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Auro Impex & Chemicals  

• Auro Impex & Chemicals is coming out with a 100% book building; initial public offering (IPO) of 34,70,400 shares of Rs 10 each in a price band Rs 74-78 per equity share.
• The issue will open on May 11, 2023 and will close on May 15, 2023.
• The shares will be listed on NSE Emerge Platform.
• The face value of the share is Rs 10 and is priced 7.40 times of its face value on the lower side and 7.80 times on the higher side.
• Book running lead manager to the issue is Affinity Global Capital Market. 
• Compliance Officer for the issue is Raghav Jhunjhunwala. 

Profile of the company

The company is an ISO 9001:2015 certified Company that specializes in the manufacturing of Collecting Electrode, Discharge Electrode Plate steel structures and other internal components of an Electrostatic Precipitator (ESPs) - a filtration device used to remove smoke and fine dust particles from flowing gas used in various heavy industries such as Steel Plants, Sponge Iron industry, Cement Plants, Thermal Energy Plants and any other plant where the coal is burnt, as a measure to control Air Pollution. With growing demand to minimize air pollution together with the increased awareness amongst the public and the government initiatives to reduce air pollution, in the year 2011, the company had set up a Manufacturing facility for manufacturing of Electrostatic precipitator internals for both American and European designs in the state of West Bengal, spread across an area of 2.44 acres of land with all the requisite machines and equipment, with the goal of becoming one of the top producers of ESP Internals (Collecting Electrode, Discharge Electrode, Electro- magnetic rapper, Tank Fabrication and Duct Fabrication and ESP Internal spare parts etc).

The company is specifically engaged into manufacturing of (i) Collecting Electrodes of all profiles, (ii) Discharge Electrodes, (iii) Electro- magnetic rapper, (iv) Tank Fabrication and Duct Fabrication, and (v) other ESP Internal spare parts, for some Original Equipment manufacturers (OEMs) and service providers ranging from sourcing of components, designing, manufacturing, quality testing as per the specifications provided by OEMs and service providers. It has created a long running relationship with its clients and has been able to expand its presence in India over the years by manufacturing quality items according to their specifications. The company has been selling its products through renowned OEMs and Service Providers such as - Thermax, Larsen & Toubro, KC Cottrell India, Isgec Heavy Engineering, Hariaksh Industries, Par Techno-Heat, Filter Flow Engineering, Imeco Overseas and other Brand owners.

The company currently, operate through one manufacturing facility located at Vill - Kanajuli, P.O Goborara, P.S. Gurap, Dhaniakhali, Hooghly, West Bengal, India, West Bengal, India, which is spread across an area of 2.44 acres (Manufacturing Facility). Its Manufacturing Facility is strategically located on Durgapur Expressway providing it with strategic and operational benefits. This facilitates timely deliveries and improved efficiency.

Proceed is being used for:

• Meeting the working capital requirements.
• General Corporate Purpose.
• Meeting the issue expenses.

Industry overview

Growing health consciousness and expanding population, particularly in metropolitan areas, are expected to stimulate development of the global Electrostatic Precipitator (ESP) market. The usage of such technology is anticipated to increase as a result of strict restrictions to control rising levels of air pollution and rising health consciousness. It is anticipated that this factor will favour growth of the market in the years to come. Each year, more initiatives are taken to build an environment free from pollution. The market is expected to rise in the following years as a result of rising health consciousness in both developed regions like North America and Europe as well as developing regions such as Asia Pacific. Construction, automobile, as well as industrial operations have caused the air to become unhealthy for breathing due to the unregulated release of pollutants and chemical fumes. 

According to market projections, this aspect is likely to favor overall market expansion in the forthcoming years. As a result of increasing automation, industrialization, and strict governmental regulations to reduce pollution levels, regions like Asia Pacific and North America are expected to have significant product demand in the near future.  Electrostatic precipitators are important for safeguarding human lives and preventing diseases brought on by air pollution. Type, technology, phase, voltage, end use and region are key market parameters that have been taken into consideration whilst classifying the global electrostatic precipitator (ESP) market. The global electrostatic precipitator (ESP) market is anticipated to be led by Asia Pacific during the forecast timeline. This increase is predicted to be fuelled by significant expenditures in R&D, China's economic growth, and growing technological assistance. The economic divide between the urban and rural populations, air pollution management, and urbanization, are all major issues in China today and these are anticipated to influence the regional electrostatic precipitator (ESP).

Pros and strengths

Consistent focus on quality and safety: The company believes in quality production and follows many quality standards and specifications related to the product. Its goods are quality checked at many stages of manufacturing to guarantee that any quality faults or product problems are corrected in real time. It receives repeat orders from its buyers because it can match their quality criteria, allowing it to maintain and improve its brand image in the market. Its focus on quality is maintained at all stages, from the sourcing and inspection of raw materials to manufacturing and quality inspection of final product, which is subject to rigorous review and monitoring process. Purchase orders are procured based on the sourcing of raw materials from the OEMs/Service Providers approved vendors who closely monitor the quality of the raw materials which is jointly inspected by the End Users as well. The Original Equipment manufacturers closely monitors the quality of such products by conducting frequent visits at its manufacturing facility.

Established manufacturing facilities with over decades of operations in the heavy electrical and engineering industry: The company’s production facilities, which cover an area of 2.44 acres, are located in the renowned industrial zone of West Bengal. Its Manufacturing Facility is integrated with manufacturing, warehousing, logistics and accommodation facilities. Its Manufacturing Facility has a total of four production lines, which include two collecting lines for collecting plates, one discharge line for discharge electrodes, and one pipe mill for discharge electrode as a backward integration, with a total installed capacity of 17,500 MT in Financial Year 2023, and total actual production of 15,065 MT of all products in Financial Year 2023. The company works three shifts a day, seven days a week, with enough buffer capacity to scale up production and meet surges in order volume. Furthermore, it has additional space in its Manufacturing Facility to set up new civil structures and install machines, and have the ability to enhance its incremental manufacturing capacity. Its manufacturing units are equipped and capable of carrying out complete manufacturing operations. 

