Shreenath Paper Products Ltd. IPO: Key Details

Shreenath Paper Products

• Shreenath Paper Products is coming out with an initial public offering (IPO) of 53,10,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 44 per equity share.
• The issue will open on February 25, 2025 and will close on February 28, 2025.
• The shares will be listed on SME Platform of BSE.
• The share is priced 4.40 times higher to its face value of Rs 10. 
• Book running lead manager to the issue is Galactico Corporate Services.
• Compliance Officer for the issue is Neetika Sakla.

Profile of the company

Shreenath Paper Products is primarily engaged in the business of providing supply chain solution to industries where paper such as, coating based paper, food grade paper, machine glazed paper, pressure sensitive adhesive paper, forms a major part of their raw materials. Accordingly, it supplies different kinds of paper such as sublimation base paper, thermal base paper, straw paper, paper for cone sleeve, cup stock paper, poster paper, security PSA sheet, transcode PSA sheet, filmic & digital PSA sheet, removable PSA sheet, permanent PSA sheet, C2S paper and board, C1S paper, hi-bright paper, low- bright paper, High-Strength Paper, etc. 

Its business comprises of understanding the specific requirements of its client, curate the technical specification based on their requirements, identify manufacturer who specialise in the required paper, place order, test the sample, procure the material in the desired quantity and supply to its customers. The company acts as a catalyst between the manufacturer of paper products and the paper mills. It offers paper in different grades ranging from 24-350 grams per square meter (GSM), which is manufactured from waste recycled papers, bagasse base (agricultural waste) and virgin pulp.

The paper products manufactured by its customers have a variety of end use applications and are used in industry such as FMCG, textiles, heat sensitive printers like ATM and POS Paper, restaurants, food and beverages industry automobiles, e-commerce, pharmaceuticals, white goods packaging industry, security labels, advertising industries, educational sector, utensils industry, commercial printing industry, publication industry, other packaging items for industrial and household purpose, paper bags, etc. It sells papers in the domestic markets specially in the state of Maharashtra, Gujarat and Madhya Pradesh. It attributes its growth to its experienced, and dedicated management team. It leverages experience in its strategic decision making in the day-to-day operations of the company. 

Proceed is being used for:

• Meeting working capital requirements of the company
• General corporate purposes

Industry Overview

Packaging is an essential component of almost every product. A product's packaging acts as an ‘eye catcher’, allowing it to stand out from competing goods in today’s market environment, which faces stiff competition, and therefore, an edge is required for the product to outshine its rival. The paper and packaging sector in India is growing rapidly and has significant potential for future expansion. The industry was valued at $50.5 billion in 2019 and is anticipated to reach $204.81 billion by 2025, registering a CAGR of 26.7% from 2020 to 2025. The growth in the sector is being driven by a surge in e-commerce, food processing, pharmaceuticals, FMCG, manufacturing industry and healthcare sector. Additionally, numerous government initiatives including 'Make in India' had positive impact on the packaging industry. The paper and packaging industry is currently the fifth largest sector in the Indian economy and has the potential to achieve pricing levels that are about 40% cheaper compared to European regions.

The Indian packaging sector has distinguished itself with its exports of flattened cans, printed sheets and components, crown cork, lug caps, plastic film laminates, craft paper, paper board and packaging machinery. The packaging segment with the fastest growth includes laminates and flexible packaging, particularly PET and weaved sacks. India uses paper as a major source of packaging. The paper industry accounts for 5% of global production. Demand for paper continues to rise for the packaging of FMCG products and ready-to-eat food. Packaging-grade paper accounts for 55% of the main types of paper produced domestically in the paper and paperboard industry.

The Indian packaging sector is diverse and caters to a broad sector of industries and products. The government, through its positive promotion of the Make in India policy, has set the packaging sector to grow rapidly due to companies setting up their manufacturing units in the country and using these domestic facilities as a base to export to other countries. The government has implemented a strategy to lower tax rates for new manufacturing companies in order to turn India into a global manufacturing hub. Furthermore, given the need for domestic firms to compete with MNCs, the government is planning to further level the sector among players by launching various initiatives with the aim of promoting the development of packaging, along with technological advancements. 

Pros and strengths

Extensible business model: Over the years, the company has been able to supply to industries where paper such as, coating based paper, food grade paper, machine glazed paper, pressure sensitive adhesive paper, industrial grade paper, forms a major part of their raw materials. Accordingly, it supplies different kinds of paper such as sublimation base paper, thermal base paper, straw paper, paper for cone sleeve, cup stock paper, poster paper, security PSA sheet, transcode PSA sheet, filmic & digital PSA sheet, removable PSA sheet, permanent PSA sheet, C2S paper and board, C1S paper, hi-bright paper, low- bright paper, High-Strength Paper, etc.

