Subam Papers
- Subam Papers is coming out with an initial public offering (IPO) of 61,64,800 equity shares in a price band Rs 144-152 per equity share.
- The issue will open on September 30, 2024 and will close on October 03, 2024.
- The shares will be listed on SME Platform of BSE.
- The face value of the share is Rs 10 and is priced 14.40 times of its face value on the lower side and 15.20 times on the higher side.
- Book running lead manager to the issue is Gretex Corporate Services.
- Compliance Officer for the issue is Poovalingam Nagarajan.
Profile of the company
Subam Papers is engaged in the manufacturing of Kraft Paper and Paper Products. It proudly calls itself as a packaging solution providing company. The company started its journey in the year 2004 with manufacturing of paper cones and later expanded the product base by adding Duplex board and Kraft paper in its portfolio. The company is not like the traditional paper manufactures; it does not manufacture its products from wood pulp but instead it uses waste paper as its raw material. It aims to preserve mother nature and tend to drive the company on the principle of recycling. The company leverages wastepaper as the primary raw material in the production of Kraft Paper and Duplex Board.
It is dedicated to sustainability, using recycled paper and cardboard in the production of Kraft Paper and Duplex Board. This not only reduces waste but also underscores its commitment to environmental responsibility. To further minimize its environmental impact, it harnesses renewable energy through its own wind and solar power installations. Its wind energy infrastructure includes two windmills: with a capacity of 850 KW each totalling around 1.7 MW. Additionally, it operates a solar plant with a capacity of 14 MW. These renewable energy sources enable its manufacturing facilities to significantly reduce their carbon footprint, aligning with its goal of sustainable and eco-friendly operations.
The company has a land bank of 400 acres. It has also received permission from Government of Tamil Nadu to withdraw 2.7 million liters of water daily and for the electricity it has internal generation and rest is taken from the Government. With such huge land bank and with all permission of utilities and large capacity, it has an edge in whole of India for kraft paper and paper products manufacturing. The company has developed a technique to make the paper odour less paper, this particular type of paper is popular among the companies engaged in the food divisions. By understanding the regional variations in paper quality, it can select the optimal raw materials tailored to specific production requirements. Its flexible manufacturing process allows it to deliver customized packaging solutions, available in a range of shades and sizes, to meet diverse client needs.
Proceed is being used for:
- Investment in Subsidiary for financing its capital expenditure requirements
- General corporate purposes
Industry Overview
Packaging currently stands as the fifth largest sector in the Indian economy, reflecting its pivotal role in driving industrial growth and innovation. With an annual growth rate of 22-25%, the industry has become a preferred hub for packaging solutions, bolstered by advancements in technology and infrastructure. Notably, the industry boasts a robust structural framework, comprising over 900 paper units with an installed capacity of nearly 4,990 thousand tons. Furthermore, India is home to 861 paper mills, with 526 operational units, showcasing the nation's significant capacity for paper and paperboard production. Packaging is also instrumental in conveying the product’s message to consumers and helps in establishing the visual appeal of a brand; hence, marketers view product packaging as the best possible opportunity to attract consumers to their product. Moreover, the product’s packaging is designed to capitalise on the impulse shopping behaviour, especially in large super market chains that account for a significant proportion of purchases made by an average consumer. The main functions of packaging besides marketing are to transmit information, protect the product, provide convenience and add security.
The paper and packaging sector in India is growing rapidly and has significant potential for future expansion. The industry was valued at $50.5 billion in 2019 and is anticipated to reach $204.81 billion by 2025, registering a CAGR of 26.7% from 2020 to 2025. The growth in the sector is being driven by a surge in e-commerce, food processing, pharmaceuticals, FMCG, manufacturing industry and healthcare sector. Additionally, numerous government initiatives including 'Make in India' had positive impact on the packaging industry. The paper and packaging industry is currently the fifth largest sector in the Indian economy and has the potential to achieve pricing levels that are about 40% cheaper compared to European regions. The Indian packaging sector has distinguished itself with its exports of flattened cans, printed sheets and components, crown cork, lug caps, plastic film laminates, craft paper, paper board and packaging machinery. The packaging segment with the fastest growth include laminates and flexible packaging, particularly PET and weaved sacks.
The Indian packaging sector is diverse and caters to a broad sector of industries and products. The government, through its positive promotion of the Make in India policy, has set the packaging sector to grow rapidly due to companies setting up their manufacturing units in the country and using these domestic facilities as a base to export to other countries. The government has implemented a strategy to lower tax rates for new manufacturing companies in order to turn India into a global manufacturing hub. Furthermore, given the need for domestic firms to compete with MNCs, the government is planning to further level the sector among players by launching various initiatives with the aim of promoting the development of packaging, along with technological advancements.
Pros and strengths
Paper waste recycle and sustainable packaging solutions: The company uses wastepaper as its primary raw material for paper manufacturing which has significant environmental benefits. Recycling one ton of paper extends far beyond waste reduction, making a substantial contribution to environmental conservation. By opting to recycle, it collectively saves the equivalent of 17 trees, thereby conserving precious forests and promoting biodiversity. Furthermore, the conservation of 7,000 gallons of water and the sparing of 380 gallons of oil highlight the resource efficiency achieved through recycling. Notably, reducing landfill space by 3.3 cubic yards eases the burden on waste disposal systems, while the energy savings of 4,000 kilowatts underscore the inherent efficiency and sustainability of recycling processes.
