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Aten Papers & Foam

• Aten Papers & Foam is coming out with an initial public offering (IPO) of 33,00,000 equity shares in a price band Rs 91-96 per equity share.
• The issue will open on March 28, 2025 and will close on April 2, 2025.
• The shares will be listed on SME Platform of BSE.
• The face value of the share is Rs 10 and is priced 9.1 times of its face value on the lower side and 9.6 times on the higher side.
• Book running lead manager to the issue is Swastika Investmart.
• Compliance Officer for the issue is Neha Munot. 

Profile of the company

The company operates as an important intermediary in the Paper Product Supply Chain. As a crucial middleman in the paper product supply chain, it procures paper from different paper mills and resell them to clients in the packaging products industry. Examples of these products include Kraft Paper and Duplex Board. It also purchases Wastepaper from stockiest and sell them to Paper mills which is crucial raw material for such mills. A wide range of grades, thicknesses, widths, and standards are available in its product portfolio for Kraft papers and Duplex boards and other according to customer specifications. 

The paper products manufactured by its customers have a variety of end use applications and are used mainly in the packaging industry. It sells papers in the domestic markets specially in the state of Gujarat. It attributes its growth to the expertise and dedication of its management team. Their extensive experience of more than two decades, they play a pivotal role in guiding its strategic decisions and daily operations. its Promoters, Mohamedarif Mohamedibrahim Lakhani and Amrin Lakhani, with their deep knowledge, vision, and industry insight, have been instrumental in shaping and executing its growth strategies. Their leadership has allowed it to adapt to evolving market demands and successfully expand its business.

Proceed is being used for:

• Capital expenditure
• Meeting working capital requirements
• General corporate purposes 

Industry overview 

India was one of the first countries to invent paper for sale. Papermaking became an important small job in middle India, making good paper for use inside India and to sell outside. Indian paper was brought to places like Arabia, Indonesia, and Europe in the early Middle Ages. The paper packaging industry experienced growth over the last decade, owing to substrate choice changes, new market expansion, ownership dynamics, and government initiatives to ban plastic. Sustainability and environmental issues continue to be emphasized, and various innovations catering to paper and paper board packaging are expected to drive market growth in India.

The India Paper and Paperboard Packaging Market size is estimated at $12.87 billion in 2024, and is expected to reach $17.74 billion by 2029, growing at a CAGR of 6.63% during the forecast period (2024-2029). The paper industry in India produces 5% of the world's total paper. India accounts for about 5% of the global paper market. The market will be worth about $8 billion by 2022. India is the 15th largest paper producer in the world. The paper production increased by 67,100 tons in January 2023. During April 2022-January 2023, the paper production increased by 6.7%.

India's paper and packaging sector has a bright future ahead of it, thanks to the nation's expanding urbanization, increased disposable income, and expanding population. The need for packaging materials is increasing due to the quick growth of e-commerce, and the industry is being forced to come up with greener solutions as sustainability becomes more and more of a priority. It is anticipated that government programs like ‘Make in India’ and infrastructure development projects would increase manufacturing and improve supply chains.

Pros and strengths

Variety of products: It provides a one stop shop to its clientele for their customized paper product supply needs. As a trading company, it is in a position to always provide the latest products collected in house for its customers and also conduct market expansion activities for its suppliers. Its continuous effort and belief in maintaining a healthy relationship with its suppliers ensures adequate inventory at any point. It procures, stock and supply a diverse and multi-application range of papers and paper products to satisfy the growing requirements of customers. It procures various types of paper from Paper Mills, which are used for varied purposes including Packaging and Printing, which inter-alia includes retail mono packaging boxes and shipper carton manufacturing.

In-house Logistics: It has its own in-house commercial vehicles which facilitates door-to-door delivery service to its customers, in order to minimise transportation costs by providing effective material handling system. It owns four commercial vehicles for this purpose. Transportation mainly includes carrying the products from the paper mills and delivering them to the customers. At times, when needed, it also outsources its transportation-to-transportation agencies.

