Malpani Pipes And Fittings Ltd. IPO: Key Details

Malpani Pipes and Fittings

• Malpani Pipes and Fittings is coming out with an initial public offering (IPO) of 28,80,000 equity shares in a price band Rs 85-90 per equity share.
• The issue will open on January 29, 2025 and will close on January 31, 2025.
• The shares will be listed on SME Platform of BSE.
• The face value of the share is Rs 10 and is priced 8.50 times of its face value on the lower side and 9.00 times on the higher side.
• Book running lead manager to the issue is Interactive Financial Services.
• Compliance Officer for the issue is Hariom Patidar. 

Profile of the company

Malpani Pipes and Fittings, an ISO 9001:2015 certified company based in Ratlam, Madhya Pradesh, manufactures a range of high-grade plastic pipes. The company’s products include High-Density Polyethylene (HDPE) Pipes, Medium-Density Polyethylene (MDPE) Pipes, and Linear Low-Density Polyethylene (LLDPE) Pipes, all marketed under the brand name “Volstar”. The company is also engaged in the trading of granules and PVC pipes, as well as the sale of services. The company has manufacturing plant located in central India i.e. Ratlam, Madhya Pradesh. Its plant is well equipped with essential machinery, infrastructure, and an in-house testing facility, which ensures that its product conforms to the requisite standards. 

Since its inception in 2017, it has grown significantly from starting with just two machines for pipe manufacturing. It now operates 10 production lines with a total installed capacity of 11,500 M.T.P.A. and has expanded its product range to include MDPE, LLDPE, Sprinkler Pipes, and Drip Pipes. It distributes its products to both wholesalers and retailers. Additionally, it supplies pipes for government projects through authorised contractors involved in local, state or federal development scheme. Also, it supplies pipes to farmers in terms of farmer welfare policies launched by Central or State Government. 

The company has a dedicated in-house testing facility to ensure its products adhere to stringent quality standards. Additionally, in case of supply to any government project or under some welfare policy to farmers, it is required to get its products tested from third part laboratories. These agencies include the Central Institute of Petrochemicals Engineering & Technology (CIPET), SGS, Bureau Veritas, Dr. Amin Controllers, Rail India Technical and Economic Service, and Certification Engineers International (CEIL). This verification process is a mandatory requirement set by the government. The company’s pipes are engineered to meet a wide range of applications, including irrigation, potable water supply, sewerage, and drainage systems. They are also well-suited for boreholes and tube wells for underground water extraction. Furthermore, its pipes support infrastructure projects such as the installation of long-distance electrical cables and optical fibers.

Proceed is being used for:

• Capital expenditure for purchase of machineries
• Repayment of debt 
• General corporate purpose

Industry Overview

The Indian plastic industry is one of the leading sectors in the country’s economy. The history of the plastic industry in India dates back to 1957 with the production of polystyrene. Since then, the industry has made substantial progress and has grown rapidly. The industry is present across the country and has more than 2,500 exporters. It employs more than 4 million people in the country and constitutes 30,000 processing units; among these, 85-90%belong to small and medium enterprises. India manufactures various products such as plastics and linoleum, houseware products, cordage, fishnets, floor coverings, medical items, packaging items, plastic films, pipes, raw materials, etc. The country majorly exports plastic raw materials, films, sheets, woven sacks, fabrics, and tarpaulin. The Government of India intends to take the plastic industry from a current level of Rs 3 lakh crore ($37.8 billion) of economic activity to Rs. 10 lakh crore ($126 billion) in 4-5 years.

In FY24 (Until February 2024), India’s plastic exports stood at $10.43 billion. During this period, the exports of human hair & related products, medical items, plastic pipes and FRP & composites grew by 12.7%, 8.9%, and 13.8%, respectively, over the same period last year. In February 2024, the exports of Floorcoverings, leather cloth & Laminates witnessed a growth of 19.7%. The cumulative exports of plastics and related materials during 2022-23 were valued at $11.96 billion. This was a 10.4% decrease from the 2021-22 exports valued at $13.35 billion. Plastic raw materials were the largest exported category and constituted 27.76% of the total exports in 2022-23; it recorded a growth of 21.5% over the previous year. Plastic films and sheets were the second largest category, comprising 15.13% of the total exports, but declined by 10.6% over the previous year.

India exports plastic to more than 200 countries in the world. The top five consumer and houseware product importing countries are the USA, Germany Japan, the UK, and France. India largely exports plastic and related products to the USA, China, the UAE, the UK, Germany, Italy, Bangladesh, etc. The total value of exports to the USA, the largest consumer of the Indian plastic industry, stood at $2.31 billion in 2022-23, a decrease of 4.71% YoY. China was the second largest consumer of plastic export products from India and the total value of exports stood at $690.95 million. The USA and China constituted 19.37%, and 5.78%, of the total plastic exports in 2022-23. The total plastic exports from India to France during 2022-23 was around $211.4 million. In order to boost exports to France and Europe, PLEXCONCIL collaborated with the Indo-French Chamber in the first quarter of 2021-22. The Minister for Commerce and Industry, Piyush Goyal, recently urged industry to adopt international standards to help it expand its global footprint. India has recently signed a free-trade agreement with UAE and Australia, which will give the plastics industry new opportunities.

