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Sunlite Recycling Industries

• Sunlite Recycling Industries is coming out with initial public offering (IPO) of 28,80,000 shares in a price band Rs 100-105 per equity share.
• The issue will open for subscription on August 12, 2024 and will close on August 14, 2024.
• The shares will be listed on NSE Emerge Platform.
• The face value of the share is Rs 10 and is priced 10 times of its face value on the lower side and 10.5 times on the higher side.
• Book running lead manager to the issue is HEM Securities.
• Compliance Officer for the issue is Nikita Sharma.

Profile of the company

Sunlite Recycling Industries is engaged in the business of manufacturing of copper rods & wires, copper earthing wires, copper earthing strips, copper conductors, copper wire bars etc. through recycling of copper scrap, which has electrical and mechanical properties suitable for applications in power generation, transmission, distribution and electronic industries. Further, it is also engaged in providing job work services for processing of various products of copper, wherein its customers provide it with the copper scrap and it is converting the copper scrap into copper wire and copper wire rod as per customer’s requirement. It employs an internal quality control mechanism to ensure that its finished product conforms to the exact requirement of its customers.

Its Product Portfolio offers a diversified product range which includes variety of grades, thickness, widths and standards, in all types of copper products according to customer specifications. It prioritize environmental and safety considerations in its copper production process. Its approach involves recycling copper scrap utilizing electricity sourced from solar generation and clean natural gas, thus mitigating the pollution associated with conventional oil-based energy sources. Copper is one of the most recycled metals of all the metals. The recycling of copper scrap is gaining importance worldwide simply because of the fact that recovery of copper metal from scrap requires much less energy than its recovery made from primary source. 

Proceed is being used for:

• Funding of capital expenditure towards installation of new Plant & Machinery.
• Repayment and/or pre-payment, in full or part, of certain borrowings availed by the Company.
• General Corporate Purpose.

Industry Overview

Manufacturing is emerging as an integral pillar in the country’s economic growth, thanks to the performance of key sectors like automotive, engineering, chemicals, pharmaceuticals, and consumer durables. The Indian manufacturing industry generated 16- 17% of India’s GDP pre-pandemic and is projected to be one of the fastest growing sectors. The machine tool industry was literally the nuts and bolts of the manufacturing industry in India. Today, technology has stimulated innovation with digital transformation a key aspect in gaining an edge in this highly competitive market.

While global copper consumption growth would remain tepid at 2% in CY2023, ICRA projects domestic copper demand growth at a healthy around 11% in FY2024 and FY2025. Domestic refined copper demand growth is expected to remain healthy at 11% in FY 2024 and FY 2025 outpacing the rate of global growth in copper demand, given the Government of India’s (GoI) thrust on infrastructure development and a gradual transition to renewable energy. In the domestic market, around 40% of the copper is consumed by infrastructure and construction sector and 11-13% each in the automobile and consumer durable sectors. Significant emphasis by GoI towards affordable housing schemes, smart city projects, the Defence sector as well as the expected higher penetration of EVs and its associated infrastructure bode well for the domestic copper demand outlook.

India is an attractive hub for foreign investments in the manufacturing sector. Several mobile phone, luxury and automobile brands, among others, have set up or are looking to establish their manufacturing bases in the country. The manufacturing sector of India has the potential to reach $1 trillion by 2025. The implementation of the Goods and Services Tax (GST) will make India a common market with a GDP of $3.4 trillion along with a population of 1.48 billion people, which will be a big draw for investors. The Indian Cellular and Electronics Association (ICEA) predict that India has the potential to scale up its cumulative laptop and tablet manufacturing capacity to $100 billion by 2025 through policy interventions.

Pros and strengths

Strong portfolio and diverse range of copper products: The company manufactures diverse range of copper products which includes copper rods & wires, copper earthing wires, copper earthing strips, copper conductors, copper wire bars etc. catering to every aspect of electrical transmission and distribution, power generation, and electronic applications. It deals in a wide range of products, which enables it to cater widespread customer base across various states in India. It has necessary resources, experience and network to launch additional products in future. With an operating history of more than a decade, it is primarily known for its wide range of quality products at a competitive price.

Stringent quality control mechanism ensuring standardized product quality: It is dedicated towards quality of its products. It adheres to quality standards as prescribed by its customers and employs an extensive and stringent quality control mechanism at each stage of the manufacturing process, which are required to ensure that its finished product conforms with the exact requirement of its customers and successfully passes all validations and quality checks. Further, as a certification of the quality assurance, the company has received ISO 9001:2015 for quality management systems.

