Standard Glass Lining Technology Ltd. IPO: Key Details

Standard Glass Lining Technology

• Standard Glass Lining Technology is coming out with a 100% book building; initial public offering (IPO) of 3,00,78,840 shares of Rs 10 each in a price band Rs 133-140 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 6, 2025 and will close on January 8, 2025.
• The shares will be listed on BSE as well as NSE.
• The face value of the share is Rs 10 and is priced 13.30 times of its face value on the lower side and 14.00 times on the higher side.
• Book running lead managers to the issue are IIFL Capital Services and Motilal Oswal Investment Advisors.
• Compliance Officer for the issue is Kallam Hima Priya.

Profile of the company

Standard Glass Lining Technology is one of the top five specialised engineering equipment manufacturer for pharmaceutical and chemical sectors in India, in terms of revenue in Fiscal 2024, with in house capabilities across the entire value chain. Its capabilities include designing, engineering, manufacturing, assembly, installation and commissioning solutions as well as establishing standard operating procedures for pharmaceutical and chemical manufacturers on a turnkey basis. Its portfolio comprises core equipments used in the manufacturing of pharmaceutical and chemical products, which can be categorized into: (i) Reaction Systems; (ii) Storage, Separation and Drying Systems; and (iii) Plant, Engineering and Services (including other ancillary parts). 

The company is also one of India’s top three manufacturers of glass-lined, stainless steel, and nickel alloy based specialized engineering equipment, in terms of revenue in Fiscal 2024. It is also one of the top three suppliers of polytetrafluoroethylene (PTFE) lined pipelines and fittings in India, in terms of revenue in Fiscal 2024. It has been the fastest-growing company in the industry in which it operates during the past three completed Fiscals in terms of revenue. It possesses in-house capabilities to manufacture all the core specialised engineering equipment required in the active pharmaceutical ingredient (API) and fine chemical products manufacturing process.

The company’s engineered solutions are used in processes across pharmaceutical, chemical, food and beverage, biotechnology and fertilizer sectors. It customises its products basis the unique process requirements of its customers. It also provides turnkey automated equipment solutions, optimising processes like vacuum distillation, solvent recovery and gas dispersion. It has a diversified customer base including end users operating in a range of sectors across pharmaceutical, chemicals, paint, bio technology and food and beverages. Its marquee customer base includes 30 out of around 80 pharmaceutical and chemical companies in the NSE 500 index as of June 30, 2024. 

Proceed is being used for:

• Funding of capital expenditure requirements of the company towards purchase of machinery and Equipment
• Repayment or prepayment, in full or in part, of all or a portion of certain outstanding borrowings availed by the company and investment in its wholly owned Material Subsidiary, S2 Engineering Industry Private Limited, for repayment or prepayment, in full or in part, of all or a portion of certain outstanding borrowings availed by S2 Engineering Industry Private Limited, from banks and financial institutions
• Investment in its wholly owned Material Subsidiary, S2 Engineering Industry Private Limited, for funding its capital expenditure requirements towards purchase of machinery and equipment
• Funding inorganic growth through strategic investments and/or acquisitions
• General corporate purposes

Industry Overview

The Glass-Lined Equipment (GLE) industry is poised for significant growth, driven by multiple factors. GLE protects the contained media from exposure to water, other chemicals, alkalis, and corrosion, providing a desirable environment for storing the media. GLE is resistant to contamination and capable of operating in a variety of environments. Glass lining technology is extensively used in various industries for its corrosion resistance and durability. Glass-lined reactors are crucial for chemical synthesis, fermentation, and controlled reactions in the chemical and pharmaceutical sectors. They protect against corrosive chemicals and maintain substance purity. Receivers with glass lining are utilized in food and beverage, pharmaceutical, and chemical processing industries for collecting and storing materials under specific conditions. The non-reactive nature of glass lining ensures substance integrity. Glass-lined heat exchangers and equipment fittings are employed in industries requiring efficient heat transfer while preserving material integrity. Glass-lining technology offers versatile solutions for industrial processes.

