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Aeron Composite

• Aeron Composite is coming out with an initial public offering (IPO) of 44,88,000 equity shares in a price band Rs 121-125 per equity share.
• The issue will open on August 28, 2024 and will close on August 30, 2024.
• The shares will be listed on SME Platform of NSE.
• The face value of the share is Rs 10 and is priced 12.10 times of its face value on the lower side and 12.50 times on the higher side.
• Book running lead manager to the issue is Vijay Mahendrabhai Dakshini.
• Compliance Officer for the issue is HEM Securities.

Profile of the company

The company is engaged in the business of manufacturing and supplying of Fiber Glass Reinforce Polymer Products i.e. FRP products including FRP Pultruded Products, FRP Moulded Gratings & FRP Rods tailored for various industrial applications. It provides comprehensive solution which includes conceptual design, prototype development, testing, manufacturing, logistic support, installation and after sales service. FRP product is a composite material consisting of a polymer matrix (resins) reinforced with fibers such as fiberglass, carbon or aramid. This combination offers numerous benefits, including corrosion resistance, chemical resistance, high strength, lightweight properties, electrical and thermal non-conductivity, and ease of fabrication.

The company’s manufacturing unit has accreditations such as ISO 9001:2015 for the scope of design, manufacturing and supply of FRP pultruded products, FRP Handrails, FRP cable trays, FRP fencing, FRP moulded gratings, FRP Cross arm, FRP poles, FRP rods and moulded mounting structure for solar panels (MMS). Further, its in-house R&D unit is registered with the “Department of Scientific & Industrial Research” for purpose of developing new products and processes. Recently, the company has been awarded with Certificate of Recognition and accorded the status of “Two Star Export House” in accordance with the provisions of the Foreign Trade Policy, 2023.

The company is generating revenue from a combination of domestic operations and international endeavours from more than 30 countries across the Globe, serving over 800 customers. It has generated 56.16%, 52.38%, 34.71% and 36.37% of its total revenue from export sales and 43.84%, 47.62%, 65.29% & 63.63% of its total revenue from domestic sales for the period ending February 29, 2024 and fiscal year ending 2023, 2022 and 2021 respectively. Currently, it is serving various industrial segments such as telecommunication, Oil & Gas, Refineries, Renewable energy, Chemicals etc. The company’s esteemed clients include government entities such as ONGC Tripura Power Co. Ltd., NTPC Limited, Gujarat State Fertilizers & Chemicals Ltd and Gujarat Narmada Valley Fertilizers & Chemical Ltd as well as major corporations like Grasim Industries Limited, Larsen & Toubro Limited, TATA Projects Limited, Atul Limited etc.

Proceed is being used for:

• Funding the capital expenditure requirements towards setting up of an additional manufacturing unit. 
• General corporate purpose.

Industry Overview

In India, the demand for FRP is increasing quickly and is expected to do so in the near future. The key drivers of its increase are the country’s increasing building infrastructure and the expanding structure development conditions. Because of this, more and more architects, engineers, and builders are specifying FRP rebar for their systems. Manufacturers of FRP rebar product outfits now have a fantastic opportunity to grow their companies or kick-start their activities in India. The Indian Brand Equity Foundation (IBEF) predicts that India’s construction industry will expand at a CAGR of 20%. This is due to increased expenditures in infrastructure development systems, such as smart cities, highways and roads, airports, and trains, made by both public and private parties. Carbon fibre composites provide many properties that end-users find attractive, notably, high corrosion resistance, low thermal expansion and exceptional durability. They are broadly used in the production of aerospace and defence parts, wind energy turbines and may become staples of electric vehicles.

The Indian composites market is expected to reach an estimated value of $1.9 billion by 2026 with a CAGR of 16.3% from 2021 to 2026 and the Indian consumption of composite materials will touch 7,68,200 tonnes in 2027. The global composites market size is projected to grow from $74.0 billion in 2020 to $112.8 billion by 2025, at a CAGR of 8.8%. The composites industry is growing due to the rise in demand for high performance materials, globally. The automotive segment is becoming increasingly obsessive with consumption of carbon fiber and has increased significantly over the past years. The increasing demand for electric vehicles in countries like China and United States is also a major driving factor for the demand for composite material.

