LK Mehta Polymers Ltd. IPO: Key Details

L.K. Mehta Polymers

• L.K. Mehta Polymers is coming out with an initial public offering (IPO) of 10,40,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 71 per equity share.
• The issue will open on February 13, 2025 and will close on February 17, 2025.
• The shares will be listed on SME Platform of BSE.
• The share is priced 7.10 times higher to its face value of Rs 10. 
• Book running lead manager to the issue is Swastika Investmart.
• Compliance Officer for the issue is Pooja Wadhwani.

Profile of the company

L.K. Mehta Polymers is actively involved in the trading and manufacturing of comprehensive array of Plastic products, addressing the diverse needs of its discerning customers. Its product line is specifically designed to encompass a wide range of ropes and twines, including monofilament ropes, danline ropes, tape ropes, baler twines, packaging twine (sutli). It is also engaged in trading and reprocessing of basic raw materials like polypropylene granules and polyethylene granules for its various customers. A significant milestone was reached in 2002 with the expansion of its operations with the establishment of a new production unit, the actual working of the unit was started by the company in 2004, focusing on woven sack bags and pipes. 

This strategic decision not only broadened the company's product range but also solidified its presence in the industry. Despite initial challenges with the availability of a high-power electricity line at its location, the company demonstrated remarkable resilience by successfully operating the unit until 2022. In 2022, the unit was transferred afterwards. Through continuous innovation and a relentless pursuit of excellence, the company navigated through challenges and emerged strong, maintaining its growth trajectory.

The company sells the products under the brand name of “Super Pack”, establishment of its brand “SuperPack” served as a testament to the company's commitment to delivering superior quality and building enduring relationships with customers. This brand identity not only resonated with consumers but also distinguished L.K.Mehta Polymers Limited from its competitors. The company based on its experience and its standards, conforms to major specifications and customer requirements. 

Proceed is being used for:

• Meeting incremental working capital requirement
• General corporate purposes 

Industry Overview

Plastic Rope Market size was valued at $1.67 Billion in 2021 and is projected to reach $2.85 Billion by 2030, growing at a CAGR of 6.13% from 2022 to 2030. The increased demand from the marine and fishing industry owing to the adoption in boat lines and sailing applications as plastic ropes offer durability, good strength, water resistance, and reasonable prices will foster the growth of the Plastic Rope Market. The Global Plastic Rope Market report provides a holistic evaluation of the market. The report offers a comprehensive analysis of key segments, trends, drivers, restraints, competitive landscape, and factors that are playing a substantial role in the market. There are certain restraints and challenges faced which will hinder the market growth. One of the major restraints is the requirement of high maintenance costs. Also, advanced raw materials are required for the production of plastic ropes. These factors might hamper the growth of the Plastic Rope Market up to a certain extent during the forecasted period.

India Rope Market registered a growth of 0.24% in value shipments in 2022 as compared to 2021 and an increase of 10.51% CAGR in 2022 over a period of 2017. In Rope Market India is becoming less competitive as HHI index in 2022 was 1566 while in 2017 it was 1122. Herfindahl Index measures the competitiveness of exporting countries. The range lies from 0 to 10000, where a lower index number represents a larger number of players or exporting countries in the market while a large index number means less numbers of players or countries exporting in the market. India has reportedly relied more on domestic production to meet its growing demand in Rope Market. India Rope market in 2023 has witnessed an HHI of 1628, which has decreased substantially as compared to the HHI of 2919 in 2017. The market is moving towards moderately competitive. Herfindahl index measures the competitiveness of exporting countries. The range lies from 0 to 10000, where a lower index number represents a larger number of players or exporting countries in the market while a large index number means fewer numbers of players or countries exporting in the market.

Ropes are crucial in various industries, including agriculture, shipping, and construction. The India rope market has witnessed growth due to increasing industrial activities and the agriculture sector`s demands. Natural and synthetic ropes are both widely used, with synthetic materials gaining popularity due to their strength and longevity. The India rope market`s growth is driven by the agricultural, construction, and shipping industries, where ropes play a crucial role in various applications. The expanding agricultural sector requires ropes for farming and harvesting, while the construction industry uses them for lifting and securing materials. Shipping and logistics also rely on ropes for cargo handling, emphasizing their importance in driving market growth. 