Revenue from multiple geographies in India: The company has diversified revenue from multiple geographical locations from various states in India. It has generated around 92.80% and 93.27% of its total revenue from sales in top 05 geographical regions in India for the financial year ended March 31, 2024 and March 31, 2023. Currently, it is selling its products to more than 10 states and union territories in India of which majority portion of the revenue comes from the state of Gujarat which contributes 45.73% of total revenue followed by Dadra & Nagar Havelli which contributed 21.49% of total revenue. Apart from this, Maharashtra contributed 12.75%, Telangana contributed 9.06% & Madhya Pradesh contributed 3.77% of its total revenue from operations.

Risks and concerns

Dependent on limited number of customers: Its top 10 and top 5 customers contributed 40.00%, 31.22% and 41.96% respectively for the FY ending 2024, 2023 & 2022 and 28.54%, 20.57% and 30.94% respectively for the FY ending 2024, 2023 & 2022 of its revenues from operations based on restated financial statements. However, its top customers may vary from period to period depending on the demand and thus the composition and revenue generated from these clients might change as it continues to add new customers in normal course of business. Since its business is concentrated among relatively few significant customers, it could experience a reduction in its results of operations, cash flows and liquidity if it loses one or more of these customers or the amount of business it obtains from them is reduced for any reason, including but not limited on account of any dispute or disqualification.

Production costs are vulnerable to fluctuations in raw material prices: The industry in which it operates is exposed to fluctuations in the prices of copper scrap and it may be unable to control factors affecting the price directly or indirectly at which it procures its raw material, particularly as it typically does not enter into any long-term supply agreements with its suppliers and its major requirement is met in the spot market. It may at times also face the risks associated with compensating for or passing on such increase in its cost of production on account of such fluctuations in prices to its customers.

Significant working capital requirements: Its business requires a substantial amount of working capital, primarily to finance its inventory, including, the purchase of raw materials. Moreover, it may need substantial working capital for expansion of its business. Most of this working capital requirement is met through bank loans, particularly the Cash Credit facilities and working capital term loans. Such financing has resulted into a high debt to equity ratio for the company. Its inability to obtain and/or maintain sufficient cash flow, credit facilities and other sources of funding, in a timely manner, or at all, to meet its working capital requirements or to pay its debts, could adversely affect its financial condition and results of operations.

Outlook

Sunlite Recycling Industries is engaged in the business of manufacturing of copper rods & wires, copper earthing wires, copper earthing strips, copper conductors, copper wire bars etc. through recycling of copper scrap, which has electrical and mechanical properties suitable for applications in power generation, transmission, distribution and electronic industries. Further, it is also engaged in providing job work services for processing of various products of copper. It employs an internal quality control mechanism to ensure that its finished product conforms to the exact requirement of its customers. On the concern side, its continued reliance on single business segment for substantial portion of its revenue exposes it to risks, including but not limited to, reduction in the demand of the products in the particular segment in the future; increased competition from regional and national players; the invention of superior and cost- effective technology; fluctuations in the price and availability of the raw materials; changes in regulations and import duties and the general economic conditions. Any occurrences of such event could significantly reduce its revenues, thereby materially adversely affecting its results of operations and financial condition.

The company is coming out with a maiden IPO of 28,80,000 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 100-105 per equity share. The aggregate size of the offer is around Rs 28.80 crore to Rs 30.24 crore based on lower and upper price band respectively. On performance front, total income for the financial year 2023-24 stood at Rs 1,16,655.09 lakh whereas in Financial Year 2022-23 the same stood at Rs 1,15,039.91 lakh representing an increase of 1.40%. The company reported Restated profit after tax for the financial year 2023-24 of Rs 890.36 lakh in comparison to Rs 560.27 lakh in the financial year 2022-23 representing an increase of 58.92%. Meanwhile, the company intends to enhance its existing manufacturing capabilities of copper components through investment of Rs 404.55 lakh in additional plant & machineries, which are to be funded from net issue proceeds. In order to enhance the production capacity, it intends to purchase machines such as Hydraulic Drawing & Tension Straightening Machine, High Speed electrolytic tinning machine, Fine Wire Drawing Machine and Double Twist Bunching Machine which will be used for manufacturing of Copper Busbars, Tinned Copper Wire, Tinned Coated Bunched Copper Wire etc., which has electrical properties suitable for power generation, transmission, distribution and electronic industries and is in significant demand due to its extensive use across such industries owing to its corrosion resistance and durability.