Pros and strengths

Wide geographical reach: The company has Pan India network for distribution of its products and network of wholesalers & retailers. It sells its product in the brand name of “VOLSTAR”. The company’s commitments to quality products have been instrumental in lasting customer relationship. Despite not having long-term supply agreements with customer, it has continually received repeat business from many of its customers. During the last three years it supplied its products to 16 states.

Strategically located manufacturing facilities with a core focus on quality: Given the substantial transportation costs associated with large pipes, proximity to end consumers is a crucial competitive advantage in the piping industry. The company’s manufacturing facility, strategically located in Ratlam, Madhya Pradesh, is ideally positioned in the central region of India, enabling efficient distribution to key markets including Madhya Pradesh, Rajasthan, Chhattisgarh, Maharashtra, and Gujarat. This central location ensures timely delivery and optimizes logistics, enhancing its service reliability across these significant regions.

Diversified product mix: The company offers a diverse product range to meet the growing needs of its customers. Its product lineup includes HDPE pipes, MDPE pipes, LLDPE pipes, HDPE Sprinkler Systems and drip irrigation solutions. These products serve various sectors such as Irrigation, Telecommunications, Industrial Applications, Infrastructure, and Housing. It aims to provide its existing customers with a comprehensive source for their product needs, fostering opportunities for business expansion and attracting new clients. Additionally, its flexible manufacturing infrastructure allows it to adapt its product mix in response to market demand changes.

Risks and concerns

Maximum revenue comes from few customers: The company has garnered 56.40%, 51.50% and 50.95% of its revenue from top 10 customers in FY24, FY23 and FY22 respectively. However, its top customers may vary from period to period depending on the demand and thus the composition and revenue generated from these customers might change as it continues to add new customers in normal course of business. It has not entered in to any written agreement in this regard. It cannot assure that it shall generate the same quantum of business, or any business at all, from these customers. Loss of any of the customer or reduction in order from any of such customer will adversely affect the business of the company and adversely affect the profitability and financial position of the company.

Geographical constrain: The company’s customers are spread over the different states of the country. Majority of its operations are limited to the states of Northern India. Majority of supply of its product is made to the state of Northern part of India viz. Rs 6530.99 lakh (77.68%) for the period ended November 30, 2024, Rs 9,248.46 lakh (65.62%) in FY24; Rs 4,764.51 lakh (57.86%) in FY23 and Rs 2,044.90 lakh (58.75%) in FY22 of total Revenue from operation. in the event of any natural or manmade calamity in the states of North India, its entire business operation comes to stand still. Under the circumstances its business, revenue and its profitability will be adversely affected.

Top ten suppliers contribute majority of its purchases: For the past two years, the company has been importing raw materials (granules) from various locations, including Dubai, Singapore, Belgium, the UK, Vietnam, Switzerland, Ajman (UAE), accounting for 44.20% for the period ended November 30, 2024, 54.42% in FY 2023-24 and 22.31% in FY 2022-23. The remaining raw materials are sourced domestically, with 55.80% for the period ended November 30, 2024, 45.58% in FY 2023-24 and 77.69% in FY 2022-23 coming from Madhya Pradesh, Gujarat, Delhi, Uttarakhand, Maharashtra, and Rajasthan. However, its top 10 suppliers may vary from period to period depending on the demand-supply mechanism and thus the supply process and purchase from these suppliers might change as it continues to seek more cost-effective suppliers in normal course of business. Since its business is concentrated among relatively few significant suppliers, it could experience a reduction in its purchases and business operations if it loses one or more of these suppliers, including but not limited on account of any dispute or disqualification.  

Outlook

Malpani Pipes and Fittings is engaged in manufacturing high-grade plastic pipes. The company offers High-Density Polyethylene Pipes, Medium-Density Polyethylene Pipes, and Linear Low-Density Polyethylene Pipes, all marketed under its brand name 'Volstar'. Additionally, the company is involved in trading granules and PVC pipes, along with selling various services. The company has strategically located manufacturing facilities with a core focus on quality. It also has diversified product mix. On the concern side, the company derived a significant portion of its revenues from its top ten customers. The loss of any significant customer may have an adverse effect on its business, financial condition, results of operations, and prospects. Moreover, its top ten suppliers contribute majority of its purchases. Any loss of business with one or more of them may adversely affect business operations and profitability.

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 85-90 per equity share. The aggregate size of the offer is around Rs 24.48 crore to Rs 25.92 crore based on lower and upper price band respectively. On performance front, in the FY24, the company’s total revenue from operation was Rs 14096.18 lakh, which was increased by 70.96% in compare to total Income from operations of Rs 8245.09 lakh in FY23. PAT is Rs 739.72 lakh for the FY24 in compared to Rs 208.03 lakh in FY23. The PAT was 5.24% of total revenue in FY24 compared to 2.52% of total revenue in FY23. The Profit margin has increased on account of increase of business by 70.97% and optimize the utilization of installed capacity of the plant.

The company is strategically enhancing its production capabilities by adding a total installed capacity of about 1700 M.T.P.A for PVC pipes. By incorporating PVC pipes into its product range, it aims to diversify its portfolio and better address the evolving needs of the market. This initiative not only aligns with its commitment to innovation and growth but also positions it to capture new opportunities in the construction and infrastructure sectors. The new capacity will enable it to deliver high-quality, durable piping solutions to its customers, thereby reinforcing its competitive edge and driving long-term business success.