Associated Coaters coming with IPO to raise Rs 5.11 crore

Associated Coaters

• Associated Coaters is coming out with an initial public offering (IPO) of 4,22,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 121 per equity share. 
• The issue will open for subscription on May 30, 2024 and will close on June 03, 2024.
• The shares will be listed on BSE SME Platform.
• The share is priced at 12.10 times higher to its face value of Rs 10.
• Book running lead manager to the issue is Gretex Corporate Services.
• Compliance Officer for the issue is Heenal Hitesh Rathod.

Profile of the company

Associated Coaters is engaged in the business of providing services by way of pre-treatment and powder coating of aluminium extrusions in Architect and Real Estate Industry. The process begins with a comprehensive cleaning, where the targeted surface of aluminium extrusions is thoroughly cleansed of any dirt, grease, or contaminants that might impede the subsequent coating process. Following this, a strategic chemical solution is applied to enhance the adhesion of the powder coating. This involves the application of an acidic solution for surface etching or the use of a specialized pretreatment agent to optimize surface wettability. The application of powder coating itself is a precision art. Executed with an electrostatic spray gun, this method involves imparting a negative charge to the powder particles. These charged particles are then irresistibly drawn to the positively charged surface, creating a magnetic-like adhesion. The subsequent step involves the melting and fusion of these particles, resulting in a flawlessly even coating. 

As an ISO 9001:2015 certified organization, it adheres to a robust Quality Management System. Its dedication lies in providing work of superior quality that aligns with project standards and specifications for materials, workmanship, schedules, and public service. It is committed to profitability and competitiveness while ensuring continual improvement through quality processes overseen by a strong management team. Its quality control process guarantees the highest standards of safety and environmental protection, meeting client expectations and adhering to defined standards and specifications.

Proceed is being used for:

• Funding capital expenditure towards installation of plant & machinery in its existing premises 
• Working capital requirements 
• General corporate purposes

Industry overview

The services sector is not only the dominant sector in India’s GDP but has also attracted significant foreign investment, has contributed significantly to exports, and has provided large-scale employment. India’s services sector covers a wide variety of activities such as trade, hotel and restaurants, transport, storage and communication, financing, insurance, real estate, business services, community, social and personal services, and services associated with construction. To enhance India's commercial services exports, share in the global services market from 3.3% and permit a multi-fold expansion in the GDP, the government is also making significant efforts in this direction. 

The services industry performed well in H2:2022-23, boosted by contact-intensive services and building activities. India’s services sector GVA increased YoY by 11.43% to Rs 72.69 trillion ($871.59 billion) in FY24 (April-September), from Rs 68.81 trillion ($1,005.30 billion) in FY16. India’s IT and business services market is projected to reach $19.93 billion by 2025. 

Both domestic and global factors influence the growth of the services sector. An extensive range of service industries has experienced double-digit growth in recent years, supported by digital technologies and institutional frameworks made possible by the government. The ease of doing business in India has significantly increased for domestic and foreign firms due to considerable advancements in culture and the government outlook. Due to ongoing changes in the areas of lowering trade barriers, easing FDI regulations, and deregulation, India's services sector is poised to grow at a healthy rate in the coming years. Over the next 10 years, the National Digital Health Blueprint can unlock the incremental economic value of over $200 billion for the healthcare industry in India.

Pros and strengths

Robust project execution capabilities and proven industry expertise: As of November 30, 2023, the company is actively engaged in the successful management of 13 ongoing projects, boasting a cumulative order book value exceeding Rs 200 lakh. Its unwavering commitment revolves around harnessing its formidable project management and execution capabilities, ensuring the timely completion of projects without compromising on the high standards of service quality. At the core of its operational strength lies its in-house team, equipped with cutting-edge machinery and equipment. This seamless integration empowers it to execute projects with precision and efficiency, underscoring its dedication to delivering exceptional results.

Nurturing strong customer relationships for sustained business success: Its commitment to maintaining robust relationships with its customers has been a cornerstone of its business strategy. Through dedicated efforts, it has successfully cultivated a substantial and loyal client base. This strategic approach not only fosters repeat business but also fortifies its long-term working relationships with its customers, forming the bedrock of an effective customer retention strategy.

Quality assurance excellence: Its unwavering commitment to quality is embedded in the pillars of Research, Development, and Quality Control, which have been instrumental in its sustained growth over the years. It accords equal importance to both areas, recognizing that Research and Development pave the way for innovative techniques crucial to business growth and profitability. Simultaneously, Quality Control ensures that it consistently meets and exceeds customer quality standards, ensuring a seamless supply of products to end-user industries.

Risks and concerns

Do not have long-term supply agreements with vendors / supplier: Its Business may be adversely affected if there is any disruption in the trading material supply or due to non-availability of trading material. It does not have written agreements with its vendors / suppliers and it operates on a purchase order system. There are no long-term supply agreements for the trading material. In absence of any such formal contract with its vendors / suppliers, it is exposed to the risks of irregular supplies or no supplies at all or delayed supplies or price variation which would materially affect its results of operations. In the event of any disruption in the supply or the no availability of material in the required quantity and of required quality from alternate source, the supply schedule to its clients may be adversely be affected impacting the sales and profitability of the Company.

Depend on top five customers: Its top five customers have contributed 78.89% of its revenues for the period ended December 31, 2023 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 lose 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. It cannot assure that it shall generate the same quantum of business, or any business at all, from these customers, and loss of business from one or more of them may adversely affect its revenues and profitability.

Working capital requirements: Its business requires a significant amount of working capital which is based on certain assumptions, and therefore, any change of such assumptions would result in changes to its working capital requirements. In many contracts, significant amounts of working capital are required to finance the purchase or manufacturing of materials, mobilization of resources and other work on projects before payment is received from clients. Its working capital requirements may increase due to an increase in the size of its operations and the number and size of projects that are required to be executed within a similar timeframe.

Outlook

Associated Coaters is engaged in the business of providing services by way of pre-treatment and powder coating of aluminium extrusions in Architect and Real Estate Industry. The process begins with a comprehensive cleaning, where the targeted surface of aluminium extrusions is thoroughly cleansed of any dirt, grease, or contaminants that might impede the subsequent coating process. On the concern side, the market in which the company is doing business is highly competitive on account of both the organized and unorganized players. Players in this industry generally compete with each other on key attributes such as technical competence, distribution network, pricing and timely delivery. Some of its competitors may have longer industry experience and greater financial, technical and other resources, which may enable them to react faster in changing market scenario and remain competitive.

The company is coming out with an IPO of 4,22,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 121 per equity share to mobilize Rs 5.11 crore. On performance front, its total revenue increased by 157.47% to Rs 358.94 lakh for the financial year 2022-23 from Rs 139.41 lakh for the financial year 2021-22. Its profit after tax increased by 297.34% to Rs 54.30 lakh for the financial year 2022-23 from Rs 13.66 lakh for the financial year 2021-22, reflecting a net increase of Rs 40.63 lakh. Meanwhile, its unwavering commitment to operational excellence is manifested in its continuous efforts to enhance controls and drive cost efficiencies while maintaining optimal service quality. Timely completion of services is not just a benchmark for its reputation but also a crucial factor for the ongoing expansion of its business. To fortify its operational controls, it is dedicated to implementing measures that contribute to incremental improvements in efficiency. This includes strategic initiatives such as deploying additional professionals to bolster its service provision capabilities. By investing in a skilled workforce, it aims to further elevate the calibre of services it offers to its clients.