Significant advantage due to proximity of its factory location: The company has invested in water pumping stations and connecting pipelines, which are fully operational, ensuring efficient water distribution throughout the facility. Moreover, its strategic location offers a distinct advantage, with the Thamirabarani River situated within a mere 6 km proximity. Renowned for its extensive catchment area and the receipt of both South-west Monsoon and North-east Monsoon rains, this river serves as a reliable water source for its operations. The company has successfully obtained water drawl permission from the Government of Tamil Nadu, it has been authorized to withdraw the quantity of water at the rate of 25,000 gallons per hour from the river Thambaraparani, supplemented by an additional ten lakh litres per day from its rainwater harvesting system. This prudent water management strategy aligns with its commitment to sustainability and responsible resource utilization.
Fully integrated manufacturing facility: The company’s manufacturing facility is characterized by its fully automated processes, introducing a high degree of precision to the product manufacturing process. This advanced facility not only ensures an efficient production process but also contributes to maintaining a consistently high-quality output. In addition to precision, the facility prioritizes safety measures, aligning with stringent standards to create a secure and controlled environment for the manufacturing of quality products.
Risks and concerns
Maximum revenue comes from two products i.e., Kraft Paper and Duplex Paper: Majority of its revenue is dependent on two products i.e., Kraft Paper and Duplex Paper amounting to 55.50% and 28.12% respectively of the total sales of the Company as on March 31, 2024. Its continued reliance on single business segment for substantial portion of its revenue exposes it to risks, including but not limited to, reduction in the demand of the products in the particular segment in the future; increased competition from regional and national players; the invention of superior and cost- effective technology; fluctuations in the price and availability of the raw materials; changes in regulations and import duties and the general economic conditions. Any occurrences of such event could significantly reduce its revenues, thereby materially adversely affecting its results of operations and financial condition.
Dependent on few suppliers for raw material procurement: The company is engaged in the business of manufacturing paper and paper packaging products. Therefore, it is highly dependent on waste paper which is the primary component of its manufacturing process. Thus, if it experiences a significant increase in demand, or need to replace an existing supplier, it cannot assure that it will be able to meet such demand or find suitable substitutes, in a timely manner and at reasonable costs, or at all. The company maintains a list of registered suppliers from whom it procures the materials on an order basis as per its internal demand projections. It has not entered into long-term contracts with its suppliers and prices for raw materials are normally based on the quotes it receives from various suppliers. Since it has no formal arrangements with its suppliers, they are not contractually obligated to supply their products to it and may choose to sell their products to its competitors. Non-availability or inadequate quantity of raw material or use of substandard quality of the raw materials in the manufacture of its products, could have a material adverse effect on its business.
Geographical constrain: The company generated major sales from its customers situated at Tamil Nadu. Remaining revenue is generated by the company from the state of Andhra Pradesh, Karnataka, Kerala, Puducherry and Telangana. And states like Chhattisgarh and Maharashtra have a minor contribution towards revenue. Such geographical concentration of its business in these regions heightens its exposure to adverse developments related to competition, as well as economic and demographic changes in these regions which may adversely affect its business prospects, financial conditions and results of operations. It may not be able to leverage its experience in these regions to expand its operations in other parts of India and overseas markets, should it decides to further expand its operations.
Outlook
Subam Papers is a manufacturer of Kraft Paper and paper products. The company uses waste paper as a raw material. As of March 31, 2024, the installed capacity for Kraft Paper was 300 metric tons per day (MTPD), resulting in a total annual capacity of 93,600 tons. The company is investing in water pumping stations and connecting pipelines, ensuring efficient water distribution throughout the facility. The strategic location near the Thamirabarani River, just 6 km away, provides a distinct advantage. On the concern side, majority of its revenue is dependent on two products i.e., Kraft Paper and Duplex Paper, if it is unable to anticipate or adapt to evolving upgradation of products or inability to ensure product quality or reduction in the demand of such products may adversely impact its revenue from operations and growth prospects. Moreover, the company generates its major portion of sales from its operations in certain geographical regions especially Tamil Nadu. Any adverse developments affecting its operations in these regions could have an adverse impact on its revenue and results of operations.
The company is coming out with a maiden IPO of 61,64,800 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 144-152 per equity share. The aggregate size of the offer is around Rs 88.77 crore to Rs 93.70 crore based on lower and upper price band respectively. On performance front, the company’s revenue from operations decreased from Rs 50,829.89 lakh for the financial year ended March 31, 2023, to Rs 49,386.46 lakh for the financial year ended March 31, 2024, representing a decline of 2.84% on account of decline in sale of products and absence of MEIS Sales incentive in FY 2023-24. The company’s profit after tax but before Share of Profit of Associates and Share of Minority Interest was Rs 3,302.68 lakh for the financial year 2023-24 from a loss of Rs 68.34 lakh for the financial year 2022-23.
The company plans to introduce odourless paper, that directly addresses concerns about the unpleasant smells often associated with traditional paper production methods, which have been under scrutiny due to water pollution norms. Its odourless paper will spark an interest in the market, especially among consumers who prioritize hygiene, particularly when it comes to packaging food items like pizzas or cakes. This surge in demand underscores its keen understanding of evolving consumer preferences and its commitment to meeting them head-on. The company’s dedication to innovation is evident through its adoption of technology and its relentless focus on research and development. By implementing Anaerobic Reactor technology, it shall tackle the challenge posed by the rampant growth of microbiological organisms in warm and humid conditions. This growth not only disrupts operational efficiency but also compromises the quality of its paper products, leading to a range of issues including machine downtime, compromised sheet integrity, frequent wash-ups, unplanned shutdowns, and the emission of unpleasant odours.
