Business Profile of the Kumar Arch Tech Limited

Kumar Arch Tech is the largest manufacturer and exporter of PVC2 blend-based building material products in India, with a legacy of over 22 years of operations and expertise in material science. They offer a wide range of products, including board/sheets, mouldings, wall and ceiling panels, and signage solutions. As of FY24, they commanded 18% market share in the PVC blend-based building material products industry in India.

They also provide tailored solutions and collaborate with customers to develop new products. The company has developed a comprehensive product portfolio of over 900 SKUs under PVC blend-based building material products and signages. PVC blend-based products have superior durability, low maintenance requirements, cost-effectiveness, and resistance to moisture, insects, and fire. The company has a global footprint across 15 countries and exports to 8 countries.

Kumar Arch Tech Limited IPO Objective

As per the draft red hearing prospects, the IPO issue consists only of offer for sale.

• The OFS consists of up to XXXX Equity Shares aggregating up to Rs. 5, 000 million. Nothing from those proceeds of OFS will be allotted to company.
• Kumar Arch Tech IPO offer only has fresh issue of Rs. 2, 400 million. As per DRHP document, the company aims to primarily utilize IPO proceedings towards financing its Greenfield project in relation to the manufacture of PVC based products.

(₹ million)

IPO Details of Kumar Arch Tech Limited:

Issue Price & Size: Kumar Arch Tech Limited IPO

The issue price of Kumar Arch Tech Limited hasn’t been released yet. Upon releasing the dates, the investors can bid between those price ranges. The company has both fresh issue of Rs. 240 crores as well as offer for sale of Rs. 500 crores.

Launch Date of Kumar Arch Tech Limited IPO

The IPO opening date of Kumar Arch Tech hasn’t been officially announced yet, upon the declaration of dates investor can bid for IPO.

Kumar Arch Tech Limited Financial Statements

Kumar Arch Tech Limited Promoters & Shareholding

As of date, there are five promoters of the company, including corporate and individual.

The promoter in aggregate collectively holds 80.11% of the paid-up share capital of company.

Should You Subscribe to Kumar Arch Tech Limited IPO or Not

While investing or subscribing to any IPO, consider the investment rationales related to the company. Hence, here you can find out the strength of the company that will be its growth factors. And also check the risk factors that can affect the growth and operational efficiency of the company.

Competitive Strengths of Swiggy Limited:

Largest manufacture and exporter of PVC blend-based material

India's PVC blend-based building material industry is one of the fastest growing markets globally, driven by rising residential units, improved affordability, nuclearization of households, and growth of housing loans.

The company has over 22 years of experience in the PVC blend-based building material products industry, with a comprehensive product portfolio including board, profiles, and signage solutions. As the largest manufacturer and exporter of PVC blend-based building material products in terms of value, the company's leading market position is attributed to its competencies, capabilities in developing products, continuous product and process improvisation, and innovation led by R&D capabilities.

Diversified product portfolio

As of June 30, 2024, the company has a product portfolio of over 900 SKUs, categorized into three categories: board/sheets, profiles, and signage solutions. The company has expanded its product range from 10 to over 900 over the past 168 years, demonstrating its prowess in innovation and product development. These products are used in residential, commercial, and industrial sectors for new construction and renovations.

The company is the only key branded player offering PVC blend-based sheets and boards with a thickness between 0.9 mm and 50 mm. The product manufacturing process is highly specialized, involving the use of over eight raw materials ingredients, with PVC constituting approximately 50-60% of the composition. The company continues to innovate and develop new products using proprietary formulations, providing flexibility in product variety, durability, and aesthetics.

The company's focus on R&D has been instrumental to the growth of its operations and improved its ability to innovate products. The company has developed the ability to turnaround products based on customer requirements, leveraging its deep understanding of material science and R&D. As of June 30, 2024, the company has manufactured 900 SKUs.

Established credentials in developed markets

ECHON, a trusted brand in both domestic and international markets, has exported its products to 15 countries as of June 30, 2024. ECHON has been exporting to the USA for the last 20 years, consistently supplying products while expanding its range to compete with USA brands.

These markets are dominated by leading DIY retailers and key distributors, who have established stringent standards for product quality and production processes.  The company's long-standing relationships with customers are built on consistent quality, innovation, and reliability. Their responsiveness coupled with innovative and quality product offerings have enabled them to successfully establish their market presence and nurture customer relationships.

Future plans

The company aims to cater to a wide range of applications and customer segments by interacting with distributors, customers and invest in R&D to develop new products, The Company plans to expand into categories such as flooring, decking, windows, and laminates, aiming to increase wallet share and repeat orders from existing and new customers.

Since most of company’s revenue comes from export, therefore the company plans to increase its global footprint and exports by acquiring a manufacturing facility in Virginia, USA. The company also plans to enhance its production capacity in India and expand its supply chain strategy.

Risk Factors of Kumar Arch Tech Limited:

Client concentration

The company's relationships with customers are dependent on its ability to meet customer requirements. Client may differ on different stages from price competitiveness, consistency, product quality and variety among catalogue. Company’s inability to meet customer requirements may result in a decrease in orders.