Meanwhile, Filtration and drying (F&D) are critical operations in a wide range of industrial processes that involve the separation of solid matter from solvent. The solid can then be discharged into the dryer in the same equipment. The advantages of using filtration and drying equipment are product isolation, reduced product handling, reduced operator exposure etc. The Filters & Dryers (F&D) Market was estimated at $1.4 Bn in CY2023. The Filters & Dryers Market is expected to increase from $1.4 Bn in 2023 to $2.12 Bn by 2028, with a CAGR of 8.7% over the forecast period (2024-2028). The F&D market are characterized by the presence of many small and large-sized manufacturers. It is a consolidated market The market is consolidated, and the HLE Glascoat has 35-40% market share. The F&D equipment market is primarily divided into two categories: (1) ANFD and (2) centrifuges, which account for more than 80% of the industry. Centrifuges are widely used in the pharmaceutical sector for bulk manufacturing and the evaluation of suspensions and emulsions. The most used approach is ANFD, which combines filtration and drying in a single piece of equipment. ANFD is the primary market driver for the F&D sector.

Furthermore, Heat Exchangers are devices or systems used to transfer heat from one medium to another and can be used for both cooling and heating purposes. Industries like oil & gas, power generation, chemical & petrochemical, food & beverage, and HVAC & refrigeration are prioritizing efficient thermal management, spurring demand. Heat exchangers are used in various processes within the chemical industry, such as the cooling and heating of base, intermediate, and final products; heat recovery; and tempering of containers, reactors, and autoclaves. Technological advancements such as tube inserts are improving energy efficiency and durability, while the chemical industry's increasing demand and efficiency standards are additional growth drivers. The global heat exchanger market was estimated to be worth $12.7 Bn in 2023. The market is expected to grow at a CAGR of 5.8% to $16.8 Bn over the forecast period. Increasing energy demand, an emphasis on energy conservation, more stringent industry regulations, and strong growth in the power-generation and chemical production industries contribute to a positive outlook for the heat exchanger market during the next few years.

Pros and strengths

One of the top five specialised engineering equipment manufacturers for pharmaceutical and chemical sectors in India: The company is one of the top five specialised engineering equipment manufacturers for pharmaceutical and chemical sectors in India, in terms of revenue, in Fiscal 2024 with an in house capabilities across the value chain including design, engineering, manufacturing, assembly, installation and commissioning solutions as well as establishing standard operating procedures for pharmaceutical and chemical manufacturers on a turnkey basis. It is one of the top three manufacturers of glass-lined, stainless steel, and nickel alloy based specialized engineering equipment in Fiscal 2024, in India, in terms of revenue. It attributes its leading market positions to various factors including its diverse product portfolio with a focus on customisation.

Customized and innovative product offering: The company is one of the few companies in India offering end to end customised solutions in the specialised engineering equipment used in the pharmaceutical and chemical sectors. As of September 30, 2024, the company’s comprehensive product portfolio consists of more than 65 products and offerings across pharmaceutical and chemical industries. The company’s portfolio consists of: (i) Reaction Systems; (ii) Storage, Separation and Drying Systems; and (iii) Plant, Engineering and Services (including other ancillary parts). Its products are manufactured using various materials including stainless steel, carbon/ mild steel and nickel alloy, etc. Its capabilities include producing process equipment customised to the requirements of its customers.

Strategically located manufacturing facilities: The company operates through its eight manufacturing facilities spread across built-up/floor area of more than 400,000 sq. ft., strategically located in Hyderabad, Telangana, the “Pharma Hub” of India, which accounts for 40.00% of the total Indian bulk drug production. It has the capabilities to manufacture reactors, receivers, and storage tanks ranging from 30 litres to 40,000 litres in size. It also has the capacity to manufacture around 300-350 equipments per month across its product portfolio of (i) Reaction Systems; (ii) Storage, Separation and Drying Systems; and (iii) Plant, Engineering and Services (including other ancillary parts). Its manufacturing facility can also produce up to 100 reactors per month.

Long term relationships with marquee clientele across sectors: The company has been able to establish long-standing relationships with some of the marquee clientele present in the pharmaceutical and chemical industries, in a relatively short period of time. Its ability to cater to customized processes addressing the requirements of its customers, technical know-how and its track record of timely fulfilment of customer orders, has helped it to establish these long-standing relationships in each of the product categories. It enjoyed long-standing relationships in excess of 3 years with 13 of its top 20 customers, as of September 30, 2024. Its long-term relationships and ongoing active engagements with customers also allow it to plan its capital expenditure and enhance its ability to benefit from increasing economies of scale.

Risks and concerns

Significant revenue comes from limited customers: The company’s revenue from operations is dependent upon a limited number of customers. The company has garnered 40.56%, 53.87% and 48.08% of its total revenue from top 10 customers in FY24, FY23 and FY22 respectively. Due to its dependency on certain key customers for a significant portion of its revenue, the loss of any one or more of such key customers for any reason (including due to loss of contracts or failure to negotiate acceptable terms during contract renewal negotiations, disputes with customers, adverse change in the financial condition of such customers, including due to possible bankruptcy or liquidation or other financial hardship, merger or decline in their sales, reduced or delayed customer requirements for its products, plant shutdowns, labour strikes or other work stoppages) could have an adverse effect on its business, results of operations and financial condition.

