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A key player in maize based derivative products...

Sanstar Ltd., established in 1982, is one of India's largest manufacturers of maize-based specialty products and ingredient solutions. The company caters to various sectors, including food and beverages, animal nutrition, pharmaceuticals, and other industrial applications. Sanstar offers a diversified product portfolio that includes liquid glucose, dried glucose solids, maltodextrin powder, dextrose monohydrate, native maize starches, modified maize starches, and co-products such as germs, gluten, fiber, and enriched protein, among others. The company operate two manufacturing plants in Gujarat and Maharashtra and export to 49 countries across Asia, Africa, the Middle East, the Americas, Europe, and Oceania.

• The Indian maize starch market is projected to grow at a 4.74% CAGR from 2023-29, reaching 9.5mn tons, aided by robust demand across end-user sectors, increased import substitutions, strong export growth, and expanding domestic consumption.

• The company derives 58% of its revenue from the food and beverage industry, the largest consumer of starch and its derivatives. Animal nutrition and other industrial applications contribute 10% and 31%, respectively, in fiscal 2024. Exports, which account for ~35% of revenue, have grown from Rs 18.8cr in FY22 to Rs 394.4cr in FY24.

• Sanstar has demonstrated consistent growth in terms of revenues and profitability, with revenue, EBITDA, and PAT growing at a CAGR of 45%, 57%, and 105%, respectively, over fiscal 2022-2024. The return ratios have remained strong, with FY24 RoE and RoCE at 26% and 22%, respectively.

• Sanstar is utilizing up to Rs 181.6cr from IPO proceeds to expand its Dhule facility in Maharashtra. Post expansion, the company will have an aggregate capacity of 2,100 Metric tons per day (MTD), making it the third-largest player in the maize-based specialty products and ingredient solutions industry.

• As of FY24, total borrowings amount to Rs 127.6cr, with a debt-to-equity ratio of 0.5x. By utilizing Rs 100cr from IPO proceeds for debt repayment, the debt-to-equity ratio will become negligible.

• In FY24, the EBITDA margin and PAT margin stood at ~9% and ~6%, respectively. Going forward, margins are expected to improve further due to stable demand and cost benefits from the newly commissioned solar plant at the Maharashtra facility.

• At the upper price band of Rs 95, Sanstar is available at a P/E of 25.9x (FY24), which appears to be fully priced. Given its leading position in the industry with diverse product portfolio and prestigious clientele in domestic and global markets, robust financial position and improving margin profile, we assign a “Subscribe” rating on a medium to long term basis.

Purpose of IPO

The offering includes both a fresh issue of Rs 397.1cr and an Offer-for-Sale (OFS) of Rs 113.1cr. The objective of the offer is the Repayment and/or prepayment of portion of certain outstanding borrowings availed by the company (Rs 100cr) and funding capex requirement of Rs 181.5cr its Dhule facility at Maharashtra and other general corporate purpose.

Key Risks

• Fluctuations in raw material prices can impact product pricing and margins of the business.

• Any downturn in the end-user industry may adversely impact the overall volume and financial performance of the company

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SEBI Registration Number: INH200000345