IGI Logo

Salient features of the IPO:

* Standard Glass Lining Technology Ltd. (SGLTL), one of the top five specialised engineering equipment manufacturer for pharmaceuticals and chemical sectors in India, is coming up with an IPO to raise around Rs. 400.04 - 410.05cr, which opens on 6 th Jan. 2025 and closes on 8 th Jan. 2025. The price band is Rs. 133-140 per share.

* This public issue is a combination of fresh issue (Rs. 210cr) and OFS (Rs. 190.05 - 200.05cr). The company will not receive any proceeds from the OFS portion. From the fresh issue net proceeds, the company will be utilizing Rs. 10.0cr for funding of capital expenditure requirements towards purchase of machinery and equipment, Rs. 130cr for repaying or prepaying a portion of outstanding borrowings of Company and its wholly owned subsidiary, S2 Engineering Industry Pvt. Ltd. Additionally, it will support S2 Engineering’s repayment of borrowings from banks and financial institutions. Rs. 30.0cr for investment in wholly owned material subsidiary, S2 Engineering Industry Pvt. Ltd., for funding its capital expenditure requirements towards purchase of machinery and equipment and Rs. 20cr for funding inorganic growth through strategic investments and/or acquisitions. Residual proceeds will be used for general corporate purposes.

* Some of the promoter & promoter group (P&PG) entities are participating in the OFS and are offloading 1.32cr equity shares. Few investors are also offloading 0.106cr shares. Post-IPO, the P&PG and public shareholders will have 60.41% and 39.59% stake in the company, respectively.

Key competitive strengths:

* One of the top five specialised engineering equipment manufacturers for pharmaceutical and chemical sectors in India with products across entire value chain

* Customized and innovative product offering across the entire pharmaceutical and chemical manufacturing value chain

* Strategically located manufacturing facilities with advanced technological capabilities

* Long term relationships with marquee clientele across sectors

* Consistent track record of profitable growth

* Experienced promoters and strong senior management expertise

Risk and concerns:

* General slowdown in global economic activities

* Dependent on manufacturing facilities, all of which are situated in Telangana

* Dependent on limited number of suppliers

* Majority customers operate in the pharmaceuticals and chemical sectors(88.20%)

* Do not have long term or exclusive contracts with majority of customers and suppliers

* Under utilization of manufacturing facilities

Below are the key highlights of the company:

* The global glass lined equipment represents a significant opportunity with the TAM being expected to increase from USD 2.1bn in 2023 at a CAGR of 10.1% to USD 3.4bn in 2028 and the market in India is expected to grow at a CAGR of 10.1% from Rs. 11.5bn in 2024 and generate Rs. 18.6bn in revenue during 2029.

* The Indian chemical industry, valued at Rs. 18,040bn in FY22-23, is expected to grow to Rs. 27,060bn by FY26-27 and Rs. 82,000bn by 2040. It contributes 6.6% to GDP and 15-17% to manufacturing. India’s pharmaceutical market, growing at 9.0% CAGR, will reach Rs. 2,928.3bn by FY28 compared to Rs. 1,1317.5bn (USD 19.0bn) in FY19. It contributes 1.72% to GDP.

Key highlights of the company (Contd…):

* Incorporated on 06th September, 2012, SGLTL is one the top five specialised engineering equipment manufacturer for pharmaceutical and chemical sectors in India, with in house capabilities across the entire value chain. SGLTL customises products basis the unique process requirements of it’s customers and also provide turnkey automated equipment solutions, optimising processes like vacuum distillation, solvent recovery and gas dispersion.

* SGLTL portfolio comprises core equipments used in the manufacturing of pharmaceutical and chemical products, which can be categorized into: (i) Reaction Systems (68.23% of revenue); (ii) Storage, Separation and Drying Systems (26.07% of revenue); and (iii) Plant, Engineering and Services (5.70% of revenue) (including other ancillary parts). As of September 30, 2024 the company’s portfolio of products includes over 65 designs across the range of products. Product type includes Heat Transfer System, Pipes and Fittings, Pumps, Reactors, Filtration and drying, Storage, Vessel.

* The company possess in-house capabilities to manufacture all the core specialised engineering equipment required in the active pharmaceutical ingredient (“API”) and fine chemical products manufacturing process. SGLTL is also one of India’s top three manufacturers of glass-lined, stainless steel, and nickel alloy based specialised engineering equipment, in terms of revenue in Fiscal 2024 and also one of the top three suppliers of polytetrafluoroethylene (“PTFE”) lined pipelines and fittings in India. Over the last decade the company has supplied over 11,000 products.

* SGLTL has entered into an agreement with HHV Pumps Pvt. Ltd (“HHV”), for supply of vacuum pumps along with a private label arrangement. It also has a supply and purchase arrangement for India with Japan based Asahi Glassplant Inc. and GL Hakko Co. Ltd (“GL Hakko”) for procurement of specified grades of glass for glass lining division and using GL Hakko Co. collaboration to manufacture and sell shell and heat tube exchangers under the name of GL Hakko, both in India and internationally, excluding Japan.