Multiproduct portfolio and ability to identify customer requirements: The company offers a diverse array of papers, specialty papers, allied stationery, and packaging papers to cater to the expanding needs of its clientele. These papers find applications across various industries and purposes, including but not limited to stickers, bottle labels, publicity materials, annual reports, calendars, brochures, posters, book covers, magazines, sublimation base paper, thermal base paper, NCR base paper, fixed deposit receipts envelopes, accounts books, ledgers, cash books, legal documents, shoe packaging, sachets, high-end shopping bags, diaries, novels, general-purpose printing, notebooks, pharmaceutical inserts/leaflets, multicolour offset printing, copier paper, office printer paper, executive letter pads, letterheads, foil lamination, label stock, gumming sheet manufacturing, word dictionaries, and religious books. In addition to these general applications, its specialty papers are tailored for specific needs of its customers.

Strong relationships with key customers: The company’s business requirement comprises of understanding the specific requirements of its client, curate the technical specification based on their requirements, identify manufacturer who specialise in the required paper, place order, test the sample, procure the material in the desired quantity and supply to its customers. It acts as a catalyst between the manufacturer of paper products and the paper mills. It also has long-standing relationships with publishers, wholesalers, and commercial printers. Its sales strategy, which includes direct sales to some of its large customers and sales to wholesalers, who then resell its products, has enabled it to reduce its sales costs, increase its product reach and enhance customer service.

Risks and concerns

Maximum revenue comes from limited customers: For the nine months period ended December 31, 2024, Fiscal 2024, Fiscal 2023, and Fiscal 2022, its top 10 customers have contributed to 57.72%, 54.13%, 44.27%, and 44.82%, respectively of its revenue from operation and its top 5 customers have contributed to 43.26%, 39.11%, 29.66%, and 30.14% respectively of its revenue from operation. The company is significantly dependent on revenues from a limited number of customers and this trend may continue in the future. For the nine months period ended December 31, 2024 its top customer has contributed to 12.89% of its total sales. It has maintained good and long-term relationships with its customers. However, there can be no assurance that it will continue to have such long-term relationship with them, also any delay or default in payment by these customers may adversely affect its business, financial condition and results of operations.

Dependent on its top 5 suppliers for uninterrupted supply of paper: It is highly dependent on the third-party manufacturers for supply of desired quality and quantity of papers. It procures the papers from various domestic manufacturers, depending upon the, quality, technical specification, time to delivery and price. However, its top 5 and top 10 suppliers contribute significantly to supply of the papers. There is over dependency on few suppliers. It cannot assure that would be able to get the desired supply of papers, or any supply at all, from these suppliers, and any disruption in supply from one or more of them may adversely affect its revenues and profitability.

Cyclical demand of paper could have adverse impact on Sales: The paper industry is cyclical in nature and its performance depends on the global pulp and paper demand-supply situation. As long as the increase in supply matches the growth in demand and the economy continue to grow, the prices remain firm. However, as and when the demand reduces, creating cut throat competition among the manufacturers due to excess supply and forcing them to reduce the prices. Once the down cycle is over and the economy starts recovering, the demand surges and due to lesser supply available the prices again show upward movement. The company is deriving majority of its revenue, from the sale of paper. The reduction in sale prices will have adverse impact on the working of the company.

Outlook

Shreenath Paper Products is engaged in offering supply chain solutions to industries that use paper materials such as coated, food-grade, machine-glazed, and adhesive papers in their manufacturing processes. The company supplies various papers, including sublimation base paper, thermal base paper, straw paper, cup stock paper, security PSA sheets, high-strength paper, C2S and C1S papers, and more. The company has multiproduct portfolio and ability to identify customer requirements. It also has strong network of supplier. On the concern side, the company is dependent on few customers and any loss of business from one or more of them may adversely affect its revenues and profitability. Moreover, it is dependent on its top 5 suppliers for uninterrupted supply of papers. Any disruption in supply of papers from these third-party manufacturers will adversely affect its operations.

The company is coming out with an IPO of 53,10,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 44 per equity share to mobilize Rs 23.36 crore. On performance front, revenue from operations for the period ended December 31, 2024 amounted to Rs 7,704.05 lakh which is about 97.99% of the total revenue which comes from sale of its products. Further, profit after tax for the period ended December 31, 2024 is Rs 240.51 lakh which is about 3.06% of the total revenue.

The company has consistently focused on increasing its product range, particularly in the high value-added segment like industrial grade paper and sublimation paper. It seeks to identify specific customer needs and to increase its product range, from economy to premium segments, by employing a combination of innovative and creative marketing initiatives such as advertising, competitive analysis, co-creation, and social listening. Through marketing, it aims to raise awareness of its diverse product offerings across different segments, highlighting their unique features and benefits tailored to specific customer needs. Competitive analysis enables it to understand market trends, benchmark its offerings against competitors, and identify opportunities for differentiation and improvement. Additionally, co-creation allows it to engage with its customers in the product development process, ensuring that its offerings precisely meet their requirements and preferences.