Platinum Industries IPO Review Platinum Industries is coming up with its IPO issue of Rs. 235.52 Cr which will open on 27th February 2024. The issue will close on 29th February and be listed on the exchange on 5th March 2024. This article will look at the Platinum Industries Limited IPO Review 2024 and analyze its strengths and weaknesses. Keep reading to find out!
Table of Contents
About the Platinum Industries Limited
Platinum Industries is a specialty Chemical Company engaged in the business of manufacturing PVC stabilizers. These are chemical additives used in the production of polyvinyl chloride (PVC) based products to enhance the durability and performance of the product.
These stabilizers enhance the thermal stability of the material allowing it to withstand heat without significant degradation or loss of physical properties. The Company is the third largest manufacturer of PVC stabilizers in terms of sales with a 13.00% market share in the domestic market.
The Company has three business segments: PVC stabilizers, CPVC additives, and lubricants. These products find applications in PVC pipes, electrical wires, cables, PVC foam boards, and other packaging materials.
Chlorinated PVC (CPVC) additives are chemical substances that enhance the PVC to withstand exposure to a wide range of chemicals and corrosive substances. This makes CPVC suitable for applications that involve hot water handling such as plumbing systems, fire sprinklers, and industrial pipes.
The lubricants are an integral part of the PVC formulation. These lubricants are used to reduce the friction between molecules of PVC by lowering the melt viscosity.
Platinum Industries has a manufacturing facility in Palghar, Maharashtra which is spread across 21,000 Sqft of land. The facility is located near JNPT (Nhava Sheva) Port where the Company can import raw materials as well as export finished products to the international market.
It has also proposed expanding its capacity in India, by proposing a 2nd manufacturing facility in Palghar, Maharashtra. Along with this, the company is looking to venture into the Egyptian with a proposed manufacturing facility.
As per the CRISIL Report, Egypt does not currently have any PVC stabilizer manufacturing unit, and its PVC stabilizer demand is met through imports dominated by countries such as Turkey, Iran, Saudi Arabia, and India.
About the Industry
The Indian specialty chemicals industry, accounting for ~26% of the overall chemicals industry (excluding pharmaceuticals), was worth $29 billion in FY20. The industry expanded at 6.7% CAGR over fiscals 2015-20, driven by an increase in domestic offtake from various end-user industries and rising exports.
However, in FY21, the industry declined 3.4% because of a slowdown in economic activity and the consequent decline in demand from end-user industries. The industry exhibited recovery in FY23 with a worth of $37.9 billion. The Indian specialty chemical industry is expected to reach $48.1 billion by FY26, growing at 8.3% CAGR over 2023-26.
The Per capita consumption of chemicals in India is lower compared to Western countries. Hence, there is greater scope for demand. The shift in the geopolitical landscape and global supply chain shift away from China greatly benefit Indian Chemical manufacturers.
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 to incentivize domestic production of intermediates and raw materials for agrochemicals, dyestuffs, and pharmaceuticals with an 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 Cr as incentives for manufacturing of Key Starting Materials (KSMs) / Drug Intermediates (Dis), Active Pharmaceutical Ingredients (APIs) and other products in India.
Platinum Industries IPO Review – Financials
Platinum Industries reported a revenue of Rs. 231 Cr in FY23, which increased by 23% from Rs. 188 Cr in FY22. Since FY21 its revenue has increased by 61% CAGR.
The Company earns 51% of its revenue from the supply of PVC stabilizers, followed by 26.75% from the sale of lubricants. The CPVC segment constitutes around 7.6%. The Company also trades in commodity chemicals like titanium dioxide, waxes, and zeolite PVC/CPVC resin earning 14% of its revenue from the segment.
The Company earns predominantly from the domestic market 94.5% and just 5.5% from exports. The top three customers of the Company contribute to 64% of the firm’s revenue and 10 customers account for 86.5% of the revenue.
Net Profits of the Company in FY23 were Rs. 37.6 Cr, which grew by 112% from Rs. 17.7 Cr in FY22. The profits have increased at the rate of 179% CAGR since FY21. The Company maintains EBITDA margins of 23.27% and Net Profit Margins of 16.24%.
Return on Equity of the Company is extremely high at 90.02%, as a result of low reserve base. These margins have dropped from 133% and 139% in FY22 and FY21 respectively and investors should expect them to drop further and stabilize as the Company builds its reserves.
Return on Capital Employed remains at 57%, which is comparatively lower than ROE. This is a result of the Company having taken on current debt. The debt-to-equity ratio of the Company is 0.28x.
Platinum Industries- Key Players
Platinum Industries faces no direct competition in India that is listed. However, Supreme Petrochem and Apcotex Industries Ltd are two specialty chemical Companies that have exposure to the construction and industrial applicant industry.
