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Gayatri Rubbers and Chemicals

• Gayatri Rubbers and Chemicals is coming out with an initial public offering (IPO) of 15,28,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 30 per equity share.

• The issue will open for subscription on January 25, 2023 and will close on January 30, 2023.

• The shares will be listed on NSE Emerge Platform.

• The share is priced 3.00 times higher to its face value of Rs 10.

• Book running lead manager to the issue is Khambatta Securities.

• Compliance Officer for the issue is Roli Jain.

Profile of the company

The company is in the manufacturing and trading of rubber profile, aluminum rubber profile, automobile rubber profile, rubber compound, various kinds of rubber components and clear PVC profiles. It supplies these rubber products across India to the dealers of Nalco, Banco, Jindal in aluminum sector and the agents of Motherson Sumi and few other state transports in automobile sector. It supplies rubber compounds to other rubber product manufacturers and OEMs.

The company is a manufacturer and trader of rubber profiles, rubber compounds, auto glass rubber (automobile profile) and other kinds of rubber products such as sponge rubber for heavy industries. It procures its raw materials / trading goods from Delhi NCR, Gujarat, Kerala and other parts of India. For instance, natural rubber / EPDM rubber is sourced from Kerala, calcium carbonate/ chalk powder is sourced from Gujarat and zinc and some other goods are sourced from Delhi NCR.

Proceed is being used for:

• Meeting the working capital requirements of the company

• General corporate purpose

• Meeting the issue expenses

Industry overview

India’s rubber consumption had increased 22% in 2021, and the use of both natural and synthetic rubber has increased. The global demand for rubber too had gone up in 2021, registering a growth of 11%. The growth of the sector was supported by investments and regulatory measures taken by the government and the private sector. “The government introduced incentives and reforms to improve the business climate. The government’s policy of self-sufficiency also played a crucial role in the growth of the sector.

India ranks fourth among the top rubber consumers in the world. It is the third largest producer and is the largest producer of reclaimed rubber. Spurred economic growth and higher import duty and anti-dumping duty on tyres have contributed to the growth of the Indian Rubber Industry in recent years. The consumption of natural rubber has increased from 11,12,210 tonnes in 2018 to 12,11,940 tonne in 2019. The imports also increased by 24% in 2019 and 70% of the imports were through duty-paid channel. As in the previous years, 81% of imports were in the form of block rubber. The major factors behind the import are the differences in prices between domestic sheet rubber and international block rubber and shortage of rubber in the domestic market. The production capacity in India is around 9,00,000 tonnes, of which around 75% is tapped. Out of the total area under rubber in India of around 8,822,000 ha, 6,14,500 ha is a mature yielding crop.

Going forward, the global rubber market was worth $36.5 billion in the year 2021 and is projected to surpass $50 billion by 2028. The global rubber market is flourishing at a high rate owing to the expanding production of automobiles, propelling demand for tyres and other automotive parts such as shock absorbers, protective pads, etc. Furthermore, the expanding use of rubber in the production of non-industrial goods such as cooking spatulas, shower mats, dishwashing gloves, etc. However, the negative impact of synthetic rubber on the environment may act as a huge restraining factor for the growth of the global rubber market growth.

Pros and strengths

Company manufactures all types of rubber products: The company is manufacturer of all types of rubber products, wherein it offers an extensive line of rubber profiles, aluminum rubber profiles, rubber compound, all types of rubber components & clear PVC profiles under single roof. The company’s rubbers are uniquely designed to provide automobile & aluminum beading solutions for harsh and critical applications. Its products portfolio is tailor made for its customers so as to meet their specific quality requirements.

Wide and stable customer base: The company supplies its products to various manufactures and OEMs in various industries. Its relationship with its customers ensures that it is constantly in communications with them and enable its products to meet their specifications. The strength of the company’s relationship with its customers is attributable to its consistent performance over long periods and the emphasis that it places on catering to its customer needs, supplemented with its access to technology.

Repeat orders: Meeting customer specific requirements and delivery of orders is one of the key growths. The company has made efforts to ensure customer satisfaction by taking steps for meeting customer specific requirements, timely delivery of orders to its customers as well as maintaining consistency in quality and this has yielded results in the form of repeat orders from its customers. The repeat orders reflect the confidence reposed in the company by its customers.

Risks and concerns

Maximum revenue comes from limited customers: The company’s top ten customers have contributed 84.99%, 78.15% and 90.81% of its revenues for the period ended December 31, 2022, March 31, 2022 and March 31, 2021 respectively based on Restated Financial Statements. In H1FY23, the company has generated top line of Rs 1,664.84 lakh out of which, Rs 1,414.94 lakh comes from top 10 customers. The loss of any of these large customers will significantly affect its revenue and profitability.

No long-term agreements with most of its suppliers: The primary raw materials used for its manufacturing process are natural rubber, zinc oxide, calcium carbonate, chalk powder (impure form of calcium carbonate), resin, chlorinated paraffin, tin stabilizer and EPDM Rubber. All the raw materials are purchased from third parties. The company typically does not enter into long-term supply contracts with any of its suppliers with respect to its raw material requirements and typically place orders with them in advance of its anticipated requirements. Further, its inability to accurately forecast demand for its products or manage its inventory or working capital requirements may have an adverse effect on its business, results of operations and financial condition.

Labour intensive operation: The company’s operations are labour intensive and it is dependent on a large labour force for its manufacturing operations. As of December 31, 2022, it employed 16 employees at various levels of the organization and around 30 contract laborers. The success of its operations depends on availability of labour and maintaining good relationship with its workforce. Shortage of skilled/ unskilled personnel or work stoppages caused by disagreements with employees could have an adverse effect on its business and results of operations.

Outlook

Gayatri Rubbers and Chemicals Limited is engaged in the manufacturing and trading of rubber profiles, aluminum rubber profiles, automobile rubber profiles, rubber compounds, various kinds of rubber components, and clear PVC profiles. These rubber products are then supplied to dealers including Banco, Nalco, and Jindal in the aluminum sector and the agents of Motherson Sumi in addition to state transport in the automobile sector. On the concern side, the company is dependent on few numbers of customers for sales and loss of any of these large customer and supplier will significantly affect its revenues and profitability.

The company is coming out with an IPO of 15,28,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 30 per equity share to mobilize Rs 4.58 crore. On performance front, the company’s revenue from operations increased by 7.08% to Rs 1,673.73 lakh in Fiscal 2022 from Rs 1,563.08 lakh in Fiscal 2021. The company’s overall revenue has slightly increased due to increase in its sale of products i.e. sale of manufactured goods as well as trading goods. Moreover, the company’s profit for the year increased by 4.84% to Rs 81.01 lakh in Fiscal 2022 from Rs 14.53 lakh in Fiscal 2021.

Going forward, the company intends to expand its business more with its organized customers. The company is exploring more export customers in Nepal and other countries by exploring into potential countries. Moreover, the company proposes to expand its operations by undertaking advancement in the Kneader division setup, upgradation and increasing production of rubber division, by increasing its production capacity at its manufacturing unit.