Interarch Building Products
- Interarch Building Products is coming out with a 100% book building; initial public offering (IPO) of 68,03,184 shares of Rs 10 each in a price band Rs 850-900 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 August 19, 2024 and will close on August 21, 2024.
- The shares will be listed on BSE as well as NSE.
- The face value of the share is Rs 10 and is priced 85.00 times of its face value on the lower side and 90.00 times on the higher side.
- Book running lead managers to the issue are Ambit and Axis Capital.
- Compliance Officer for the issue is Nidhi Goel.
Profile of the company
The company is one of the leading turnkey pre-engineered steel construction solution providers in India with integrated facilities for design and engineering, manufacturing, on-site project management capabilities for the installation and erection of pre-engineered steel buildings (PEB). It was ranked third in terms of operating revenue from PEB business in the Financial Year 2023 among integrated PEB players in India. It has delivered PEBs for projects ranging from multi-level warehouses for customers engaged in e-commerce to paint production lines for customers engaged in manufacturing of paints and, fast-moving consumer goods (FMCG) sector for setting up manufacturing units for manufacturing their products. It has also supplied large-span PEBs for indoor stadiums and customers engaged in the cement industry.
The company offer its PEBs by way of: (a) pre-engineered steel building contracts (PEB Contracts), wherein it provides complete PEBs on a turn-key basis to its customers, and as a part of which, it also provides on-site project management expertise for the installation and erection of PEBs supplied by it at its customers’ sites; and (b) sale of pre-engineered steel building materials (PEB Sales), which includes (i) sale of metal ceilings and corrugated roofing (comprising metal suspended ceiling systems (under the brand, TRAC), metal roofing and cladding systems (under the brand, TRACDEK) and permanent/metal decking (lost shuttering) over steel framing (under the brand, TRACDEK Bold-Rib)); (ii) supply of PEB steel structures (comprising, amongst other things, primary and secondary framing systems; as well as complete PEBs, such as non-industrial PEB buildings for non-industrial use, such as farmhouses and residential buildings (under the brand, Interarch Life)) for erection and installation by third party builders/erectors, and (iii) light gauge framing systems (LGFS).
The company primarily manufacture its products in-house at its four manufacturing facilities, comprising two Manufacturing Facilities in Sriperumbudur, Tamil Nadu, India (Tamil Nadu Manufacturing Facility I and Tamil Nadu Manufacturing Facility II), and one each in Pantnagar, Uttarakhand, India (Pantnagar Manufacturing Facility), and Kichha, Uttarakhand, India (Kichha Manufacturing Facility).
Proceed is being used for:
- Financing the capital expenditure towards setting up a new PEB manufacturing unit (classified as Phase 2 of its capacity development plan at the Planned Andhra Pradesh Manufacturing Facility) (Project).
- Financing the capital expenditure towards upgradation of the Kichha Manufacturing Facility, Tamil Nadu Manufacturing Facility I, Tamil Nadu Manufacturing Facility II and Pantnagar Manufacturing Facility.
- Funding investment in information technology (IT) assets for upgradation of existing information technology infrastructure of the company.
- Funding incremental working capital requirements.
- General corporate purposes.
Industry overview
Finished steel consumption grew from 91 million tonne (MT) in Financial Year 2018 to 136 MT in Financial Year 2024 owing to strong demand from allied sectors and the government's capital spending drive. However, demand had declined in Financial Year 2021 to 95 MT from 100 MT in Financial Year 2020 following the onset of the pandemic. The government's initiatives, such as Make in India, Smart Cities Mission, Production Linked Incentive (PLI) and Pradhan Mantri Awas Yojana, have supported steel demand during the period. However, India has considerable scope to enhance steel usage across various sectors. As of calendar year 2023, the country’s annual per capita apparent steel consumption was 93 kg per annum vs. the world’s average of 219 kg. India’s consumption of finished steel products accounted for 7.6% of global consumption in calendar year 2023, up from 4.8% in calendar year 2013. On the other hand, the share of the European Union, Japan and North America in global finished steel product consumption decreased in calendar year 2023 over calendar year 2012. However, India still trails China, which accounted for 50.8% of finished steel product consumption in calendar year 2023 vs 48% in calendar year 2013, suggesting scope for improvement.
Foreign Direct Investment (FDI) plays an important role in propelling India's economic growth and development, particularly in the construction sector. Currently, key construction (development) projects, including townships, residential and commercial premises, roads, bridges, hotels, hospitals, educational institutions, recreational facilities, and city and regional-level infrastructure are open to 100% FDI through the automatic route. Moreover, FDI limits for real estate projects within Special Economic Zones (SEZ) and industrial parks have been raised to 100% in the construction sector through the automatic route. In the construction (infrastructure) sector, FDI stood at Rs 351 billion in Financial Year 2024, compared to Rs 176 billion in Financial Year 2018. The aggregate budgetary support for capital expenditures (including capital outlay, grants for capital creation, and internal and external budgetary resources) has received a significant boost in Financial Year 2024, reaching Rs 18.6 trillion. This marks a substantial 28% increase compared with the estimates of the Financial Year 2023E. The share of 11 core infrastructure ministries (road transport and highways, housing and urban affairs, civil aviation, power, railways, shipping, rural development, water resources, new and renewable energy, defence and petroleum and natural gas) accounts for nearly 60% of the overall capex. The aggregate budgetary support for capex for these ministries is up 19% at Rs 10.9 trillion in the Financial Year 2024 budget.
