Supreme Facility Management Ltd. IPO: Key Details

Supreme Facility Management

• Supreme Facility Management is coming out with an initial public offering (IPO) of 65,79,200 equity shares in a price band Rs 72-76 per equity share.
• The issue will open on December 11, 2024 and will close on December 13, 2024.
• The shares will be listed on SME Platform of NSE.
• The face value of the share is Rs 10 and is priced 7.20 times of its face value on the lower side and 7.60 times on the higher side.
• Book running lead manager to the issue is Khandwala Securities.
• Compliance Officer for the issue is Varsha Sahbani.

Profile of the company

Supreme Facility Management is an integrated business services provider focused in offering Integrated Facility Management (IFM) services and other Support Services (Support Services) to industries across multiple sectors. Its IFM service portfolio broadly includes (i) soft services such as housekeeping and cleaning services, disinfecting and sanitizing services, pest control, horticulture, and facade cleaning; (ii) hard service such as maintenance, repair, overhaul and performance management of electrical, plumbing and maintenance services (iii) Staffing Service where it supplies the workforce for various support service; Its other support services portfolio broadly includes (i) Employee Transportation (ET) services whereby it provides transportation services for the employees of its clients; (ii) Corporate Food Solution Services (CFSS) whereby it offers catering services for employees of its corporate clients; (iii) Supply Chain Management Services (SCM) whereby it provides Third-party logistics (3PL) service for its clients and (iv) Production Support Services (PSS) whereby it supplying the workforce to the manufacturing companies for production, material handling, and maintenance. In catering its clients with its service portfolio, it is supported by its Subsidiaries and Associate.

The company operates in the Business-to-Business (B2B) services space offering a spectrum of business services, which are broadly classified into the following two segments: Integrated Facilities Management and Support Services. These services share common characteristics as they are all B2B services which are primarily in the nature of annuity- based services whereby the customer, once acquired, generates revenue over an extended period of time. Its annuity- based model helps in spreading out the customer acquisition costs and offers the opportunity to cross-sell and up-sell other services, thus resulting in a higher wallet share from its customers. Another common characteristic of certain of the services offered by the company is that it enables efficiency in business operations for its customers. All of its services are an integral part of its customers’ business and assist in forming an important part of its customers’ core value creation. These services are also mostly such that they are created and offered through a combination of people, processes and technology. Except Corporate Food Solution Services, none of its offerings involve any raw materials and are therefore not dependent on any commodity cycles or unpredictable input cost variations. Further, most of its offerings except employee transportation do not involve any major deployment of fixed assets and are therefore asset light. It has witnessed strong growth over the years. 

Proceed is being used for:

• Funding its working capital requirements
• Pursuing inorganic initiatives
• General corporate purposes

Industry Overview

IFM market in India has been growing steadily over the last decade and is set to witness significant growth momentum over the next 5 years. According to industry reports, the market was valued at around Rs 90 thousand crore in 2023 and is expected to reach Rs 190 thousand crore by 2029, growing at a compound annual growth rate (CAGR) of approximately 36.12%. In India out of the Facility Market 39% of the business are in Outsourced model to Third party facility Management Companies. The facility management market in India has been growing significantly in recent years. Facility management refers to the professional management of facilities such as manufacturing Hubs, office buildings, shopping malls, hospitals, hotels, airports, and educational institutions to ensure their efficient operation and maintenance. In India 39% of the business are in Outsourced model to Third party facility Management Companies in 2023 which will increase as there is increase in the Demand for IFM Services to 50% by 2029.

Meanwhile, the size of the Indian logistics market was around $250 billion. It was estimated that this market would grow to $380 billion by 2025. Indian logistics and supply chain market gives employment to more than 22 million people. The warehousing, industrial, and logistics (WIL) sectors are projected to be crucial for attaining India's vision of being a $5 trillion economy by FY25. The warehouse and logistics industry has benefited the most from the COVID-19 epidemic, increasing its share from 2% in 2020 to 20% in 2021. Because of the growing shift from discretionary to essential internet buying during the COVID-19 epidemic, the e-commerce industry became more appealing and attractive. A warehouse is an essential component of corporate infrastructure and one of the primary enablers in the global supply chain. The Indian warehousing market is predicted to reach $34.99 billion (Rs. 2,872.10 billion), expanding at a CAGR of 15.64% from 2022 to 2027.

Further, India's food service market is expected to reach $79.65 billion by 2028, growing at a CAGR of 11.19 per cent from $41.1 billion in 2022, according to a report. Despite over 20 lakh jobs lost during the peak of the COVID-19 pandemic, the industry is expected to reach employment figures of 1 crore by 2025, as per the Food Service and Restaurant Business Report 2022-23. The restaurants and food service market in the country is divided into two segments with the unorganized segment accounting for the major share, the report said, adding that the organized sector also grew at a strong rate between 2014 and 2020. Moreover, manufacturing is emerging as an integral pillar in the country’s economic growth, thanks to the performance of key sectors like automotive, engineering, chemicals, pharmaceuticals, and consumer durables. The Indian manufacturing industry generated 16-17% of India’s GDP pre-pandemic and is projected to be one of the fastest growing sectors. With 17% of the nation’s GDP and over 27.3 million workers, the manufacturing sector plays a significant role in the Indian economy. Through the implementation of different programmes and policies, the Indian government hopes to have 25% of the economy’s output come from manufacturing by 2025. 

