Sah Polymers Ltd : AVOID

Sah Polymers Ltd : AVOID
  • Date

    30 Dec 2022 - 04 Jan 2023

  • Price Range

    ₹61 - ₹65

  • Minimum Order Quantity

    230

  • (D) RHP

    View

Incorporated in 1992, Sah Polymers Ltd. is primarily engaged in the manufacturing and selling of Polypropylene (PP)/High-Density Polyethylene (HDPE) FIBC Bags, Woven Sacks, and HDPE/PP woven fabrics based products. The company also provides customized bulk packaging solutions to business-to-business (“B2B”) manufacturers catering to different industries such as agro pesticides, basic drugs, cement, chemical, fertilizer, food products, textiles, ceramic and steel. Sah Polymers Ltd. has divided its business into two parts – domestic sales (56.38% of FY22 revenues) and exports (43.62% of FY22 revenues). For its domestic market, the company has increased its presence in 5 states and 1 union territory and on the international front, they export the products to 14 countries such as Algeria, Togo, Ghana, Poland, Portugal, France, Italy, Dominican Republic, USA, Australia, UAE, Palestine, UK and Ireland. Presently, the company has one manufacturing facility with an installed production capacity of 3,960 MTPA located at Udaipur, Rajasthan.
Objects of the issue:
The IPO proceeds of the fresh issue will be used towards the following purposes:
  • Setting up of a new manufacturing facility to manufacture new variant of Flexible Intermediate Bulk Containers (FIBC).
  • Repayment/ Prepayment of certain secured and unsecured borrowings in full or part availed by the Company and the Subsidiary Company.
  • Funding the working capital requirements of the Company.
  • General corporate purposes.
Investment Rationale:

New manufacturing facility set to widen the company’s product portfolio mix 
The company aims to set up a new manufacturing facility for manufacturing Flexible Intermediate Bulk Containers (FIBC) with an annual installed capacity of 3,960 MTPA. The current facility of the company manufactures a diverse range of HDPE/PP Woven Sacks and FIBC products with a filling capacity of around 500 KGs per bag/sack. With the new manufacturing facility in place, the company intends to manufacture bags with filling capacities of around 2,500 KGs. This is in line with the expansion plans of the company that aims to cater to the growing demand of the customers and increase its revenue from operations.

Diversified customer base and product offerings bode well for risk mitigation 
The company has a wide customer base and offers its services across multiple industries and geographies both at domestic and overseas locations. The company follows a B2B customer segment model, catering to packing requirements of varied industries including agro pesticides, basic drugs, cement, chemical, fertilizer, food products, textiles, ceramic and steel. Additionally, the company sells its products through commission agents domestically and through overseas representatives and merchant exporters globally. Thus, with this well-diversified model, Sah Polymers Ltd. has reduced its dependence on any one particular industry or location and protected itself against any market instability in the future.

Valuation and Outlook:
On the way forward, Sah Polymers Ltd. aims on increasing its penetration level in its existing markets and focus more on the domestic side of the business. In January 2022, the company acquired Fibcorp Polyweave Private Limited which helped it to gain a competitive advantage in the market. It is important to note that the name of one of the promoters group company ‘Aeroflex Industries Limited’ appeared in the RBI defaulters list issued by CIBIL in the past. On the upper end of the price band, the issue is valued at a P/E of 23.1x based on FY2022 earnings which is on the steeper side compared to its listed peers (Rishi Techtex and Jumbo Bag). We, therefore, remain cautious over this issue and recommend an “AVOID” rating.