Platinum Industries Limited – IPO Note – Equity Research Desk

Company overview

Incorporated originally as a Limited Liability Partnership (LLP) in 2008, Platinum Industries Ltd. is now a multi-product company operating in the specialty chemicals industry primarily engaged in the business of manufacturing stabilizers. The business segments include PVC (polyvinyl chloride) stabilizers, CPVC additives and lubricants. PVC stabilizers are one of the most important additives used in the manufacturing of PVC to avoid the decomposition of PVC during the heating process. The products find their application in PVC pipes, PVC profiles, PVC fittings, electrical wires and cables, SPC floor tiles, rigid PVC foam boards, packaging materials etc. The company’s manufacturing facility is located in Palghar, Maharashtra which possesses ISO 9001:2015 certification for quality management systems.

Objects of the offer

• Investment in Subsidiary, Platinum Stabilizers Egypt LLC (“PSEL”) for financing its capital expenditure requirements in relation to the setting up of a manufacturing facility for PVC Stabilizers in Egypt.
• Funding of capital expenditure requirements towards setting up of a manufacturing facility for PVC Stabilizers at Palghar, Maharashtra.
• Funding general working capital requirements of the company.
• General corporate purposes.

Investment Rationale

• Broadening global footprint – To cater to the growing market demand for the company’s products, specifically PVC stabilizers, and to expand its presence in new regions, Platinum Industries is in the process of deepening its presence in the Middle East and North Africa (MENA) region. The company’s subsidiary PSEL is setting up a new manufacturing facility for PVC stablizers at Egypt. Currently, as per CRISIL report, there are no manufacturers of PVC stabilizers in Egypt. The proposed facility is expected to have a capacity of 30,000 TPA and is expected to commence operations by the fourth quarter of FY2024-25.

• Expansion plans – The company is setting up a new manufacturing facility for PVC additives at Palghar, Maharashtra, India. This is as part of the company’s strategy to have a dedicated, modernised and automated non-lead-based facility for PVC stabilizers, which will allow the company to manufacture quality stabilizers and PVC additives in a timely and cost-efficient manner. The installed capacity of the facility is proposed to be an aggregate of 60,000 MTPA of PVC stabilizers (Non-Lead Based).

• Varied product portfolio – The company has varied products for the PVC industry in the market and multiple product categories such as low lead-based stabilizer, calcium zinc-based stabilizer and organic based stabilizer. In PVC applications, it has developed more than 400 grades, which help covers the majority of customers as well as different applications.

• Financial track record – Revenue from operations have grown from Rs. 89.14 crores in FY2021 to Rs.234.06 crores in FY2023, registering a CAGR of 62.04% in the last three fiscal years. EBIDTA have grown from Rs.0.17 crores in FY2018 to Rs.50.94 crores in FY2023, registering a CAGR of 158.43% in six years because of increase in sales of high margin products i.e. lead-free products, introduction of new products i.e. CPVC additives, increase in production capacities and control on raw material purchase costs. PAT has grown from Rs.4.82 crores in FY2021 to Rs.37.58 crores in FY2023, registering a CAGR of 174.04% in last three fiscal years.

Key risks

• Dependence on single manufacturing facility – The company operates out of a single manufacturing facility which is located at Palghar, Maharashtra, any localized social unrest, natural disaster or breakdown of services or any other natural disaster in and around Palghar, Maharashtra or any disruption in production at, or shutdown of, the manufacturing unit could have material adverse effect on business and financial condition.

• Forex Risk – The company is exposed to foreign exchange risks, as it conducts a significant portion of operations from international markets in foreign currencies. Fluctuations in exchange rates could affect its financial performance.

Outlook

The Indian specialty chemical industry is expected to reach $48.1 billion by fiscal 2026, growing at 8.3% CAGR over 2023-26. According to the CRISIL Report, Platinum Industries Ltd. is the third largest player of PVC stabilizer in terms of sales with an ~13.00% market share for the financial year 2022-23 in the domestic market. As per RHP, there are no listed companies that exclusively undertake the manufacturing of PVC stabilizers and CPVC additives. Hence, basis factors such as the scale of the business, exposure to the construction and industrial applicant industry (as speciality chemicals industry contributes the majority of revenue from operations for the Company), a proxy set of listed peers of Supreme Petrochem Ltd and Apcotex Industries Ltd (the “Industry Peers”) have been identified for Platinum Industries. The peers are trading at an average P/E of 23.38x with the highest P/E of 24.39x and the lowest being 22.36x. At the higher price band, the listing market cap of Platinum Industries Limited will be around ~Rs.939.22 crores and the company is demanding a P/E multiple of 24.99x based on post issue diluted FY23 EPS of Rs.6.84. When compared with its peers, the issue seems to be fully priced in (fairly valued). Based on the above views, we provide a ‘Subscribe’ rating for this IPO for a medium to long-term Holding.