Significant revenue comes from pharmaceutical sector: The company derived a large proportion of its consolidated revenues from customers that operate in the pharmaceuticals sectors. The company has derived 81.79%, 82.80% and 85.53% of its total revenue from pharmaceuticals sectors in FY24, FY23 and FY22 respectively. Any significant downturn in these sectors may reduce the demand for its products. For example, in Fiscal 2023, pharmaceutical imports from India have declined in the Commonwealth of Independent States (CIS), particularly in Russia, while in the same period, India's pharmaceutical exports to Africa experienced a 5% decline. If pharma industry faces a downturn or recessionary cycle, sales of its products may be adversely affected which may impact its business, results of operations and financial condition. 

Geographical constrain: While, there are no instances of material disruptions or losses in the past three fiscals linked to the location of the company’s manufacturing facilities that have materially and adversely affected business and operations of the company, however, due to the geographic concentration of its manufacturing operations, its operations are susceptible to local and regional factors, such as accidents, system failures, economic and weather conditions, natural disasters, demographic and population changes, political uncertainty and changes in regulations by state government, adverse changes in availability of key inputs including labour and power, the outbreak of infectious diseases and other unforeseen events and circumstances.

No long term agreement with majority of its customers and suppliers: The company’s arrangement with customers and its suppliers, generally, is based on undertaking work on a purchase order basis, wherein a customer issues an order on it for the desired number of units and pricing. Subject to availability of the raw materials in its inventory and stocks, it may subsequently place an order with its suppliers for the required raw materials. While it maintains limited days of inventories of key raw materials such as stainless steel, carbon/ mild steel, nickel alloy, chemicals and PTFE powder these are not sufficient to service all its orders in hand as of any particular date. Further, as it relies on purchase orders for the bulk of its raw material supplies, it does not have any formal hedging policies in place. While its purchase orders are usually executed at fixed prices, in the event of any mismatch between the contracted price and the cost of raw materials due to price increases, there can be no guarantee that it will be able to pass on increases in raw material costs in all instances, leading it to bear losses or lower or than predicted margins on such orders.

Outlook

Standard Glass Lining Technology is a manufacturer of engineering equipment for the pharmaceutical and chemical sectors in India. The company has the capability to manage the entire production process in-house. The company is specialised engineering equipment manufacturers for the pharmaceutical and chemical sectors. It has consistent track record of profitable growth. On the concern side, the company’s revenue from operations is dependent upon a limited number of customers and the loss of any of these customers or loss of revenue from any of these customers could have a material adverse effect on its business, financial condition, results of operations and cash flows. The company derived majority of its revenue from operations from the pharmaceutical and chemical sectors. Factors that adversely affect these sectors or capital expenditure by companies within these sectors may adversely affect its business, results of operations and financial condition.

The company is coming out with a maiden IPO of 3,00,78,840 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 133-140 per equity share. The aggregate size of the offer is around Rs 400.05 crore to Rs 421.10 crore based on lower and upper price band respectively. On performance front, the company’s revenue from operations increased by 9.26% from Rs 4,975.88 million in Fiscal 2023 to Rs 5,436.69 million in Fiscal 2024. The company’s revenue increased on the back of increase in overall quantity of products sold during the year in line with increased production. In addition to increase in production, the company also acquired a new manufacturing facility for manufacture of PTFE lined pipes and fittings on a slump sale basis during the Fiscal 2024, which in turn allowed it to increase its offerings as well as quantities. Moreover, the company’s profit for the year increased by 12.33% from Rs 534.24 million in Fiscal 2023 to Rs 600.11 million in Fiscal 2024.

The company has consistently sought to diversify its portfolio of products which could cater to its customers across various segments and geographies, and it is well positioned to capitalize on industry opportunities. It intends to continue to strengthen its existing product portfolio in line with its capabilities and further diversify into products with prospects for increased growth and profitability. The company is presently in the process of setting up additional manufacturing facilities. Further, it also plans to consolidate certain of its existing facilities to achieve cost efficiencies. Going forward, its capacity expansion is largely driven by customer demand and growth of the end-use industries. To cater to the growing demand from its existing customers and to meet requirements of new customers, it intends to expand its manufacturing capacities for existing products.