Uma Converter Limited is engaged in manufacturing flexible packaging material which is multi-functional and caters to the packaging requirements of various industries The products are crafted out of an extensive range of industry approved materials such as polyethylene terephthalate, biaxially-oriented polypropylene, polythene, cast polypropylene, foil, paper, bio-degradable films, etc. Since, flexible packaging material predominantly consists of plastic as a major raw material, they aim to manufacture products sustainably by aiming towards 'Reuse, Recycle and Upcycle'. In order to ensure that their manufacturing operations remain sustainable, they have executed various memorandums of understanding with third parties for collection, segregation, transportation, recycling and disposal of plastic waste. They have also executed a service agreement with Ambuja Cements Limited for disposal of plastic waste in an environmentally friendly manner in the cement kiln process at high temperatures and long residence time, while simultaneously manufacturing cement of desired quality. They have obtained necessary licenses and approvals and have made applications seeking approval for using plastic in the manufacturing process in both manufacturing units. Company's product portfolio largely consists of multi-color pouches, stand-up pouches, zip-lock pouches, vacuum pouch, paper bag, e-commerce bag, etc. They manufacture packaging material suitable for packaging products manufactured in food and beverage industry, e-commerce industry, pharmaceutical industry, hygiene and personal-care industry, household industry and agricultural industry. Their customers are mainly manufacturers functioning in the aforementioned industries. Their key customers are well known brands in the food, beverage and household industry for manufacturing inter alia dairy products; biscuits, cakes and rusks; namkeens; frozen snacks and essential products such as tea, spices, rice etc. In the hygiene and personal care industry the key customers are leading manufacturers of inner wear and hair and skin care products. In the e-commerce industry, the Company manufactures and supplies packaging material in the form of e-commerce bags to renowned e-commerce retailers and suppliers for packaging their products for online or remote delivery. Apart from manufacturing products for direct sale to the customers, they are also engaged in manufacturing and carrying out various printing and lamination processes for third parties on a job work basis. Company operates from two manufacturing units located in Gujarat namely, Unit – I situated at Santej and Unit – IIsituated at Timba, respectively. The Company had commenced its business operations from Unit – I and had setup Unit - II in 2018 to expand its manufacturing operations. Unit-II has been set up to manufacture packaging material in roll and pouch form having better suitability to food sector where the laminates are processed through solvent less process, thereby enabling the Company to expand its customer base. This manufacturing unit is also equipped to manufacture three-layer and five-layer co-extruded film and extrusion coating which is experiencing an increase in demand in the packaging industry and therefore is expected to provide a better profitability margin. Company's strict compliance with internal quality control and international standards of quality has enabled them to expand operations internationally to countries such as Saudi Arabia, Australia, Senegal and the United States of America. The revenue of Company from the export operations for the period ended September 30, 2022 and Fiscals 2022, 2021 and 2020 are Rs 144.41, Rs 573.55 lakhs, Rs 546.57 lakhs and Rs 280.03 lakhs, respectively. In FY22, they manufactured 8423 MT with an installed capacity of 11,400 MT. In FY20, FY21 & FY22, company's capacity utilization was 55%, 68% & 74% respectively, which shows a huge potential for growth in business. As on September 30, 2022, they have 441 employees including Directors, who look after the business operations, factory management administrative, secretarial, marketing and accounting functions in accordance with their respective designated goals. As per financial performance, UCL has posted total income/net profits of Rs 103.98 Cr / Rs 2.82 Cr (FY20), Rs 159.11 Cr / Rs 4.50 Cr (FY21), Rs 187.21 Cr / Rs 4.98 Cr (FY22) and Rs 92.10 Cr / Rs 3.26 Cr (6M FY23). So company has shown good results with growth. Company has posted an average EPS of Rs 3.04 and average RoNW of 9.80% for last three fiscals. But company debt is very high. Issue is priced at a P/B of 0.96 as per NAV of Rs 34.43 post issue. As per FY22 earnings on fully diluted equity post issue, asking price is at P/E of around 13.43 and as per annualised FY23 earnings P/E is 10.27. Comparison between listed peers is shown in above table. On BRLM's front, GYR Capital Advisors Private Limited associated with this SME IPO and handled 6 SME IPOs in last 2 years. From last 9 IPO all opened above issue price or at par. As of now from last 9 IPOs, seven are trading below and remaining are trading above issue price or at par. ( As on 12.12.22 ) As per financials, UCL has shown good results, RoNW is 10.28% and P/E is respectively 13.43 and 10.27 as per FY22 and annualised FY23 earnings, which looks fairly priced. But high debt is concern. Company is in business of flexible packaging material, this sector is highly competitive and also good growth opportunity. Performance of BRLM is poor. Also the complete packaging sector is underperforming NIFY and most of stocks are trading near 52 Week low. So we are giving NEUTRAL rating to this IPO.
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