Ratnaveer Precision Engineering Limited IPO

About the company:

Ratnaveer Precision Engineering Limited is a stainless steel (SS) product manufacturer focused on producing finished sheets, washers, solar roofing hooks, pipes and tubes. The company’s products find application across various industries including automotive, solar power, wind energy, power plants, oil & gas, pharmaceuticals, sanitary & plumbing, instrumentation, electromechanics, architecture, building & construction, electrical appliances, transportation, kitchen appliances, chimney liners, etc. Their products are used in both commercial and residential sector and are sold within India and overseas. It operates out of 4 manufacturing units, out of which 2 (Unit-I and Unit-II) are located at GIDC, Savli, Vadodara, Gujarat, 1 (Unit-III) is located at Waghodia, Vadodara, Gujarat and the other one (Unit-IV) is located at GIDC, Vatva, Ahmedabad, Gujarat. Its manufacturing units are strategically located with the availability of transportation, which facilitates convenient transportation of their products.

Objects of the Offer:

The company intends to utilize the net proceeds from the fresh issue towards the following objects:
- Funding working capital requirements of the company
- General corporate purposes

Key Strengths and Opportunities:

- Synergistic Business Model focused on Backward Integration: The company has developed a synergistic system of backward integration whereby they process the waste being generated in the manufacturing of its products for converting back into the raw material which is utilized again in manufacturing. Thus, the raw material required is also being generated in-house, while the waste being produced in the manufacturing process is being completely utilized, ensuring economies of scale and minimal wastage.

- Wide Product Portfolio and Multiple Designs: The company started its business activities with the manufacturing of SS washers and has since manufactured SS finishing sheets, SS solar roofing hooks, SS tubes and pipes which have enabled them to diversify their product portfolio manifold. Their product portfolio also includes a diversified variety of stainless steel pipes in various specifications and sizes having wide applications in varied industries.

- Customer Diversification: The company sells its products both in the domestic as well as international markets. The Revenue contribution from their top 10 customers is 35.60%, 35.35%, 38.84%, and 49.62% of the total revenue for Fiscals 2021, 2022 and 2023, respectively. The diversified customer base signifies their non-dependence on any single customer and thereby hedges their business operations from potential customer-specific risk or sector-specific risks, changes in global markets and international relations, etc.

- Experienced Promoter: Vijay Ramanlal Sanghavi, the Promoter and Managing Director has over two decades of experience in the steel and stainless-steel industry. He has been instrumental in achieving various milestones including setting up a dedicated unit in the year 2018 for manufacturing SS Tubes and pipes (Unit II). The company has received recognition from reputed organisations from around the world including the Engineering Export Promotion Council (EEPC), Marsh & McLennan and Dun & Bradstreet under his tutelage.

Risks:

- Ratnaveer Precision Engineering does not have long-term agreements with its suppliers for raw materials and an inability to procure the desired quality, quantity of our raw materials in a timely manner and at reasonable costs, or at all, may have a negative impact on the business, results of operations, financial condition and cash flows. It procures nearly 86% of its total purchases from its Top 10 suppliers.

- Steel prices fluctuate based on a number of factors, such as, the availability and cost of raw material inputs, fluctuations in domestic and international demand and supply of steel and steel products, international production and capacity, fluctuation in the volume of steel imports, protective trade measures and various social and political factors, in the economies in which the steel producers sell their products and are sensitive to the trends of particular industries, such as, the construction and machinery industries. When downturns occur in these economies or sectors, it may lead to a decrease in steel and steel product prices. Low steel prices adversely affect the businesses and results of operations of the company, and may result in lower revenue and margins and write-downs of products and raw material inventories.

- The production units of Ratnaveer are located within the state of Gujarat, at a distance of approximately 100 kms from each other and are thus, concentrated in one geographic area. The manufacturing operations and consequently the business is dependent upon its ability to manage the units, which are subject to operating risks, including those beyond its control. In the event of any disruptions at its units, due to natural or man-made disasters, workforce disruptions, delay in regulatory approvals, fire, failure of machinery, lack of continued access to assured supply of electrical power and water at reasonable costs, changes in the policies of the states or local government or authorities or any significant social, political or economic disturbances or civil disruptions in and around Vadodara and Ahmedabad, Gujarat its ability to manufacture the products may be adversely affected.

- The business of Ratnaveer Precision is a high volume-low margin business. The inability to regularly grow its turnover and effectively execute the key business processes could lead to lower profitability and hence adversely affect the operating results, debt service capabilities and financial conditions. Due to the nature of the products the company manufactures, and sells and due to high competition, they may not be able to charge higher margins on our products.

Financial Snapshot: