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Fabtech Technologies Cleanrooms

• Fabtech Technologies Cleanrooms is coming out with an initial public offering (IPO) of 32,64,000 equity shares in a price band Rs 80-85 per equity share.
• The issue will open on January 3, 2025 and will close on January 7, 2025.
• The shares will be listed on SME Platform of BSE.
• The face value of the share is Rs 10 and is priced 8.00 times of its face value on the lower side and 8.50 times on the higher side.
• Book running lead manager to the issue is Vivro Financial Services.
• Compliance Officer for the issue is Kinjal Nitinkumar Shah.

Profile of the company

Fabtech Technologies Cleanrooms is engaged in the business of manufacturing and providing design-to-validation solutions of pre-engineered and pre-fabricated modular panels and doors for building cleanrooms for pharmaceutical, healthcare & biotech sectors. Cleanrooms are specially designed or constructed with a controlled environment to ensure low levels of pollutants, dust, airborne microbes, aerosol and chemical vapour. The company’s cleanroom solutions, which are tailor made as per its customers’ designs and global regulatory standards, comprises of wall panels, view panels, doors, risers, ceiling panels, covings, heat ventilation air conditioning (HVAC) system, epoxy flooring and electrification works. It provides a comprehensive service which includes initial design to validation, encompassing engineering, manufacturing, quality assurance, timely delivery, installation, commissioning, and validation and certification.

The company’s cleanroom products are certified by FM Global to ensure compliance with fire safety measures. It caters to the customers who are mainly operating in pharmaceuticals, healthcare and biotech sectors. Its customers include large pharmaceutical and healthcare companies such as Unichem Laboratories, Desano Pharmaceuticals, Apitoria Pharma (a 100% subsidiary of Aurobindo Pharma), Hamdard Laboratories (India), amongst others. Its manufacturing facility is located at Umbergaon, Valsad, Gujarat with a total area of about 70,000 sq. ft. Its plant is well equipped with a complete range of high performing machinery to manufacture cleanroom partitions.

The company, through one of its subsidiaries, Altair Partition Systems LLP (Altair), are engaged in the business of manufacturing modular panels of economical grade. The manufacturing facility of Altair is located at Murbad, Thane with a total area of about 25,000 sq. ft. which is taken on lease. It has acquired, in aggregate 26% equity share capital of Advantek Air Systems (Advantek), which is engaged in the business of manufacturing of Air Handling Units, a critical component essential for the optimal operation of cleanrooms. 

Proceed is being used for:

• For meeting long-term working capital requirements
• Proposed acquisition of equity shares of Kelvin Air Conditioning and Ventilation Systems Private Limited
• General corporate purposes

Industry Overview

Cleanroom technology refers to specialized engineering and production processes aimed at creating controlled environments known as cleanrooms. These environments minimize airborne particles, contaminants, and pollutants to extremely low levels. Cleanroom technology involves a combination of equipment, materials, and procedures designed to maintain strict cleanliness standards crucial for industries requiring high levels of sterility and precision, such as pharmaceuticals, biotechnology, electronics, and healthcare. Cleanrooms are essential for ensuring product quality and safety by minimizing the risk of contamination, making them indispensable in various industrial sectors. The Indian cleanroom technologies market is witnessing robust growth, valued at $277.4 Million in 2023 and projected to reach $484.2 Million by 2030, with a CAGR of 8.3% from 2023 to 2030. The end users of the Indian Cleanroom Technologies market include Industries such as Pharmaceutical, Semiconductor and Electronic, Biotechnology, Foods and Beverage, Hospital and Healthcare, and others (including Automotive, Plastic, Optical, etc.).

The Indian Cleanroom Technologies market size, by value, has been on an upward trend since 2019. It grew in value from $213.3 million in 2019 to $277.4 million in 2023 at a CAGR of 6.8%. This robust growth can be attributed to the increasing demand across various industries like pharmaceuticals, biotechnology, healthcare, and electronics. Additionally, stringent regulations and quality standards are driving adoption, while investments in R&D aim to enhance manufacturing processes and meet global benchmarks. The COVID-19 pandemic also emphasized the importance of clean environments, boosting demand, especially in healthcare and laboratories. Technological advancements, such as modular cleanrooms and innovative filtration systems, offering efficient solutions are further driving this market growth.

Indian cleanroom technologies market, valued at $277.4 million in 2023 is expected to reach $484.2 million by 2030 with a CAGR of 8.3%. This growth is expected to be supported by the expanding domestic and export manufacturing in pharmaceutical and biotechnology sectors, increasing awareness and demand for high-quality healthcare products, stringent regulatory standards, advancements in manufacturing processes, expansion of electronics and food processing industries that require contamination-free environments, and other technological advancements. The pharmaceutical industry in India is experiencing a remarkable growth, with projections indicating a substantial expansion, reaching $65 billion by 2024 and doubling to $130 billion by 2030.