Established distribution network and long term relationship with customers: In 1989, the company’s entrepreneurs established Auro Enterprises, a sole proprietorship firm involved in the trade and distribution of foundry flexes, ferrous and non-ferrous alloys. In 1995, its sister company, Auro Industries., took over Auro Enterprises' distribution operation and began importing and distributing batteries, fans, refrigerators, lights, battery chargers, and other electrical items. And gradually extended into importing Electrostatic precipitator parts such as hollow bushings over time. During these years, its Promoters gained the necessary experience and knowledge to comprehend every aspect of electrostatic precipitator operation and ventured into the manufacturing of internal spares of Electrostatic Precipitators (ESPs) for some multinational OEMs and Service Providers in the year 2011 in the company and have continued to establish a long-standing relationship with its clients and still continue to expand its clientele network with its Quality and competitive pricing.

Risks and concerns

Dependent on few customers: Business of the company is dependent on few number of customers. Its top ten customers contribute 95.22%, 94.12% and 94.69% of its total sales for the financial years ended March 31, 2023, March 31, 2022 and March 31, 2021 respectively on Restated Standalone Basis. Revenues from any of its particular customer may vary significantly from reporting period to reporting period depending on the nature of ongoing orders and the implementation schedule for such orders. The company has been selling its products through renowned OEMs and Service Providers such as – Thermax, Larsen and Toubro, KC Cottrell India, Isgec Heavy Engineering, Hariaksh Industries, Par Techno-Heat, Filter Flow Engineering, Imeco Overseas, GE Power India. constituting more than 50% of its revenue. However, its long-term relationships with customers are indicative of its quality consciousness and its designing and tooling capabilities. Such concentration of its business on few customers may adversely affect it if it does not achieve its expected margins or suffer losses on one or more of these customer contracts. 

Face contractual risks with suppliers owing to Purchase Orders, entered into with them: The company obtains most of its raw materials from fixed suppliers. It procures the raw materials required for its business pursuant to the issue of the purchase orders. While it has in the past undertaken its business pursuant to such arrangements and has not faced any disputes in relation to such purchase orders, it cannot assure you that there will be no disputes with its suppliers in the future, owing to such contractual arrangements. Due to long-standing relationship with its supplier, the purchase orders it issue to some of its suppliers do not contain detailed terms and conditions for eventualities where the supply is not done in accordance with the supply terms agreed with its suppliers or in a timely manner or for circumstances where the quality of materials is not as per its requirements. The purchase orders issued by the company fail to adequately cover the liabilities of the company. The purchase orders do not provide for clauses relating to indemnification, liquidated damages, dispute resolution, and termination. 

Face significant competition: The business in which the company operates is currently new and fragmented in India and there are only a few companies operating in this business. The Electrostatic Precipitators (ESP) industry in India, although in its nascent stages with a few players, is highly competitive. It faces strong competition in the Indian market from domestic as well as foreign companies. Some of its overseas competitors already operate in India through joint ventures with local partners or have established independent operations in India. The global industry for ESP systems is intensely competitive, and competition is likely to further intensify in light of continuing globalization. Some of these global players may in the future consider expanding their business and undertaking their business in India including through partnerships and arrangements with its local competitors. International competitors bring with them decades of international experience, global scale, advanced technology and significant financial resources.

Outlook

Auro Impex & Chemicals is engaged in manufacturing, exporting, and supply of Discharge & Collecting Electrodes, and Electrostatic Precipitator (ESP) internal parts and spares. The company manufactures Collecting Electrodes of all profiles, Discharge Electrodes, Electromagnetic rapper, Tank Fabrication and Duct Fabrication, and other ESP Internal spare parts, for Original Equipment manufacturers (OEMs) and service providers ranging from sourcing of components, designing, manufacturing, quality testing as per the specifications provided by OEMs and service providers. The company has been selling its products through renowned OEMs and Service Providers such as Thermax, Larsen & Toubro, KC Cottrell India, Isgec Heavy Engineering, Hariaksh Industries, Par Techno-Heat, Filter Flow Engineering, Imeco Overseas and other Brand owners. On the concern side, the company’s business requires it to obtain and renew from time to time, certain approvals, licenses, registrations and permits. In addition, it requires certain approvals, licenses, registrations and permissions under various regulations, guidelines, circulars and statutes regulated by authorities such as the Government of India, the State Governments and certain other regulatory and government authorities, for operating business. 

The issue has been offered in a price band of Rs 74-78 per equity share. The aggregate size of the offer is Rs 25.68 crore to Rs 27.06 crore based on lower and upper price band respectively. On performance front, total Income for the Financial Year ended 2022-23 stood at Rs 18,169.41 lakh whereas the same stood at Rs 11,078.24 lakh in Financial year 2021-22, representing an Increase of 64%. The company had reported net profit After Tax of Rs 557.11 lakh, in financial year 2022-23, as compared to Rs 204.59 lakh in financial year 2021-22. Meanwhile, the company intends to enhance its sales and customer penetration in its primary markets by targeting new customer accounts and expanding its existing customer accounts by providing its whole product line. It also intends to expand into other markets through these new dealers and distributors. Expansion into new geographical areas will increase its client base and, as a result, raise demand for its products, assuring optimal utilisation of its manufacturing capacity.