on domestic value-addition. While the PLI scheme for basic chemicals has not been introduced yet, the government has introduced PLI schemes cumulatively worth Rs 21,940 crore as incentives for manufacturing of Key Starting Materials (KSMs) / Drug Intermediates (Dis), Active Pharmaceutical Ingredients (APIs) and other products in India. In February 2022, the Minister of Chemicals and Fertilizers said the government is planning to announce a PLI scheme for the chemical sector to promote domestic production and exports and solve the trade deficit problem.

Pros and strengths

Varied product portfolio catering to diversified industries: The company has varied products for PVC industry in the market and multiple product categories such as low lead-based stabilizer, calcium zinc based stabilizer and organic based stabilizer. Within each product category, there are multiple grades depending on application and customer requirements. Its constant efforts are focused towards continuously identifying market demands and introducing relevant products with high quality. In PVC applications, it has developed more than 400 grades, which help it cover majority of customers as well as different applications. It had launched with PVC stabilizers and were primarily supplying to PVC pipes industry (irrigation, and water transport). Subsequently, with the varied developments in its product portfolio it has now established its presence in pipes and fittings, rigid and semi-rigid films, window profiles, wires and cables, and other applications such as medical and consumer goods.

High entry barriers in the speciality chemical industry: Barriers to entry in the speciality chemical industry are typically high. The specialised nature of products leads to significant differentiation. R&D requirements, technical know-how, capital intensity service capabilities, customer relationships, and engineered or regulated specifications also create important barriers to entry. Although these barriers are not homogeneous across the industry, most speciality chemical companies enjoy the benefits of one or more of them. The nature of the application of its products and the processes involved, its products are subject to, and measured against, high quality standards and rigorous product approval systems with stringent technical specifications. Further, because end products manufactured by its customers are typically subject to regulatory and industry standards, any change in the vendor of the products may require significant time and expense for customers, which acts an entry barrier. Thus, customer acquisition is difficult and limits the number of competitors involved in the manufacturing of its products.

Quality Products: The company provides quality products to its customers and have a rigorous quality control procedure in place. Quality checks are implemented at various stages viz. receipt of raw materials, intermediate and final products. Materials are tested for compliance with its specifications at every stage and only products that pass its quality checks are delivered. There is a system of vendor prequalification for selection of the right raw material suppliers, to ensure quality is maintained in its process. Every batch of final product manufactured is subject to testing in its analytical lab and approval from lab in-charge prior to dispatch to its customers. It has a well-equipped analytical lab with experienced lab technicians to perform quality checks of its raw materials, intermediate and finished products.

R&D and Sustainability: The company has an in-house R&D facility admeasuring about 3,351.82 sq. ft. situated at Dhansar, Palghar, Maharashtra with modern equipment and instrumentation including XRF machine, lab extruder, lab mixer, Rheometer, outdoor weathering station, static stability oven, hydraulic press and two-roll mill, that is focused on developing innovative products to suit its customer needs and market demands. To stay ahead of the competition, the company’s skilled research staff is constantly improving and upgrading the product portfolio. Its R&D facility constitutes of two parts – analytical laboratory and application laboratory. In addition to validating the quality of the products, the analytical laboratory is constantly investigating the function of novel raw materials, both acquired, and laboratory synthesized, in generating final products with improved characteristics. Its analytical laboratory’s synthesis capabilities offers the company an advantage in researching freshly produced compounds.

Risks and concerns

Do not have long-term agreements with supplier: The company’s ability to remain competitive, maintain costs and profitability depend, in part, on its ability to source and maintain a stable and sufficient supply of raw materials at acceptable prices. Its major raw materials include stearic acid, litharge and PE waxes. It depends on external suppliers for all the raw materials required and typically purchase raw materials on a purchase order basis and place such orders with them in advance based on its projected requirements. As a result, the success of its business is significantly dependent on maintaining good relationships with its raw material suppliers. The absence of long-term supply contracts subjects it to risks such as price volatility caused by various factors viz. commodity market fluctuations, currency fluctuations, climatic and environmental conditions, transportation cost, changes in domestic as well as international government policies, regulatory changes and trade sanctions. As a result, it continues to remain susceptible to the risks arising out of foreign exchange rate fluctuations as well as import duties, which could result in a decline in its operating margins.