India is poised to initiate the manufacturing of T100 carbon fibre within the next 2.5 years, aiming to overcome import licensing restrictions that impede its use in strategic applications, according to NITI Aayog member Mr. V K Saraswat. T100 carbon fibre finds extensive utility in defence, aerospace, and civil engineering sectors, encompassing the production of hydrogen cylinders, missiles, launch vehicles, aircraft, bulletproof jackets, and bridges. Saraswat expressed confidence in India's ability to achieve indigenous production of T100 carbon fibre, thereby mitigating dependence on foreign suppliers and addressing licensing constraints. Engaged in this pivotal endeavour are key institutions including Bhabha Atomic Research Centre (BARC), Hindustan Aeronautics Limited (HAL), and Mishra Dhatu Nigam Limited (MIDHANI). This strategic initiative underscores the government's commitment to fostering domestic manufacturing capabilities and enhancing self-reliance in critical sectors. Saraswat articulated these developments during a CII conference on Advancements in Composites, Speciality Fibres, and Chemicals, emphasizing India's proactive stance towards technological advancement and industrial autonomy.

Pros and strengths

Revenue from multiple geographies from various countries across the Globe: The company has diversified revenue from multiple geographical locations. It has generated 56.16%, 52.38%, 34.71% and 36.37% of its total revenue from export sales and 43.84%, 47.62%, 65.29% & 63.63% of its total revenue from domestic sales for the period ending February 29, 2024 and fiscal year ending 2023, 2022 and 2021 respectively. For the period ending February 29, 2024 and financial year ended 2023, 2022 & 2021, it has generated around 82.72%, 85.83%, 90.69% and 85.79% of its total revenue from sales in top 5 countries such as India, USA, Australia, UK and Qatar. Currently, it is selling its products to more than 30 countries across the globe. Its presence in multiple geographies not only helps the company in expanding its customer base but also helps it by keeping itself in tune with the latest technological advancements and help it to mitigate risk for any unforeseen circumstances in the domestic market and expand its business operations.

Diverse range of fiber glass reinforce polymer products: The company manufactures diverse range of FRP products which includes FRP pultruded products, Handrails, cable trays, fencing, moulded gratings, Cross arm, poles, rods etc. catering to various industrial uses. It deals in a wide range of products, which enables it to cater widespread customer base across various countries. FRP Products are long lasting as these products are corrosion resistant, light weight, easy to install, carry low maintenance cost etc. These features and benefits make its products better for use in various markets and applications such as telecommunication, Oil & Gas, Refineries, Renewable energy, Chemicals etc.

Branding and promotional activities: The company’s wide spread presence and scale of operations allows it to increasingly focus on branding and promotional activities to enhance its visibility in FRP products industry. The company is enhancing brand awareness and customer loyalty through its promotional and marketing efforts. The company’s business Promotion and Advertisement expenses has increased by 132.02% in FY23 to Rs 68.53 lakh as against Rs 29.53 lakh in FY22.

Risks and concerns  

Business is capital intensive in nature: The company requires significant amount of capital for purchasing the FRP manufacturing equipment such as FRP Pultrusion Machines, FRP Grating Machines, FRP Rod Line machines etc. and failure to obtain additional financing on terms commercially acceptable to the company may adversely affect its ability to grow its business and increase/maintain its future profitability. As of February 29, 2024 and March 31, 2023, 2022 and 2021 its net fixed assets towards plant and machinery were Rs 851.53 lakh, Rs 675.12 lakh, Rs 528.70 lakh and Rs 525.14 lakh, respectively which accounts for 52.37%, 73.28%, 70.12% and 66.80% of the total net block for the respective period. As a result, the company may need to incur additional indebtedness in the future to meet the requirement of its capital expenditure. If the company is unable to raise additional funds whenever required, or on terms favorable/acceptable to it, the company may be required to scale down or abandon its expansion & growth plans and/or reduce capital expenditures and the size of its operations, any of which could materially and adversely affect its business, financial position and results of operations.

