Stallion India Fluorochemicals Ltd. IPO: Key Details

Stallion India Fluorochemicals

• Stallion India Fluorochemicals is coming out with a 100% book building; initial public offering (IPO) of 2,21,61,396 shares of Rs 10 each in a price band Rs 85-90 per equity share.
• Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
• The issue will open for subscription on January 16, 2025 and will close on January 20, 2025.
• The shares will be listed on BSE as well as NSE.
• 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 Sarthi Capital Advisors.
• Compliance Officer for the issue is Sarita Khamwani.

Profile of the company

Stallion India Fluorochemicals, commonly known as Stallion, is a Mumbai-based company incorporated on September 05, 2002 in Mumbai by Shazad Sheriar Rustomji, who currently serves as the Chairman & Managing Director and is also one of the Promoter of the Company. It is into the business of selling Refrigerant and Industrial Gases and related products. Its primary business consists of de-bulking, blending and processing of Refrigerant and Industrial gases, selling of pre filled cans and small Cylinders/ Containers. It has four facilities located in Khalapur (Maharashtra), Ghiloth (Rajasthan), Manesar (Haryana) and Panvel (Maharashtra). Each of these facilities is designed and equipped to store gases in a controlled environment, ensuring adherence to the safety standards.

Its gases find application in various industries/segments such as Air conditioners & Refrigerators, Fire Fighting, Semiconductor manufacturing, Automobile Manufacturing, Pharma and Medicals, Glass bottle manufacturing, Aerosols and Spay foam. With over two decades of experience in Fluorochemicals de-bulking bottling & distribution, it specializes in refrigerants gases by blending two or more gases to create new formulations. 

The company offers a variety of products that make it distinct in the industry. By using its knowledge of its clients' industries and its skills in gases and engineering, it provides customized solutions to help businesses work better. Its goal is to make operations run smoother and improve productivity. At the same time, it cares about the environment and help reduce energy expenses. It has an experienced Board of Directors and key managerial personnel, led by its Promoter, Shazad Sheriar Rustomji, who serves as the Promoter and Managing Director. His experience over 30 years in the domain of Fluorochemicals & Specialty Gases has significantly contributed to the company's development. 

Proceed is being used for:

• Funding incremental working capital requirements of the company
• Funding capital expenditure requirements for its semi-conductor & Specialty Gas de-bulking & blending facility (Khalapur, Maharashtra)
• Funding capital expenditure requirements for its Refrigerant de-bulking & blending facility (Mambattu, Andhra Pradesh)
• General corporate purposes

Industry Overview

Fluorochemicals are organic or inorganic compounds that contain one or more fluorine atoms. Fluorine compounds find application majorly in commercial and industrial refrigeration, foam blowing agents, heat pump equipment, and solvents. One of the largest segments of global fluorochemicals market is fluorocarbons. These are the kind of compounds formed when fluorine covalently bonds to carbon atoms in varying number and different configurations. The strength and stability of these bonds provides fluorocarbons with unique properties to function like refrigerants, lubricants, solvents, propellants and stain-repellent products. The market for fluorochemicals and specialty gases has been growing and is further forecasted to grow at a CAGR of 9-11% from $9,700 million in 2024 to $15,000-$16,000 million in 2029. The growth is majorly backed by the growing population and rapid urbanization. By application, automotive is the leading user segment for fluorochemicals. A larger population base over the world, warrants a need for more vehicles.

The Indian Fluorochemicals and Specialty Gases market is anticipated to witness robust growth, with a projected CAGR of 16-18% during the forecast period from 2024 to 2029 to reach almost $675-$725 million. This growth will be driven by rising demand from various industries, including electronics, healthcare, and manufacturing. The market is characterized by a diverse range of products, including fluoropolymers, fluorocarbons, and specialty gases. The growth is also attributed to the ongoing expansion of industries and the increasing demand for high-performance materials. The proliferation of chemical manufacturing facilities in India has further fueled the need for fluorochemicals and specialty gases. These materials are indispensable in various applications, including lining materials for chemical storage tanks, corrosion-resistant linings, gaskets, seals, wire and cable insulation, semiconductor manufacturing, and dielectric materials, due to their exceptional chemical resistance and ability to withstand high temperatures.

