- March 28, 2018
- Posted by: admin
- Category: IPO WATCH, Research Reports
So far we have seen that many companies came up with an IPO in March 2018. As far as the SME platform is concerned, we have seen the largest issue of Rs. 585 million which was raised by Zota Healthcare previous year. But now it appears that, the SME segment has turned mature and is going to see first SME IPO for fund mobilization of Rs. 846 million (based on the upper price bands) by MMP Industries Ltd (Maharashtra Metal Powder Ltd) making it the largest SME IPO till date.
Issue Period – 26th March to 4th April
Issue Type – Book Building Issue IPO
Issue size to the Public – 4.275 million Equity Shares
Market Maker Reservation Portion – 225,000 Equity Shares
QIB Portion – 2.137 million Equity Shares
Non-Institutional Buyer – 641,250 Equity Shares
Retail Portion – 1.496 million Equity Shares
Face value – Rs. 10
Issue price – Rs.186 – Rs.188 per share
Minimum order quantity – 600 shares
Listing on – NSE Emerge SME Platform
OBJECTIVES OF THE ISSUE
- Setting up a new facility for manufacturing of Atomised Aluminium Powder, Pyro and flake Aluminium Powder and Aluminium Foils
- Prepayment or repayment of a portion of loan facilities availed by MMP Industries
- General corporate purpose
INDUSTRY & PRODUCTS
Aluminium Powder – Aluminium powder, also known as aluminium flake or metana, is a light, silvery-white to grey, odourless, granular powder having flammable reactive properties. It is used for several applications such as the manufacture of slurry, explosive and detonators, thermit process used for the manufacture of ferro-alloys, specialized welding applications, and manufacture of aluminium paste, paints and several pigments used in automobiles manufacturing and many more which we will see later.
There are four major grades of aluminium powder: Reagent grade, Technical grade, Biotech grade, and Analytical grade. In the foundry, the metal powder is used as the deoxidant and exothermic tapping compounds to increase the yield of casting.
Aluminium Foil – India, one of the fasted growing economies in the world is seeing a steady GDP growth in recent years. Owing to strong economic growth and increasing middle class with growing disposable income, consumption of aluminium foil is growing fast in India.
The change in lifestyle which includes changed food habits has led to increased demand for foil packaging. Growing demand for ready to eat confectionaries and pharmaceutical products is another major growth driver for aluminium foils industry in India.
Note – Import figures are on the right side. YTD means 11 months of the calendar year 2017
In above figure, we can see the trend of increasing consumption of aluminium foil in India while indicating the shift towards import. Though export is rising over the last two years, it is apparent that India still imports dependent for its aluminium foil consumption.
The Company is engaged in manufacturing of Aluminium products at locations at and close to Nagpur. Their aluminium product range includes pyro and flake aluminium powders, atomised aluminium powders, aluminium pastes, aluminium conductors (all aluminium, alloy aluminium and aluminium steel reinforced).
MMP Industries had set up its first capacity in 1983 for pyrotechnic aluminium powders in technical collaboration with A. Van Lerberghenv; Belgium (now called AVL Metal Powders NV). The agreement is a continuing one and has been extended until April 2020, vide an addendum to license agreement.
They have entered into a Joint Venture with Toyo Aluminium K.K. of Japan for the manufacturing of specialty aluminium pastes in a new company ―Toyal MMP India Private Limited. MMP Industries holds 26% shareholding in this JV Company. The commercial production in this unit has already commenced in February 2018.
In addition, MMP Industries holds shareholding in Star Circlips & Engineering Ltd (26.06%). Star Circlips & Engineering Limited is the manufacturer of Circlips, retaining rings, washers, shims and formed components used in auto and auto component industries.
The Company is centrally located in Nagpur which gives a distinct location advantage. So it taps customers at PAN India level which mean quicker deliveries and owning complete responsibility for their own products.
They have 4 units which manufacture the different product in their respective industries –
|Unit 1 & 4||NPM industries||Aluminium Pyro and Flake Powder|
|Unit 2||H.M. Engineering||Job work of sheet metal for the group entity named Star Circlips & Engineering Ltd.|
|Unit 3||Mars Industries||Manganese oxide & di-oxide powders|
- Experienced management and technical team
- Strong track record and financial stability
- Quality Assurance
- Diversified and Large Customer Base
- Domestic demand augurs well for MMP Industries
- Exclusive Technical tie-ups with Leading European players
- Continue to Grow Overall Market Share by Leveraging the Presence in Existing Business
- Expansion Plan and Diversification
- Competitive Pricing
- Enhancing Customer Base
- Investing in Advanced Technology
- There are certain criminal proceedings pending against MMP Industries & Group Company, Star Circlips & Engineering Limited
- Their products are manufactured in four facilities in Maharashtra and any slowdown or shutdown in their manufacturing operations, or the under-utilization of manufacturing facilities could have an adverse effect on their business, results of operations and financial condition.
- A substantial portion of the company revenues has been dependent upon a few customers. The loss of any one or more of the major customers would have a material adverse effect on their business operations and profitability.
- The company is looking forward to expanding his business by increasing their production capacity and bringing new product such as Aluminium foil generally for Pharma industry and foods
Production Capacity Expansion & Diversification:
Values in MTPA
MMP Industries has a total land bank of nearly 70 acres for its future expansion plans. MMP Industries is expanding the Atomised Powder Capacity by 4,800 MTPA with technical assistance from Toyo Japan, and Aluminium Pyro & Flake powders by 1,800 MTPA, commercial production of which will start from to commence from Q1FY19. A new plant of Aluminium Foils with the installed capacity of 5,000 MTPA will also be set up which is expected to commence operations by Q2 of 2019.