Pricing pressure from customers may affect gross margin: Being in a competitive market, the company faces pricing pressures from its customers. Accordingly, PVC Stabilizers manufacturers like it must be able to reduce its operating costs in order to maintain profitability. Such price reductions may affect its sales and profit margins. If it is unable to offset customer price reductions in the future through improved operating efficiencies, new manufacturing processes, sourcing alternatives or other cost reduction initiatives, its business, results of operations and financial condition may be materially adversely affected. Its customers also negotiate for larger discounts in price as the volume of their orders increase. To maintain its profit margins, it seeks price reductions from its suppliers, improved production processes to increase manufacturing efficiency to reduce costs. There can be no assurance that it will be able to avoid future customer price reductions or offset the impact of any such price reductions through continued technology improvements, improved operational efficiencies, cost-effective sourcing alternatives, new manufacturing processes, cost reductions or other productivity initiatives, which may adversely affect its business, financial condition and results of operations.

Business is working capital intensive: The company’s business requires significant amount of working capital primarily as a considerable amount of time passes between purchase of raw materials and collection of receivables post sales to customers. As a result, it is required to maintain sufficient stock at all times in order to meet manufacturing requirements as well as extend credit period to customers as per the industry practice, thus increasing its storage and working capital requirements. Consequently, there could be situations where the total funds available may not be sufficient to fulfil its commitments and hence it may need to incur additional indebtedness in the future, or utilize internal accruals to satisfy its working capital needs. Its future success depends on its ability to continue to secure and successfully manage sufficient amounts of working capital. Further, its ability to arrange financing and the costs of capital of such financing are dependent on numerous factors, including general economic and capital market conditions and the effect of events such as the COVID-19 pandemic, credit availability from banks, investor confidence, the continued success of its operations and other laws that are conducive to its raising capital in this manner.

Dependent on third-party transportation providers: The company’s success depends on the supply and transport of the various raw materials required for its manufacturing facilities and of its finished products from its manufacturing facilities to its depots and further to its distributors, which are subject to various uncertainties and risks. It uses third-party freight and transportation providers for the delivery of its products to distributors. It maintains marine cargo open insurance policy to cover any damage to its products during transit. Transportation strikes, if any, could have an adverse effect on supplies and deliveries to and from its distributors and suppliers. Further, on account of the COVID-19 pandemic, its manufacturing operations were shut down and its third-party transportation providers’ operations were also closed during the lockdown imposed by the Government. In addition, raw materials and finished products may be lost or damaged in transit for various reasons including occurrence of accidents or natural disasters. There may also be a delay in delivery of raw materials and products which may also affect its business and results of operations negatively.

Outlook

Incorporated in August 2016, Platinum Industries is a company that specializes in producing stabilizers. The company manufactures PVC stabilizers, CPVC additives and lubricants. The company's products are used in PVC pipes, PVC profiles, PVC fittings, electrical wires and cables, SPC floor tiles, Rigid PVC foam boards, packaging materials, etc. The manufacturing facility of the company is situated in Palghar, Maharashtra, and spreads across 21,000 sq. ft. of land. The company has grown from commencing from 2 products portfolio to a multi-product manufacturing company with sales across India and in international markets. The company has built its business organically and has demonstrated consistent growth in terms of revenues and profitability. Its R&D facility constitutes of two parts – analytical laboratory and application laboratory. In addition to validating the quality of the products, the analytical laboratory is constantly investigating the function of novel raw materials, both acquired, and laboratory synthesized, in generating final products with improved characteristics. On the concern side, the company presently does not have any long-term or exclusive arrangements with any of its customers. It cannot assure that it will be able to sell the quantities it has historically supplied to such customers. The company’s operations are subject to government and statutory regulations, and it is required to obtain and maintain several permits, consents and regulations and approvals under central, state and local government rules for operating its business generally for its manufacturing facility and depots.

The company is coming out with an IPO of 1,37,61,225 equity shares of face value of Rs 10 each. The issue has been offered in a price band of Rs 162-171 per equity share. The aggregate size of the offer is around Rs 222.93 crore to Rs 235.32 crore based on lower and upper price band respectively. On performance front, the total income increased by Rs 433.17 million, or 22.89%, from Rs 1892.38 million in Fiscal 2022 to Rs 2325.55 million in Fiscal 2023. The company has recorded an increase in its profit by Rs 198.36 million or by 111.77% from Rs 177.48 million in Fiscal 2022 to Rs 375.84 million in Fiscal 2023. Meanwhile, with a view to further diversifying its customer base and increase its market share, it intends to augment its sales in the markets where it sells its products as well as expand into new geographies. While the company has been delivering its products to different regions of India and exporting to some countries, it intends to increase its global market reach for which it has to broaden its manufacturing capabilities.