The Indian chemical industry has witnessed steady growth in the past decade and the potential for future growth continues to remain healthy. In the Indian chemicals and petrochemicals sector, an investment of Rs 8 lakh crore is estimated by 2025. The upward momentum in demand for inorganic and organic chemicals is estimated to continue to remain healthy backed by low per capita consumption of chemicals (including agrochemicals), rising demand for specialty chemicals, expected growth in downstream sectors like colours, paints, pigments, coatings, pharma, textiles, and personal care, and the thriving diversified manufacturing base. In coming years, India is expected to grow as both, a manufacturing capital for valued goods and a consumer-driven economy. The industry is likely to benefit from the improvement in investment climate, speedy approval of projects, and proposed reform measures that would translate into higher industrial activity, and in turn, generate higher demand for chemicals. Additionally, the increasing research & development (R&D) investments will contribute to the inorganic chemicals market growth in the near-to-medium term.

Pros and strengths

Strong market recognition: The company sells its product under the brand name of “Stallion”. The company being into the field for more than 2 decades and Promoters having experience of over 3 decades, have strong Market recognition in the refrigerant gases industry. This has enabled the company to be distinguished from its competitors in the same industry. Strong market recognition refers to a company's ability to establish a strong brand reputation and customer loyalty in the market. This recognition is achieved through various factors such as competitive product price, product quality, innovation, reliability, customer service and effective marketing. Strong market recognition is important in the industry as it helps companies to differentiate themselves from their competitors and attract new customers.

Business model and ability to mitigate operational risk: The company considers its competitive advantages to lie in operational efficiency, facilitating timely deliveries and maintaining quality control measures. These factors have been instrumental in developing relationships within the industry, resulting in significant growth in its operations. Its operating cash flow before working capital changes was reported at Rs 2,630.89 lakh, Rs 2,650.52 lakh, Rs 1,952.03 lakh and Rs 3,212.90 lakh for the period September 2024, fiscal 2024, fiscal 2023 and fiscal 2022 respectively.

Customer base across high growth industries: The company caters to a diverse clientele spanning various industries such as Air conditioners & Refrigerators, Fire Fighting, Semiconductor manufacturing, Automobile Manufacturing, Pharma and Medicals, Semiconductors, Glass bottle manufacturing, Aerosols and Spray foam, showcasing the relevance and demand for its products across multiple sectors. The strength in having customer base lies in the mitigation of risks associated with overdependence on a single market or industry. This strategic approach enhances the company's adaptability to market fluctuations and economic changes, encouraging a more effective response to dynamic business environments.

Track record of consistent financial performance: The company has been delivering consistent financial performance, despite the impact of the COVID-19 pandemic on its business operations. In period ended September 30, 2024 and Fiscal 2024, 2023 and 2022 its revenue from operations were Rs 14,073.15 lakh, Rs 23,323.58 lakh, Rs 22,550.44 lakh and Rs 18,588.27 lakh, respectively. Also, the company has witnessed consistent improvement in its balance sheet position in the last Fiscal.

Risks and concerns

Maximum revenue comes from limited customers: The company’s revenue stream is significantly dependent on a limited number of customers. In operations, a substantial portion of revenues is reliant on a select number of customers, and the potential to significantly reduce customer concentration in the future remains uncertain. The company garnered 75.69%, 74.77% and 72.88% of its total revenue from top 10 customers in FY24, FY23 and FY22 respectively. Any deterioration in the financial condition or business prospects of these key customers may adversely impact their demand for its products and their ability to fulfill payment obligations in a timely manner or at all, potentially leading to a substantial decrease in the revenues derived from these customers. Furthermore, the potential loss of a significant customer or a reduction in the volume of business from such a customer could exert adverse effects on its business, including impacts on results of operations, cash flows, and overall financial condition.