Through the diversification into aluminium foils, MMP Industries will be manufacturing foils for use in pharma packaging, flexible food packaging and foils for use in households. Aluminium foils will be its first product to be directly used by consumers. Considering growing demand of aluminium conductors, MMP has plans for both forward and backward integration in this sector.
Products and Uses
Mining Sector: Explosives industry directly correlates with the Mining Sector (predominantly with Coal mining) where Aluminium powder which is used for making explosives products. It is expected to grow at 10-12% p.a. over 2016-19E.
Automobile industries – The Indian automotive aftermarket is estimated to grow at around 10-15% till 2021. It has the potential to generate up to Rs. 18 trillion in annual revenue by 2026, create 650 million additional jobs and contribute over 12% to India‘s Gross Domestic Product.
This will be growing the demand for aluminium paste which is used in automobile industry and their joint venture with Toyo is going to manufacture paste which will be used by automobile companies.
Power sector – Indicating significant growth in the power transmission sector, the Central Electricity Authority (CEA) has estimated an investment of Rs 2.6 trillion till 2022. And aluminium conductor is generally used instead of copper this will create demand for aluminium conductor.
Real estate Industry – Government initiative for Housing for all by 2022 will surely grow the demand for more building. The Indian real estate market is expected to touch Rs. 1080 trillion by 2020. The housing sector alone contributes 5-6% to the country’s Gross Domestic Product (GDP).
This will increase the chance of better and light weight bricks (ACC Blocks) to be used in our real estate sector so as more of ACC Blocks are used it will increase the consumption of Aluminium powder which is used in making ACC blocks. MMP industries come in top 5 companies who produce aluminium powder in India. Penetration of Concrete AAC blocks is just 5% in India compared to developed countries Germany (60%) and Europe (40%). ACC Block is going to be an upcoming trend in the years to come as more people will use environment-friendly, more area as they have many advantages over the higher cost which will generally go away as our economy gets more developed.
Key Inputs From Management
- The company is looking to collaborate with European company in upcoming year which will give them strong holding in the global market as they are main export are in Middle East countries and Europe.
- They will shift the aluminium paste plant to their joint venture company and with the help of joint venture; they will look to provide aluminium paste demand of the whole world. Looking to become sole supplier to South Africa, Europe & Middle East replacing French and Chinese companies. However, MMPIL will sell atomised powder to Toyal MMP India Pvt Ltd on long term basis.
- Market share in various segments: Explosives 60-70%; Concrete 40-50%; Alphos 80% requirement of top 4 alphos companies; Paste 60% supplying to major paint companies and conductors selling 3,800 tonnes a year.
- There Aluminium Foil will start to give revenue from 2019-2020
- MMP industries have 26.06% stake in their group company Star Circlips & Engineering which they can un-lock the value if company come up with an IPO in years to come.
- They have a market share of more than 50% in many of the product MMP Industries produce like aluminium powder and aluminium conductor which will increase as they are looking to expand their business every year.
Revenue Break-up according to products
Highest revenue generating product for the company is majorly Aluminium Powder which contributes around 60% of the total revenue. The company will start manufacturing new product i.e. Aluminium Foil. MMP will shift its Aluminium paste plant to the Joint venture Company in an upcoming year and to manufacture paste they will need aluminium powder so MMP industries will be the sole supplier of Aluminium powder to JV.
Revenue (in million) & EBITDA Margin
Revenues grew at a CAGR of 18.2% over FY13-17 and expected to grow 20% in FY18 as per management. EBITDA margin also improved over the years and currently enjoy 10.5%. Company will maintain margin in double digit. MMP Industries caters to diversified base of customers with no single customer with more than 10% of revenues.
PAT (in million Rs)
Note – The above figures (all the above graph in Financial Performance) from 2016 to Sept 2017 are from the consolidated balance sheet of the company and figures of 2013, 2014, 2015 are from the standalone Balance Sheet.
We can see that the company had shown a robust growth at bottom line in last 4 years. The company had an exceptional item on their income statement in FY17 of around Rs 46.7 million. We believe, in FY18 company may post a PAT of Rs 180-200 million and out of that it already reported PAT of Rs 80.6 million in the first half of FY18.
Company financials are very strong and from the balance sheet we can even see a positive growth. The share of profit from the joint venture has been included in the consolidated balance sheet which shows the net profit of Rs. 88 million (FY16), Rs. 165 million (FY17) and Rs. 80.6 million (first half of FY18) .
Post issue, its current paid up equity capital of Rs. 124.4 cr. will stand enhanced to Rs. 169.4 cr. Post issue multiple of MMP Industries is coming at P/E of 19.22x and 15-17x according to FY17 and FY18E respectively.
We believe that FY19 figures may show much higher profit due to commencement of additional capacity in many verticals, new division of Aluminium Foil. The company is looking to have collaboration with a European company in the upcoming year and their prevalent joint venture with the Japanese company can make them the global leader for aluminium powder & paste in upcoming years. We can look forward to this company listing as we can see this company achieving more in years to come.
-Report by Rahul Goyal under the guidance of Mr. Chirag Gothi