Companies top customer contributes to healthy share of it total revenue. Also, the share of its top customer has been increasing y-o-y from 17% in FY22 to 22% in FY24. A decrease in business from top customers may affect the company's operations and financial picture.

The table below shows the contribution of top customers to the company's revenue from operations in period before.

The company typically provides customers with credit periods ranging from immediate payments to 120 days from the date of delivery, but may still experience losses due to a customer's inability to pay. Any increase in receivable turnover days or write-offs will negatively affect the business. Trade receivables across time periods has seen rise in previous two fiscals.

Sourcing raw material form suppliers

The company sources majority of its raw material from suppliers and company's competitiveness and profitability are largely dependent on its ability to source good quality raw material ant cheap rates. Currently, the company has multiple suppliers for each raw material and it orders its suppliers on a purchase order basis.

Companies top three supplier contributes to majority of its supplies. In a volatile price environment the company may be forced to buy costlier raw material from these sellers and might to negotiate good buy.

Restriction on import and cost of raw material

The company relies heavily on imported raw materials for most of its requirements. While some raw materials are not currently subject to any regulatory bans or restrictions, it is uncertain whether these regulations will become more stringent in the future, potentially restricting the company's ability to import raw materials from other jurisdictions.

While the company has not faced significant challenges in importing raw materials in the past, it is uncertain if such challenges will arise in the future.  As can be seen from data mentioned in table below, the company import around three-forth of its total raw material from abroad. Out of total imports, raw material import from china contributed to nearly half of total imports. Any bilateral issue between countries might lead to import disruptions and costlier imports leading to impact on financial performance of company.

The manufacturing of PVC boards relies heavily on resins, which are subject to volatility due to factors beyond company’s control. Any sustained increase in resin prices could significantly increase production costs. Supply constraints, global demand, production capacity limitations, and regulatory restrictions could disrupt manufacturing processes, leading to delays in fulfilling customer orders.

Dependant on manufacturing facility

As of latest filing, the company has four facilities in Rajasthan region, with two of them being used for manufacturing. Unscheduled or long term disruption in manufacturing facility could reduce capacity utilization and company's ability to meet contractual obligations which could negatively impact business fundamentals.

Any adverse development could result in significant loss from inability to meet customer orders and production schedules, impacting the company's reputation.

Unanticipated delay in expansionary plan

The company plans to expand its manufacturing capacity by establishing a new facility in Udaipur, Rajasthan. Through this IPO, the company wishes to utilize the proceeds toward investing in the subsidiary, TIPL, to finance the capex requirements for the expansion project. The construction of the facility is subject to regulatory approval and logistical delays, which could lead to delays and increased cost of ever all projects.

Products subject to quality standards

Their products and manufacturing processes are subject to quality standards, and failure to maintain these standards could lead to reputational damage, order cancellations, customer loss, and product rejection. Their manufacturing facility is ISO certified, and we have a certification for good manufacturing practice. Customer visits are crucial for customer retention, and quality defects can result in customer cancellations and financial impact. Companies’ success depends on the design and implementation of quality control policies and guidelines. Failures could lead to defective or substandard products, delays in delivery, and the need for additional expenditure on upgrading systems and maintaining quality certifications.

Penetrating new export market

The company exported its products to over 15 countries, generating revenue from export markets of around Rs. 335 crores in FY24. The company plans to continue expand export sales, but faces challenges such competition, compliance with laws, political, staffing difficulties, and lack of brand recognition, which could negatively impact the company's growth plans and future performance.

Despite challenges, the company believes establishing a presence in international markets will help it diversify its operations, boost sales.

The company faces foreign exchange risk between the Indian Rupee and U.S. dollars, which could affect its results of operations and cash flows.

Ability to develop products

The success of new product offerings depends on anticipating targeted customer demand and thereafter developing and manufacturing products in a timely and cost-effective manner.  Putting funds in R&D for developing new products is a risky business as it may or may not yield appropriate results. It is not only complex but time consuming with results that may differs from customers demand.

The company may invest resources in developing products that face competition, which could negatively impact financial condition and operations.

Kumar Arch Tech Limited Grey Market premium

Grey market premium is the premium quoted over the IPO issue price. GMP shows that investors are ready to pay above the upper band of the IPO issue price. GMP is determined in the grey market as per the demand and supply of the shares in the primary market. A grey market is that unofficial ecosystem of unlisted companies' stocks that start trading even before the launch of the IPO to the date of its listing.

Also Read: What is Grey Market Premium in IPO: How is GMP Calculated & Reliable

However, GMP is not a reliable factor, as it keeps fluctuating as per the demand and supply of shares in the primary market. There are numerous factors that affect the stock market in India and individual stock prices of different companies that are already listed and trading in the secondary market. However, for an IPO-bounded company, you can consider the GMP as the speculative listing price of the share

According to various online sources, the Grey Market Premium or GMP of the Kumar Arch Tech Limited is trading around Rs XX in the grey market. It means shares are trading at the upper band issue price of Rs XX with a premium in the grey market and may list around the same price.