Dependent upon few key suppliers within limited geographical location: The company procures a large portion of its raw materials from a few key suppliers, with whom it does not has any long-term supply contracts and therefore, it cannot assure that it shall always have a steady supply of raw materials at prices favourable to the company. For the period ending February 29, 2024 and financial year ended March 31, 2023, 2022 and 2021, purchases from its top ten suppliers amounted to Rs 6505.15 lakh, Rs 7292.40 lakh, Rs 5430.39 lakh and Rs 3015.32 lakh respectively which represented 58.92%, 63.60%, 66.70% and 59.83% of its total raw material purchases. Inadequate supply of raw material caused either by a sudden loss of any of its existing major vendors for any reason could have a material adverse effect on its business operations and profitability.

Notable portion of revenue comes from limited number of customers: Notable portion of revenue has been dependent upon few customers. For instance, its top ten customers for the eleven months’ period ended February 29, 2024 and financial year ended March 31, 2023, 2022 and 2021, accounted for 40.61%, 40.38%, 34.02% and 39.84% of its revenue from operations for the said period. Its reliance on a selected group of customers for its business exposes it to risks, that may include, but are not limited to, reductions, delays or cancellation of orders from its customers, failure to negotiate favorable terms or the loss of these customers, all of which could affect financial position and future prospects of the company. Further, it has not entered into any definitive agreements with its customers and the success of its business is dependent on maintaining good relationship with them. There is no guarantee that all or any of its customers will honor their outstanding amounts in time and whether they will be able to fulfil their obligations, due to any financial difficulties, cash flow difficulties, deterioration in their business performance, or a downturn in the global economy. If such events or circumstances occur from all or any of its major customer, its financial performance and its operating cash flows may be affected. 

Outlook

Aeron Composite is engaged in the manufacture and supply of glass fibre reinforced polymer products i.e. FRP products including FRP Pultruded Products, FRP Moulded Gratings & FRP Rods tailored for various industrial applications. The company's manufacturing facility is located in Saket Industrial Estate and is spread over 26320 square metres. The manufacturing facility is ISO 9001:2015 certified for the design, manufacture and supply of FRP pultruded products, FRP Handrails, FRP cable trays, FRP fencing, FRP moulded gratings, FRP Cross arm, FRP poles, FRP rods and moulded mounting structures for solar panels (MMS). On the concern side, the company’s business is capital intensive in nature. If it is unable to raise additional funds whenever required, or on terms acceptable to the company, it may be required to scale down or abandon its expansion & growth plans and/or reduce capital expenditures and the size of its operations, any of which could materially and adversely affect its business, financial position and results of operations. Moreover, the company is primarily dependent upon few key suppliers within limited geographical location for procurement of raw materials. Any disruption in the supply of raw materials from such selective suppliers and geographical location could have a material adverse effect on its business operations and financial conditions.

The company is coming out with a maiden IPO of 44,88,000 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 121-125 per equity share. The aggregate size of the offer is around Rs 54.30 crore to Rs 56.10 crore based on lower and upper price band respectively. On performance front, total income for the financial year 2022-23 stood at Rs 18,199.26 lakh whereas in Financial Year 2021-22 the same stood at Rs 10,992.50 lakh representing an increase of 65.56%. The company reported Restated profit after tax for the financial year 2022-23 of Rs 661.15 lakh in comparison to Rs 362.12 lakh in the financial year 2021-22. Meanwhile, the company plans to continue its strategy of diversifying and expanding its presence in other countries as well as other untouched regions within the country for the growth of its business. The company is selective in expanding to new locations and look at new geographies where it can deliver its products without experiencing significant delays and interruptions. Through further diversification of its operations geographically, it hopes to hedge against risks of operations in only specific areas and protection from fluctuations resulting from business concentration in limited geographical areas. It intends to cater to the increasing demand of its existing customers and also to increase its existing customer base by enhancing the reach of its products in different parts of the country and world. It aims to achieve this by adding value to its customers through quality assurance, timely delivery and reliability.