Pros and strengths

Diverse portfolio of services: The company’s diverse range of services enable it to strengthen its position in the market by enabling it to grow its customer relationships and scope of engagements and serve as a single point of contact for multiple services, driving high customer retention. Its multiple service offerings allow it to derive operational efficiencies, by centralizing certain key functions such as finance and sales and also certain other administrative functions. Given its operational experience, the company has developed in-house expertise to cater all verticals of Facility Management Services and Other Support Services which allows it to provide the varying requirements of its customers thereby enabling it to grow its market share and instill its customers with confidence in its ability to address their diverse and dynamic business needs.

Longstanding relationship with customers across diverse sectors: The company primarily provides IFM and Support Services to its corporate clients across a diverse range of industries and sectors. Within the IFM services segment, it offered its services to its corporate clients engaged in manufacturing, engineering, automobile, healthcare, fashion industry, retail, digital, etc. Such a diverse base of industry and customers has allowed it to not only reduce it vulnerabilities to economic cycles but also its dependence on any particular set of customers. 

Wide presence with large and efficient workforce: As of June 30, 2024, the company had a widespread network consisting of 168 Client locations managed from offices situated in India. This nation-wide presence enables it to offer services to customers who prefer a single service provider for their operations at multiple locations. A wide presence enables it to recruit, train and deploy resources at various customer locations within a short span of time and enables it to respond to changing customer requirements, efficiently and effectively. This presence also allows it to monitor the work of its employees at various customer locations and to administer to the needs of its employees quickly and in a manner relevant to them. For instance, local presence sensitizes it to local customs, local festivals as well as local expectations in terms of remuneration. This enables it to ensure service levels at its customer locations while keeping local requirements in mind.

Risks and concerns  

Maximum revenue comes from few customers: Substantial portion of the company’s revenues has been dependent upon its few clients. The company has garnered 68.74%, 64.30% and 68.01% of its total revenue from top 10 customers in FY24, FY23 and FY 22 respectively. The loss of a significant client or clients would have a material adverse effect on its financial results. It cannot assure that it can maintain the historical levels of business from these clients or that it will be able to replace these clients in case it loses any of them. Furthermore, major events affecting its clients, such as bankruptcy, change of management, mergers and acquisitions could adversely impact its business. If any of its major clients becomes bankrupt or insolvent, it may lose some or all of its business from that client and its receivable from that client would increase and may have to be written off, adversely impacting its income and financial condition.

Geographical constrain: A significant portion of its revenue from operations is derived from its services offered to customer locations in state of Maharashtra. The company generated 81.39%, 79.04% and 71.32% of its top-line from Maharashtra in FY24, FY23 and FY22 respectively. Any decrease in revenue from Maharashtra, including due to increased competition or supply, or reduction in demand, or its inability to extend or renew subsisting contracts at commercially viable terms, may have an adverse effect on its business, cash flows, results of operation and financial condition.

Majority of its Directors does not have any prior experience of directorship of any listed entity: The company’s Directors have not hold directorship of a listed entity and do not have any experience pertaining to listing compliances of a listed entity. Therefore, its Directors may be required to provide additional time and attention to comply with the necessary compliances under the SEBI Listing Regulations, pursuant to listing. However, it does have a qualified Company Secretary and Compliance Officer, who has prior work experience in listed entities, who would be undertaking and overseeing the listing compliances required to be fulfilled by the company.

Outlook

Supreme Facility Service Management offers integrated facility management services, such as housekeeping and cleaning, disinfecting and sanitizing, staffing, and corporate food solution services to other businesses. The company has wide presence with large and efficient workforce coupled with strong recruitment capabilities. It also has longstanding relationship with customers across diverse sectors, with recurring business. On the concern side, a significant portion of its revenues is derived from a few geographical regions and any adverse developments affecting such regions could have an adverse effect on its business, cash flows, results of operation and financial condition. Moreover, its business revenue from operations is concentrated mainly on IFM Services and any unanticipated variations in its operations may result in variations in its results of operations in any particular financial period.

The company is coming out with a maiden IPO of 65,79,200 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 72-76 per equity share. The aggregate size of the offer is around Rs 47.37 crore to Rs 50.00 crore based on lower and upper price band respectively. On performance front, the total income has been increased by 7.91% from Rs 33078.49 lakh in Fiscal Year 2023 to Rs 35695.39 lakh for the year ended 31, March 2024. The increase in the revenue is due to increase in the business volume of the customer. The company’s Restated Profit After Tax After Minority Interest and shares of Joint Venture surged 33.80% to Rs 741.55 lakh in FY24 as compared to Rs 554.21 lakh in FY23.

The company intends to acquire new customers by becoming more competitive quality of services, technology and persistent customer development efforts. The increasing demand for integrated facilities management, stringent quality and compliance standards, and the increased need for mechanized cleaning, are key industry trends which will drive demand for organized integrated facilities management and as a result, is expected to consolidate the business amongst organized players. As the scope and value add of outsourced integrated facilities management increases, the demand for organized and standardized services and subsequent outsourcing of such services to organized service providers like the company will also increase.