Ratnaveer Precision Engineering Limited

RATNAVEER Precision Engineering   Limited has filed  its DRHP with market regulator SEBI on January 27, 2023 to raise capital through IPO. The IPO of the Company consists of Fresh Issue and Offer for Sale. The size of Fresh Issue is up to 15,300,000Equity Shares aggregating up to ₹ [●] crore  and OFS of up to 2,100,000 Equity Shares aggregating up to ₹ [●] crore. As part of OFS, the selling shareholder is Vijay Ramanlal Sanghavi who will affload 21,00,000 equity shares. 

Business Model of the Company

Ratnaveer Precision Engineering Limited is a stainless steel (“SS”) product manufacturer focused on producing finished sheets, washers, solar roofing hooks, pipes and tubes. Stainless steel is a value-added product with high corrosion resistant properties. Higher levels of chromium and additions of other alloy elements enhance the corrosion resistance. Compared to traditional steel, stainless-steel has higher resistance to corrosion, superior aesthetic finish and higher life span. These features have helped in increasing the popularity of stainless-steel across the world.

Globally, cold rolled flat products are the largest produced stainless-steel product in the world, followed by hot rolled coils, and steel wire rods & bars. According to the International Stainless-Steel Forum, cold rolled flat products account for approximately 47% of total stainless-steel trade in the world. Hot coils, Semis-flat, Semis Long, Hot Bar/Wire rod, Cold Bar/Wire, Hot Plate & Sheet are another SS intermediary product traded globally. (Source: D&B Report)

The Company operates out of four manufacturing units, out of which two are located at GIDC, Savli, Vadodara, Gujarat, (Unit-I and Unit-II) one is located at Waghodia, Vadodara, Gujarat (Unit-III) and the other one is located at GIDC, Vatva, Ahmedabad, Gujarat (Unit-IV). The manufacturing units of the Company are strategically located with availability of transportation, which facilitates convenient transportation of the products.

Management of the Company

(i) Vijay Ramanlal Sanghavi is the Managing Director and Chief Financial Officer of the Company. He has been associated with the Company since its incorporation. He holds a bachelor degree in Commerce from the MS University, Baroda. He has over two decades of experience in ferrous and non-ferrous metal industries. He has been associated with the Company since its incorporation and has been actively involved in the operations of the Company. He is in-charge of the finance and marketing functions in the Company and also overviews production, Research & Development and related management of the Company.

(ii) Babulal Sohanlal Chaplot is the Whole time Director of the Company. He holds a bachelor degree in engineering from the University of Baroda. He has over four decades of experience and has worked in different sectors such as metals, agriculture, automobile etc. He has been associated with the Company since past fifteen years and has been acting as a Director on the Board since 2011. He oversees production as well as commercial functions.

Object of the Issue

Offer for Sale

The Company will not receive any proceeds from the Offer for Sale by the Promoter Selling Shareholder and the proceeds received from the Offer for Sale will not form part of the Net Proceeds. The Promoter Selling Shareholder will be entitled to the proceeds of the Offer for Sale after deducting his proportion of Issue expenses and relevant taxes thereon.

Fresh Offer

The Company proposes to utilize the Net Proceeds from the Issue towards:

1. Funding working capital requirements of the Company

2. General corporate purposes

In addition, the Company expects to receive the benefits of listing of the Equity Shares on the Stock Exchanges and enhancement of the Company’s brand name amongst its existing and potential customers and creation of a public market for the Equity Shares in India.

Risks in the IPO

The Company does not have long term agreement with suppliers for raw materials

The Company does not have long-term agreements with the suppliers for raw materials and an inability to procure the desired quality, quantity of the raw materials in a timely manner and at reasonable costs, or at all, may have a negative impact on the business, results of operations, financial condition and cash flows.

The pricing in the steel industry is subject to market demand, volatility and economic conditions

Steel prices fluctuate based on a number of factors, such as, the availability and cost of raw material inputs, fluctuations in domestic and international demand and supply of steel and steel products, international production and capacity, fluctuation in the volume of steel imports, transportation costs, protective trade measures and various social and political factors, in the economies in which the steel producers sell their products and are sensitive to the trends of particular industries, such as, the construction and machinery industries. Fluctuations in steel prices may have a material adverse impact on  business of the Company, results of operations, prospects and financial conditions.

The Company, Promoter and some of the Directors are currently involved in certain legal proceedings

The Company, Promoter and some of the Directors are currently involved in certain legal proceedings. These legal proceedings are pending at different levels of adjudication before various courts, tribunals and other authorities. Any adverse outcome in such proceedings may have an adverse impact on the reputation, business, financial condition, results of operations and cash flows.

Inability to renew license 

The backward integration processes are set-up at units which are taken on a leave and license basis. If the Company is not able to renew these leave and license agreements, the Company may have to suspend or outsource the backward integration processes which may have an adverse impact on its business, results of operations, cash flows and profitability.

The Company is required to obtain consents under certain environmental laws

The Company is required to obtain consents under certain environmental laws, which are critical for operating the units. The Company has in the past been non-compliant with the requirements under environmental law for its operations and there is no assurance that in the future the Company would be able to obtain such consent in a timely manner or at all.

Financial Performance 

As per the financial statements of the Company, here are Financial Highlights for FY22 compared to FY21:

1. Total income

The Company experienced a significant increase in total income, rising by 17% from Rs. 364 crore in FY21 to Rs. 428 crore in FY22. 

2. Total expenses

Similarly, the total expenses of the Company also increased by 17% from Rs. 354 crore in FY21 to Rs. 415 crore in FY22. This rise in expenses indicates the Company’s investments and expenditures in various operational areas.

3. Profit before tax

The Company’s profit before tax saw a substantial growth of 44% in FY22. It reached Rs. 13 crore, compared to Rs. 9 crore in FY21. This improvement demonstrates the Company’s enhanced operational efficiency and profitability.

4. Profit after tax

The Company experienced a remarkable growth in profit after tax, increasing by 80% from Rs. 5 crore in FY21 to Rs. 9 crore in FY22. This significant rise indicates effective tax management and cost control measures implemented by the Company.

5. Total assets

The total assets of the Company witnessed a notable increase, reaching Rs. 308 crore in FY22 compared to Rs. 255 crore in FY21. 

6. Total equity and liabilities

Similarly, the total equity and liabilities of the Company also rose to Rs. 308 crore in FY22, compared to Rs. 255 crore in FY21. This suggests that the Company’s capital structure and financial position strengthened during the fiscal year.

7. Net cash from operating activities

In FY22, the Company faced a net cash outflow of Rs. 15 crore from operating activities, indicating that more cash was used in day-to-day operations compared to FY21 when the Company generated Rs. 13 crore in cash.

8. Net cash from investing activities

The net cash used in investing activities remained consistent at Rs. 11 crore in FY22 compared to FY21. This suggests that the Company maintained its investment level, possibly in capital expenditures or acquisitions.

9. Net cash from financial activities

The Company experienced a significant improvement in net cash from financial activities, generating Rs. 27 crore in FY22. This is in contrast to FY21 when the Company used Rs. 15 crore in cash for financial activities. This indicates positive financial inflows, such as loans, capital injections, or favorable financial transactions.