* The company primarily cater to end users operating in the pharmaceutical (75.10% of total revenue) and chemical (13.10% of total revenue) industries. Service offerings include design, engineering, manufacturing, assembly, installation and commissioning solutions of pharmaceutical and chemical facilities on a turnkey basis. Also provide turnkey automated equipment solutions, optimising processes like vacuum distillation, solvent recovery and gas dispersion.

* Manufacturing capabilities consist of eight facilities located in Hyderabad, Telangana covering a total builtup/floor area of more than 400,000 sq. ft. SGLTL manufacturing units constists of SGL Unit (71.6% Capacity Utilisation), S2 Unit 1 (89.08% Capacity Utilisation), S2 Unit 2 (95.79% Capacity Utilisation) , S2 Unit 3 (97.27% Capacity Utilisation), S2 Unit 4 (64.62% Capacity Utilisation), SFPL Unit (65.85% Capacity Utilisation), CPK Unit 1 (43.33% Capacity Utilisation), CPK Unit 2 (46.67% Capacity Utilisation) dedicated for manufacturing of different line items.

* While the company primarily focuses on the domestic market to meet customer demand, it also exports products to select international markets, primarily Russia and Oman. During the six-month period ending September 30, 2024, and in FY24, FY23, and FY22, the company generated revenues of Rs. 18.36cr, Rs. 2.03cr, Rs. 1.34cr, and Rs. 0.58cr, respectively, from overseas sales. These exports accounted for 5.98%, 0.37%, 0.27%, and 0.24% of total operational revenue during these periods.

Key highlights of the company (Contd…):

* As of September 30, 2024, SGLTL serves a customer base of 347 companies, including 30 out of approximately 80 pharmaceutical and chemical companies listed in the NSE 500 index as of June 30, 2024. Its prominent clients include Apitoria Pharma Pvt. Ltd., Aurobindo Pharma Ltd., CCL Food and Beverages Pvt. Ltd., Cohance Lifesciences Ltd., Cadila Pharmaceuticals Ltd., Deccan Fine Chemicals (India) Pvt. Ltd., Dasami Lab Pvt. Ltd., Laurus Labs Ltd., Natco Pharma Ltd., Suven Pharmaceuticals Ltd., among others.

* SGLTL has the capability to manufacture reactors, receivers, and storage tanks ranging from 30 liters to 40,000 liters. The company can produce approximately 300–350 pieces of equipment per month across its product portfolio, which includes (i) Reaction Systems, (ii) Storage, Separation, and Drying Systems, and (iii) Plant, Engineering, and Services (including ancillary parts). Its manufacturing facility is equipped to produce up to 100 reactors per month, along with an exclusive capacity for 30 ANFDs monthly. Additionally, the company can manufacture 9,000 PTFE-lined pipes and fittings per month.

* SGLTL's manufacturing capabilities are supported by a robust sales, service, and distribution network. The company operates from four sales offices located in Vadodara and Ankleshwar (Gujarat), Mumbai (Maharashtra), and Visakhapatnam (Andhra Pradesh). Additionally, its sales team has a presence in Jhagadia (Gujarat), Chennai (Tamil Nadu), New Delhi, Bengaluru (Karnataka), and Vijayawada (Andhra Pradesh), ensuring a pan-India reach.

* SGLTL also has agency arrangements for the sale and marketing of its products in Bangladesh and a dedicated agency and distribution agreement for Russia. Furthermore, the company has established resale arrangements covering North America (excluding Cuba), South America, Europe (excluding Belarus and Russia), and select countries in Asia and Africa.

* SGLTL holds a 16.7% market share in the glass-lined equipment segment. It commands a 4% share in the reactors and storage tanks market, 2.8% in the vacuum pumps market, and approximately 0.5% in the heat exchangers market in India. Additionally, SGLTL has a 10.4% market share in the filters and dryers segment.

Peer comparison and valuation:

SGLTL is among India’s top five specialized engineering equipment manufacturers for the pharmaceutical and chemical sectors, with in-house capabilities spanning the entire value chain. It ranks among the top three manufacturers of glass-lined, stainless steel, and nickel alloy-based specialized engineering equipment, holding a 16.7% market share in FY24. The company is also a top three supplier of PTFE-lined pipes and fittings in India. Strategic acquisitions of Higenic Flora Polymers and Yashasve Glass Lining Industries have enhanced SGLTL's market share to 23.3% (revenue-based) in FY24. These acquisitions have driven faster growth compared to peers.

At the upper end of its price range, SGLTL is seeking a P/E multiple of 46.5x based on its FY24 EPS of Rs. 3 and an EV/Sales multiple of 4.9x. These valuations appear fully priced compared to its peers. The company has demonstrated significant growth in both revenue and profitability following the strategic acquisition of the business of M/s S2 Engineering Services and M/s Stanpumps Engineering Industries, which includes four facilities (S2 Units 1, 2, 3, and 4) in the second half of FY22. Additionally, SGLTL plans to expand its international presence, targeting 20% of its revenue from exports. Its planned manufacturing capacity expansion is also expected to support margin growth.

We believe that factors such as debt repayment and a favourable outlook for its end industries will positively contribute to SGLTL's longterm business growth. However, the valuation the company is demanding appears elevated and thus, we recommend a “Subscribe for Long Term” rating for this issue.

For Detailed Report With Disclaimer Visit. https://choicebroking.in/disclaimer
SEBI Registration no.: INZ 000160131