IPO Analysis: Pyramid Technoplast Limited

IPO Rating: Apply for long term

About the issue:

Incorporated in 1997, Pyramid Technoplast Limited manufactures polymer-based moulded products (Polymer Drums) mainly used by chemical, agrochemical, speciality chemical, and pharmaceutical companies for their packaging requirements. The company is coming out with its initial public offering (IPO) of equity shares with a face value of Rs 10 per equity share. The price band of the issue has been fixed at Rs 151 to Rs 166 per equity share. The issue size is Rs 153.05 crore at a higher price band.

The IPO opening date is August 18, 2023, and it will be closing on August 22, 2023. The issue is likely to be listed on the exchange on August 30, 2023. The IPO market lot size is 90 shares and in multiple thereof. A retail-individual investor can apply up to a maximum of 13 lots (1170 shares or Rs 194,220) at the upper price band.

Objects of the Issue

The company intends to utilize the net proceeds from the issue towards the funding of the following objects:

1. Repayment and/or pre-payment, in full or part, of certain outstanding borrowings availed by the company,
2. Funding working capital requirements of the company, and
3. General corporate purposes.

Promoter holding

The pre-issue shareholding is 100.00 per cent, post the IPO the promoter stake will be 74.94 per cent.

About the company

Pyramid Technoplast Ltd (PTL) is an industrial packaging company engaged in the business of manufacturing polymer-based molded products (Polymer Drums) mainly used by chemical, agrochemical, speciality chemical and pharmaceutical companies for their packaging requirements. The company is one of the leading manufacturers of rigid Intermediate Bulk Containers (IBC) in India manufacturing 1,000-litre capacity IBC. IBCs are industrial-grade containers engineered for the mass handling, transport, and storage of liquids, semi-solids, pastes, or solids. rigid IBCs are manufactured across a volume range which is in between that of standard shipping drums and intermodal tank containers, hence the title intermediate bulk container. The company also manufacture MS Drums made of mild steel (MS) used in the packaging and transport of chemicals, agrochemicals and speciality chemicals.

The company use blow moulding technology to manufacture Polymer Drums and IBCs. Injection moulding technology is used for manufacturing caps, closures, bungs, lids, handles, lugs, etc. for in-house use. Its products are marketed and sold under its brand name “Pyramid”.

The company started commercial production in the year 1998 in Unit I. Presently, we have six strategically situated manufacturing units out of which four are in Bharuch, GIDC and two are situated at Silvassa. The seventh manufacturing unit is under construction at the Bharuch, GIDC adjacent to the existing six units. The total installed capacity of its Polymer Drum manufacturing units is 18,837 MTPA. The total installed capacity of its IBC manufacturing unit is 3,240 MTPA and the total installed capacity of its MS Drums unit is 3,600 MTPA.

Its products undergo stringent quality tests to meet industry standards before they are delivered to its clients. The company undertake various strength tests like hydrostatic testing and pneumatic testing on containers for leakages and ruptures, environmental stress cracking resistance test and other tests. These tests ensure that its products meet the industry standards required by its clients for safety, durability and environment. It also undertakes “met flow index test” which is carried out on raw materials like HDPE, HMHDPE and masterbatches to ensure the quality of these raw materials. Further, it undertakes tests such as drop test, leakage test and hydraulic pressure test in the case of MS Drums.

The company have long-term relationships with its distributors or vendors, both domestic and international, and has multiple vendors for particular components rather than relying on single sources in order to de-risk itself from supply chain problems. This also allows the company to ensure the availability of its raw materials as well as enables it to secure the best possible prices for its products.

Financials

On the financial performance front, for the last three fiscals, PTL has (on a consolidated basis) posted a revenue/net profit of Rs 316.18 crore /Rs 16.99 crore (FY21), Rs 402.64 crore/Rs 26.15 crore (FY22), and Rs 482.03 crore/Rs 31.76 crore (FY23).

Valuation and Outlook

If we attribute FY23 earnings to post-IPO fully diluted paid-up capital, then the asking price is at a P/E of around 16.21x. The issue is priced at a P/BV of 4.84 based on its NAV of Rs. 34.28 as of March 31, 2023, and at a P/BV of 3.08 based on its post-IPO NAV of Rs. 53.98 per share. (at the upper cap). Thus, the issue appears aggressively priced.

According to the offer document, the company has mentioned Time Techno, TPL Plastech, and Mold-Tek Packaging as their listed peers. They are currently trading at a P/E of 13.4x, 19.8x, and 40.6x as of August 17, 2023.

The company has not declared/paid any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy based on its financial performance and future prospects.

The company is one of the leading industrial packaging companies. The company has shown strong financial performance for the past three years. The issue is aggressively priced. Looking at the expensive valuation, we recommend investors to cautiously subscribe to the issue with a medium to long-term perspective.