Pros and strengths
Market position and established brand presence in the growing pre-engineered steel building industry in India: The company was ranked third in terms of operating revenue from PEB business in the Financial Year 2024 among integrated PEB players in India. The company further had the second largest aggregate installed capacity of 141,000 MTPA as at March 31, 2024 and a market share of 6.5% in terms of operating income in Financial Year 2024 among integrated PEB players in India. The company has eight sales and marketing offices in eight cities to cater to its customers across India. In addition to this, it has stationed sales and marketing employees in Chandigarh in Punjab and Haryana, Lucknow in Uttar Pradesh, Coimbatore in Tamil Nadu, Bhubaneshwar in Odisha, and Raipur in Chhattisgarh. During the period from Financial Year 2015 to Financial Year 2024 it completed execution of 677 PEB Contracts, thereby demonstrating its extensive track record in the PEB industry. It was incorporated in 1983 and has presence of over 30 years in the PEB industry under its brands, TRAC and TRACDEK, which it has leveraged to evolve into an end-to-end PEB solution provider and establish a track record based on extensive customer insights developed over the course of its operations, thereby enabling it to acquire new customers and cover various customer industries end-use applications for its PEBs.
Significantly integrated manufacturing operations: The company’s manufacturing operations are vertically integrated to a significant extent, enabling its presence across the product lifecycle of PEBs, from estimation, designing, engineering, and fabrication of PEBs in completely knockdown condition at its Manufacturing Facilities, to supply and on-site project management of the installation and erection of PEBs at the site of the customer. It primarily manufactures its PEBs at four Manufacturing Facilities– two in Uttarakhand, India and two in Sriperumbudur, Tamil Nadu, India, providing it with manufacturing presence in Northern India and Southern India, respectively. As on March 31, 2024, the aggregate installed capacity of its four Manufacturing Facilities was 141,000 MTPA. Its Manufacturing Facilities are equipped with tooling, testing and quality control equipment, and conform to and apply international standards of quality management systems. Its Manufacturing Facilities are each accredited as ISO 9001:2015 certified in Quality Management System (for the scope of design, marketing, project management and manufacture of PEBs, infrastructure steel solutions, metal roofing, wall cladding and suspended metal ceilings).
Demonstrated track record of execution backed by on-site project management capabilities: Project management expertise is a pivotal factor in the evaluation of PEB suppliers as the construction industry is usually characterized by time-consuming projects. It relies on its in-house project supervision, on-site project management capabilities for the erection and installation of PEBs supplied by it at its customers’ sites to gain a competitive advantage in terms of quality, cost and delivery parameters. Project management expertise becomes extremely important to ensure timely completion and avoid costs overrun and helps with adherence to timelines, budget constraints, and maintaining high-quality standards. Since the commencement of its PEB Contracts business, it has developed its project management capabilities, which enable it to offer PEBs on a turn-key basis to its customers, and accordingly contributes significantly to its ability to acquire new customers. Additionally, each of its Manufacturing Facilities have dedicated quality control teams performing various quality assurance activities from inspecting the raw materials to dispatch of its products to the customers, and it also has established dedicated safety and quality control teams to oversee each stage of the erection process.
Diverse customer base and long-standing relationships with significant customers: The PEB market in India can be divided into three broad end-use sectors: (i) industrial/ manufacturing construction, (ii) infrastructure, and (iii) building (residential, commercial and non-commercial). Industrial/manufacturing construction includes manufacturing plants, factories, power plants, and other highly specialized facilities. Infrastructure construction includes warehouses, bridges, dams, roads, airports, canals, etc., and building construction includes constructing buildings for residential uses such as houses, residential towers, etc., as well as non-commercial buildings like hospitals, educational institutions, as well as buildings for commercial use such as offices, retail malls, etc. It has established long-standing relationships with a number of its customers, including various Customer Groups, which it attributes in part to its emphasis on quality consciousness, cost efficiency, and timely execution. The company attribute its long-standing relationships with its customers in part to its emphasis on quality consciousness, cost efficiency, and timely execution. Considering the critical nature of the use cases of its PEBs, its customer standards, requirements and required service levels are stringent, and accordingly, it considers the quality, durability and reliability of its PEBs as essential to maintaining customer relationships.
Risks and concerns
Depend on limited number of third party suppliers: The company depends on a limited number of third-party suppliers for supply of raw materials required in its production process which subjects it to concentration risk. It does not have continuing arrangements for the supply of raw materials and rely on purchase orders which set out the terms and conditions in relation to quantity, pricing, scheduling and delivery details. Steel is its key raw material and finding readymade substitute suppliers for supplying the raw materials, including steel, of exact specifications and on terms and conditions acceptable to it may be difficult. Its purchase orders typically do not contain any provision for indemnification against any losses suffered by it or any resource for it in case of delay of supply. If any of these suppliers cease operations or decide to discontinue its supply relationship, or fails to supply within the stipulated framework, it would need to find alternative suppliers, within a requisite span of time. It may be unable to source its raw materials from alternative suppliers on similar commercial terms and within a reasonable timeframe. Loss of any one or more of its suppliers may adversely impact its production and eventually its business, results of operations, financial condition and cash flows.