Pros and strengths

Diverse domain expertise with effective project integration capabilities: The company has extensive experience in designing, manufacturing, and installing cleanrooms for various industries with necessary after sales service support. The company’s team has required knowledge and understanding of cleanroom technologies, allowing them to provide customized solutions that meet specific customers’ needs. It consistently endeavour towards continuous learning and improvement, ensuring that its cleanrooms incorporate the latest technology and innovations. The company’s flexible approach allows it to cater to customers customized needs. It has a satisfactory track record of completing projects on time and have established relationships with reliable suppliers, ensuring a steady supply of the desired quality of materials and equipment. The company’s cleanrooms are designed and built to meet various regulatory requirements, including ISO, FDA, and cGMP etc.

Strategic integration towards inorganic growth: The company has strategically invested in companies that provide it with crucial control over the essential elements necessary for the effective execution of cleanroom projects. The company’s investments include Advantek, which specializes in the manufacture of Air Handling Units, and Kelvin, which is an integrator for critical HVAC applications catering to a wide spectrum of industries and businesses. This move aligns with its commitment to bolstering its capabilities and enhancing its customer base in key sectors. This strategic initiative is in line with its dedication to strengthen its capabilities and expanding its clientele across critical sectors.

End-to-end cleanroom infrastructure solution provider: The company is an end-to-end supplier for cleanroom products and technology for plants. The company’s product offering includes cleanroom panels, view panels, doors, ceiling panels, covings, heat ventilation air conditioning system and electrification works based on design and requirement of plants. It also offers complete installation and commissioning of all cleanroom panels, HVAC systems and electrification works. Its products are approved by FM Global for fire safety, ensuring that they meet stringent safety and performance criteria. It is committed to delivering reliable, high-quality cleanroom solutions that support the operational excellence and safety of its customers’ facilities.

Risks and concerns  

Maximum revenue comes from limited customers: The company derives a significant portion of its revenues from a limited number of customers. The company has garnered 54.32%, 52.46% and 49.23% of its total revenue from top 10 customers in FY24, FY23 and FY22 respectively. The company might continue to derive a material portion of its revenues from its key customers. While the composition and mix of its top 10 customers keeps changing from year to year, if any or all of its key customers cease doing business or substantially reduce their dealings with it, the company’s revenues could decline, which may have a material adverse effect on its business, results of operations, cash flows and financial condition.

Significant amount of working capital requirement: The company’s business requires a significant amount of working capital. As per its settled business terms, it requires its customers to pay the full amount of the consideration only after they receive the order, as a result, significant amounts of its working capital are often required to finance the purchase of raw material and execution of manufacturing processes before payment is received from its customers. Further, it is also required to meet the increasing demand and for achieving the same, adequate stocks have to be maintained which requires sufficient working capital. Its inability to meet its working capital requirements may adversely affect its results of operations.

Dependent on limited number of suppliers for supply of key raw materials: The company is dependent on suppliers for supply of raw materials; however, it has not entered into any long term supply agreement for the same. The company’s major material purchases are galvanized plain skin pass sheets, galvanized iron sheet and Pre-painted galvanized Iron, Coil, aluminium profile, insulation such as rockwool, isocyanate and polyol, powder, HVAC equipment’s, door closer and accessories, toughened glass, accessories such as base runner, external pillar, coving and conduit, site tools and consumables. The company has purchased 63.42%, 59.42% and 59.93% of its total raw material from top 10 suppliers in FY24, FY23 and FY22, respectively. If the company experience a significant or prolonged shortage of raw materials from any of its supplier and it cannot procure the raw materials from other sources, it would be unable to meet its production schedules in a timely manner, which would adversely affect its sales, margins and customer relations. 

Outlook

Fabtech Technologies Cleanrooms manufactures pre-engineered and pre-fabricated modular panels and doors for building cleanrooms in the pharmaceutical, healthcare, and biotech sectors. The company has diverse domain expertise with effective project integration capabilities. Also, it has integrated cleanroom solution provider with automated manufacturing facilities. On the concern side, the company derived a significant portion of its revenues from a limited number of customers. The loss of any significant customers may have an adverse effect on its business, financial condition, results of operations, and prospects. Moreover, the company requires significant amount of working capital for a continuing growth. Its inability to meet its working capital requirements may adversely affect its results of operations.

The company is coming out with a maiden IPO of 32,64,000 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 80-85 per equity share. The aggregate size of the offer is around Rs 26.11 crore to Rs 27.74 crore based on lower and upper price band respectively. On performance front, the company’s revenue from operations decreased by 21.88% from Rs 12,466.63 lakh in financial year ended March 31, 2023, to Rs 9,739.15 lakh in financial year ended March 31, 2024, primarily due to change in sales mix of its products. The profit after tax for Fiscal 2024 decreased to Rs 578.46 lakh as compared to Rs 796.28 lakh in FY23, primarily on account of reduction in sales during fiscal 2024.

The company proposes to acquire additional number of equity shares representing at least 18% of equity shares of Kelvin on a fully diluted basis from the proceeds of this Issue. The proposed acquisition will facilitate sourcing of HVAC systems internally, thereby boosting its operational efficiencies and ability to take on larger projects. It intends to continue pursuing inorganic growth through acquisition, strategic partnerships and technical collaboration in order to expand its execution capabilities, diversify customer base, enable operational integration with its business, cost and process optimization, streamlining business processes, venture into new industries, expand geographic reach and gain further market share in cleanroom technology market in and outside India.