Pros and strengths

Quality service: The company has set stringent systems to ensure that all the products reach its customers on stipulated time and there are minimum errors. Its quality product has earned it a goodwill from its customers, which has resulted in customer retention and order repetition. It has also helped it to add to its existing customer base. It has developed internal procedure of checking the client orders at each stage from customer order to delivery. The company focuses on maintaining the level of consistently in its service, thereby building customer loyalty.

High level of customer satisfaction: The company’s customers are highly satisfied with its services ranging from purchase order, delivery to customer, quality product and customer complain redressal mechanism. It has been able to achieve this customer satisfaction with the help of timely deliveries, ease of placing orders and its stellar customer services, this has helped in creating a customer base.

Existing client relationship: The company’s existing relationships help it to get repeat business from its customers. This has helped it to maintain a long term working relationship with its customers and improve its customer retention strategy. It has strong existing client relationships which generates multiple repeat orders. Its existing relationship with its clients represents a competitive advantage in gaining new clients and increasing its business.

Risks and concerns

Maximum revenue comes from limited customers: The company’s top 10 customers contribute almost 78.00% of its total sales for the year ended FY24, FY23 and FY22. The company is engaged in the business of manufacturing of comprehensive array of Plastic products. Its business operations are highly dependent on its customers and the loss of any of its customers may adversely affect its sales and consequently on its business and results of operations. The loss of one or more of these significant or key customers or a reduction in the amount of business it obtains from them could have an adverse effect on its business, results of operations, financial condition and cash flows.

Geographical constrain: The company’s domestic sales are dependent on the Top 5 States including Madhya Pradesh, Uttar Pradesh, Bihar, Assam and Rajasthan. It generates almost 92.89%, 92.89%, 95.55% and 96.79% of the revenue of the Total Sales generated as on December 31, 2024, FY24, FY23 and FY22 respectively from these 5 states. Its domestic sales are depending on the above states and in future if any it is not able to sale its products to these states its revenue will impact majorly.

Dependent on a few suppliers for purchase of product: The company’s top 10 suppliers contribute more than 90% of its total purchases for the year ended FY24, FY23 and FY22. It cannot assure that it will be able to get the same quantum and quality of supplies, or any supplies at all, and the loss of supplies from one or more of them may adversely affect its purchases of stock and ultimately its revenue and results of operations. However, the composition and amount of purchase from these suppliers might change as it continues to seek new suppliers for its product for better quality and price in the normal course of business. Though it will not face substantial challenges in maintaining its business relationship with them or finding new suppliers, there can be no assurance that it will be able to maintain long term relationships with such suppliers or find new suppliers in time.

Outlook

L.K. Mehta Polymers is engaged in trading and manufacturing of Plastic products. The company is also involved in trading and reprocessing basic raw materials like polypropylene and polyethylene granules for various customers. The company has strict systems to ensure timely delivery and minimal errors, with procedures to check orders at each stage, focusing on consistent service and customer loyalty. On the concern side, the company is dependent on few numbers of customers for sales. Loss of any of this large customer may affect its revenues and profitability. The company is dependent on few States. Loss of any of this large States may affect its business operations.

The company is coming out with an IPO of 10,40,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 71 per equity share to mobilize Rs 7.38 crore. On performance front, during FY 2023-24, the company’s revenue from operations and other income increased to Rs 1887.40 lakh, from the amount of Rs 1713.80 lakh recorded in FY 2022-23. The restated profit after tax for FY 2023-24 has been significantly increased to Rs 85.56 lakh as against a loss of Rs 0.76 lakh in the FY 2022-23. 

The company is focused on dealing in the products which meets with the requisite quality standards as per the applicable regulatory norms. Providing the desired and good quality products help it in enhancing its company’s image and maintaining long term relationships with customers. Currently, the company’s business activities are focused only in domestic market; however, it intends to diversify its business globally. With this diversification in additional business, it will be able to increase its revenue. The company's business strategy encompasses two primary focal points, these distinct business strategies, rooted in ethical integrity and prudent operational decisions, have positioned the company advantageously within its industry.