When we compare Platinum against its peers by revenue, Platinum is dwarfed by both Companies. However, in terms of Return on Networth Platinum Industries returns a higher percentage of 61.26% as against 27% and 23% of Supreme and Apcotex.
In terms of the Price-earnings ratio, the Platinum Industry with Basic Earnings of Rs. 9.42 per share, when compared to the higher end of the price band of Rs. 171 will trade at a PE of 18.15x.
Strengths of the Company
- Consistent Financial performance: The Company has grown from a 2 product portfolio to a multi-product manufacturing Company. Revenues & Net Profits have grown strongly at 62% & 179% CAGR respectively since FY21.
- R&D Capabilities: The business has an in-house R&D facility measuring 3352 SqFt. The facility has modern lab equipment and skilled research staff focusing on developing innovative products.
- Diversified Product Portfolio: In just PVC applications, the Company has developed over 400 grades, to cater to their customers’ requirements. Apart from this, the Company has diversified sources of revenue across PVC, CPVC, lubricant, and trading businesses.
- High Barriers to Entry: The specialized nature of this industry leads to a significant differentiation between products, high levels of R&D, and technical know-how. These things hinder new Companies from entering the field.
- Leader in the domestic market: Platinum Industries is a leader in the PVC stabilizers market. The Company is also looking to focus on expanding its presence in the global market. It will also look to increase sales with medium-sized customers providing them special applications to develop niche products.
Weaknesses of Company
- Single Manufacturing Facility: The Company is currently at a very nascent stage of its business life operating out of just a single facility. Any natural disaster, social unrest, or breakdown of services can significantly affect revenues.
- Expanding into new territories: With the net proceeds of the issue, the Company will be venturing into setting up a facility in Egypt to manufacture and sell in the country. Expanding into a new economy can be a risk as the Company has predominantly been India-focused until now
- Revenue Concentration: The Company derives nearly 78% of its revenue from its top 5 customers and 86% from its Top 10 customers. This puts the company at concentration risk and losing out a single large customer can significantly deteriorate its earnings.
- Statutory and Regulatory Requirements: The Company is subject to obtaining multiple licenses, registrations, and permits from various government authorities to get its facility running smoothly. Failure to comply with pollution or any such norms can lead to its facilities facing shutdown.
- Lack of Long-Term Agreements with Suppliers: The Company does any long-term agreements with its suppliers and any change in the supply of raw materials can hamper the Company’s margins.
Platinum Industries Limited – GMP
The shares of Platinum Industries Ltd traded at a 32.16% premium in the grey market on 23rd February 2024. The shares in Grey Market traded at Rs 226. This gives it a premium of Rs 55 per share over the cap price of Rs 171.
Platinum Industries IPO Review – Key IPO Information
| Particulars | Details |
|---|---|
| IPO Size | Rs. 235.32 Cr |
| Fresh Issue | Rs. 235.32 Cr |
| Offer for Sale (OFS) | - |
| Opening date | 27 February 2024 |
| Closing date | 29 February 2024 |
| Face Value | Rs. 10 |
| Price Band | Rs. 162 - 171 |
| Lot Size | 87 Shares |
| Minimum Lot Size | 1 Lot (87 Shares) |
| Maximum Lot Size | 13 Lots (1131 Shares) |
| Min. Investment | Rs. 14,877 |
| Listing Date | 5 March 2024 |
Promoters: Krishna Dushyant Rana and Parul Krishna Rana
Book Running Lead Manager: Unistone Capital Private Ltd
Registrar to the Offer: Bigshare Services Pvt Ltd.
The Objective of the Issue
- Rs. 74 Cr will be utilized to set up an Egyptian subsidiary and to set up a manufacturing facility in the country.
- Rs. 79 Cr will be utilized towards funding Capital Expenditure for setting up its 2nd manufacturing facility in Palghar, Maharashtra
- Rs. 30 Cr will be used to fund the Working Capital requirements of the Company
- The remaining amount will be utilized for General Corporate Purposes.
Conclusion
The IPO is an interesting opportunity for investors looking to gain exposure in the Indian specialty chemicals industry. The company has exhibited strong revenue and profit growth over the last 3 years. It has diversified its product portfolio and possesses good R&D capabilities.
However, risks such as the concentration of revenues from top customers, and dependence on just a single manufacturing facility continue to hang like a sword over its head. Nevertheless, the Company is setting up another Indian subsidiary and also expanding into other markets which should bring a more diversified customer base.
That’s it from us about the Platinum Industries IPO Review. The Company is quite small in size and that should allow it to scale its earnings quickly unlocking greater value for its shareholders. As of now, it will be issued to shareholders for a price-earnings of 18.15x. So will you be applying for the IPO? Let us know in the comments below.
Written by Nasir Hussain
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