Imports majority of raw material from China: Most of the company’s raw materials are imported from China. The total imports from China represents 92.97%, 96.43%, 97.24% and 91.68% for the period ended September 30, 2024 and Fiscals 2024, Fiscal 2023 and Fiscal 2022 respectively of its total import purchase. The cost of these raw materials to it is affected by fluctuations in market prices and import duties. For instance, The Directorate General of Trade Remedies (DGTR) initiated an investigation on April 01, 2019 of anti-dumping for the import of Hydrofluorocarbon (HFC) Component R-32 which forms the part of a Raw material used in its Business. The Ministry of Finance has recommended imposition of anti-dumping duty for a period of 5 years starting from December 21, 2021. Further, in case the respective authority imposes such action on other components that it imports for its Business, it may face pricing issues and it will have an adverse effect on its Business.

Majority of revenue from operations depends on one product i.e. R-32: A significant portion of its revenue from operations are generated from one product i.e. “R-32”. R-32 or Difluoromethane is used as refrigerant that has prominent heat transfer and pressure drop performance, both in condensation and vaporization. It has a 100-year global warming potential (GWP) of 675 times that of carbon dioxide, and an atmospheric lifetime of nearly 5 years. It is classified as A2L - slightly flammable by ASHRAE and has zero ozone depletion potential (ODP). It is currently used in residential and commercial air-conditioners in Japan, China, and India as a substitute for R-410A. It is also used for making lot of HFC and HFO blends including R-410a. Further, the company expects to continue to derive most of its revenue from operations from sale of the said product. Any changes in the customer policy or decline in the demand for R-32, could have an adverse impact on its sales, earnings and cash flows.

Geographical constrain: The revenue generation of the company are materially based in the major states like Maharashtra and Delhi. For period ended September 30, 2024 and for financial year ended March 31, 2024, March 31, 2023 and March 31, 2022 its revenue from these states were 74.41%, 69.82%, 63.92% and 60.41% respectively of the company’s total revenue. Its business operations and the demand for its products are therefore exposed to any deterioration in the economic, social and/or political conditions as well as changes in the relevant government policies in the state of Maharashtra and Delhi. In the event of any adverse changes in the economic and social conditions or government policies in these states, its financial position and performance may be materially and adversely affected if it is unable to divert its business to other regions. 

Outlook

Stallion India Fluorochemicals Limited is engaged in the business of selling Refrigerant and Industrial Gases and related products. The company's primary business includes debulking, blending and processing Refrigerant and Industrial gases, and selling of pre-filled cans and small Cylinders/ Containers. The company has customer base across high growth industries and long-standing relationships with customers. On the concern side, the company’s revenue from operations depends on sale of Refrigerant Gases and is restricted to certain geographies only. Any changes or a decline in demand, could adversely affect its ability to grow or maintain its sales, earnings and cash flow. Moreover, its revenue from operations majorly depends on one product i.e. “R-32”. Any changes in the customer demand or a decline in the demand of the said product, or delays in the placement of orders by the customers, may affect its ability to grow or maintain its sales, earnings, and cash flow.

The company is coming out with a maiden IPO of 2,21,61,396 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 188.37 crore to Rs 199.45 crore based on lower and upper price band respectively. On performance front, revenue from operation for fiscal 2024 was reported at Rs 23,323.58 lakh, which has grown by 3.43% and by Rs 773.14 lakh as compared to Rs 22,550.44 lakh in fiscal 2023. Moreover, profit after tax for fiscal 2024 was reported at Rs 1,478.83 lakh as compared to Rs 975.30 lakh in previous year. PAT has increased by Rs 503.52 lakh and by 51.63% compared to fiscal 2023. Profit have increased due to fall in overall expenditure and rise in total revenue.

The company has a strategic vision to diversify its existing product portfolio by incorporating new products that align with its current offerings and current operations. The HFO de-bulking and HFO/HFC blending facility proposed at Mambattu shows its vision in diversifying its existing portfolio. Furthermore, it is concentrated on expansion of its facility to other domestic locations that are important to capture the market and demand from various industry concentration in these areas. In addition, it is committed to expanding the reach of its products to broaden its customer base and enhance its revenue. This approach allows for the efficient utilization of its processing facilities and an increase in cash flows.