Do not have any long-term or continuing agreements with customer: The company does not have any long-term or continuing agreements with its customers or customer groups and rely on purchase orders issued by its customers from time to time, that set out the terms of its PEB Contracts or PEB Sales for each order. Further, certain purchase orders also permit its customers or customer groups to unilaterally terminate such orders, with or without cause and if such cancellation takes place, it may have an adverse impact on its business, results of operations, financial condition and cash flows. Its pricing terms, payment cycles and permitted adjustments are generally set out in advance in its purchase orders. Majority of its purchase orders do not provide for price escalation provisions and are fixed rate contracts and it may not be able to renegotiate/reset prices set out, in the event of significant unanticipated changes in, for instance, currency exchange rate fluctuation or fluctuations in the price of raw materials. Due to committed delivery schedules at a pre-agreed price, it may not be able to adequately adjust its inventory and raw material costs in the event of an unanticipated change or cancellation in orders from its customers and it may, therefore, in certain events, incur additional costs that it is unable to pass through to its customers or be required to write off certain expenses.
Depend on PEB Contracts for significant portion of revenues: The company derives a significant portion of its revenue from operations from contracts with customers for supplying PEBs on a turn-key basis, as a part of which, it also provides onsite project management for the erection and installation of its PEBs. Any loss or significant reduction in its revenue from the provision of PEB Contracts for any reason (including due to loss of, or termination of existing arrangements, limitation to meet any change in quality specification, customization requirements, or change in construction technology, disputes with a customer, adverse changes in the financial condition of its customers, such as possible bankruptcy or liquidation or other financial hardship) could have a material adverse effect on its business, results of operations, financial condition and cash flows. Onsite project management capabilities is a pivotal factor in the evaluation of pre-engineered steel building suppliers as construction industry is usually riddled by long projects. Hence, project management expertise becomes extremely important to ensure timely completion and avoid costs overrun as it helps in the adherence to timelines, budget constraints, and high-quality standards.
Dependent on contract labourers: The company engages a large number of contract labourers depending on the requirements of labour-intensive projects particularly in its Manufacturing Facilities and at the time of assembling and erection of the PEBs at the site of its customers. The number of contract labours vary from time to time based on the nature and extent of work involved in on-going projects. These contract labours are engaged through independent contractors in accordance with the provisions of the Contract Labour (Regulation and Abolition) Act, 1970. The broad profile of its contract labourers includes welding and fitting, loading and unloading, sweeping and cleaning, supply of food in its canteen at Manufacturing Facilities and supply of security personnel. Further, its independent contractors primarily supply contract labourers required by the company for various functions at Manufacturing Facilities such as wielding, fitting, loading and unloading, sweeping and cleaning, supply of food in canteens and supply of security personnels.
Outlook
Incorporated in 1983, Interarch Building Products provides turnkey pre-engineered steel construction solutions in India. The company offers integrated facilities for design, engineering, manufacturing, and on-site project management for the installation and erection of pre-engineered steel buildings (PEB). The company offers PEBs through pre-engineered steel building contracts (PEB Contracts) and the sale of pre-engineered steel building materials (PEB Sales), including metal ceilings, corrugated roofing, PEB steel structures, and light gauge framing systems. It has established long-standing relationships with a number of its customers, including various Customer Groups, which it attributes in part to its emphasis on quality consciousness, cost efficiency, and timely execution. It is supported by its dedicated in-house on-site project management team. It has established eight sales and marketing offices in eight cities to cater to its customers across India. On the concern side, the company may face the risk of its building/ erection contractors not being able to deliver their obligations on time or default in their delivery timelines. In the event it is unable to find an alternative building/erection contractor on a short notice, its obligations towards its customers for timely completion of the orders will be adversely affected. Besides, its business requires significant working capital in order to finance the purchase of raw materials and maintaining inventory, furnishing of Bank Guarantees.
The company is coming out with a maiden IPO of 68,03,184 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 850-900 per equity share. The aggregate size of the offer is around Rs 578.27 crore to Rs 612.29 crore based on lower and upper price band respectively. On performance front, the company’s total income increased by 14.95% to Rs 13,063.15 million for the Financial Year 2024 from Rs 11,363.92 million for the Financial Year 2023. The company reported a restated profit for the year of Rs 862.62 million for the Financial Year 2024 as compared to a reported restated profit for the year of Rs 814.63 million for the Financial Year 2023. Meanwhile, the company intends to continue to invest in its technology infrastructure to enable further innovation, improve its operational efficiencies, increase customer satisfaction and improve its sales and profitability. It also intends to enhance its design and engineering capabilities which provide it with a competitive advantage with respect to quality, product development and cost, as well as to explore sustainable cost improvement initiatives for its operations. In addition, it will focus on its operational efficiency to improve returns.