Ready stock: Stock capacity plays an immensely important role in the paper market. It is stock capacity that one stores that can determine the level of growth. At the Company it is always stock and supply pattern that is followed. It keeps ready stock of all the paper, it deals in all the sizes and GSMs with the required amount of quality at its respective warehouse which helps it stays at a stable position throughout the year and also helps it in serving its customers with timely delivery of orders.

Risks and concerns

Dependent on few numbers of customers: Its top ten customers contribute 36.68%, 34.62%, 28.00% and 28.20% of its total sales for the period ended on September 30, 2024 and for the year ended on March 31, 2024, March 31, 2023 and March 31, 2022 respectively. Moreover, 7.88%, 17.04%, 11.30% and 10.54% of its total revenue is from related parties / group companies /entities. All transactions with related parties entered into by the Company in past were at arm’s length basis, in compliance with applicable provisions of Companies Act, 2013. The company is engaged in the business of paper trading. Its business operations are highly dependent on its customers and the loss of any of its customers may adversely affect its sales and consequently on its business and results of operations. The loss of one or more of these significant or key customers or a reduction in the amount of business it obtains from them could have an adverse effect on its business, results of operations, financial condition and cash flows. 

Maximum sale generated from Gujarat: For the period ended on September 30, 2024 and for the year ended March 31, 2024, March 31, 2023 and March 31, 2022 sales within the state of Gujarat was 97.90%, 99.18%, 99.86% and 99.59% respectively of its total revenue from operations. It anticipates continuing to expand its sales efforts in this region. However, this high concentration in Gujarat exposes it to increased competition, as existing and potential competitors may intensify their focus on this market to capture a larger share. This heightened competition, along with other adverse developments such as economic, political, or demographic changes, could significantly impact its market share and overall business performance. Consequently, any negative event affecting its sales in Gujarat could materially harm its business prospects, financial condition, and operational results.

Working capital requirements: It operates as an important intermediary in the Paper Product Supply Chain. As a crucial middleman in the paper product supply chain, it procures paper from different paper mills and resell them to clients in the packaging products industry. The business of the company is working capital intensive. The successful operation of its business heavily relies on significant working capital, which is essential for various aspects, including financing project operations, inventory management, and the purchase of raw materials of proposed processing Units. However, changes in credit terms and payment delays can adversely impact its working capital, resulting in lower cash flows and increased funding requirements. Inadequate financing of its working capital needs may arise due to several factors, such as delays in disbursements under financing arrangements, higher interest rates, increased insurance costs, or borrowing and lending restrictions. Such circumstances could have a material adverse effect on its overall business, financial condition, and prospects.

Outlook

Aten Papers & Foam operates as an important intermediary in the Paper Product Supply Chain. As a crucial middleman in the paper product supply chain, it procures paper from different paper mills and resell them to clients in the packaging products industry. It also purchases Wastepaper from stockiest and sell them to Paper mills which is crucial raw material for such mills. A wide range of grades, thicknesses, widths, and standards are available in its product portfolio for Kraft papers and Duplex boards and other according to customer specifications. On the concern side, it is dependent on third party transportation providers for supply of its products to its customers. Any failure on the part of such service providers to meet their obligations could have a material adverse effect on its business, financial condition and results of operation.

The company is coming out with a maiden IPO of 33,00,000 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 91-96 per equity share. The aggregate size of the offer is around Rs 30.03 crore to Rs 31.68 crore based on lower and upper price band respectively. On performance front, the company’s total revenue from operations for the year ended on FY 2023-24 was Rs 9,679.82 lakh as compared to Rs 9,099.72 lakh during the FY 2022-23. Revenue from Operations mainly includes revenue from trading of papers. Moreover, the profit after tax Increased to Rs 278.10 lakh in FY 2023-24 from Rs 50.26 lakh in the FY 2022-23.

Meanwhile, the company, currently engaged in the paper trading business, is excited to announce its plans to expand operations by setting up wastepaper processing units. This strategic move will mark its entry into wastepaper processing, which will serve as a key raw material supply for its trading activities. It plans to invest around Rs 425.00 lakh to purchase requisite machineries for setting up waste paper processing Units. These units will enhance its supply chain efficiency and sustainability by providing a reliable source of processed wastepaper.