Standard Glass IPO review (Apply)

•    The company enjoys most preferred partner for glass lined equipments used by pharma, chemical sectors in India.
•    The company marked steady growth in its top and bottom lines for the reported periods. 
•    Based on FY25 annualized earnings, the issue appears fully priced.
•    Partial reduction of debt and other inorganic growth plans will increase its earnings going forward.
•    Investors may park funds for medium to long term.

ABOUT COMPANY:
Standard Glass Lining Technology Ltd. (SGLTL) is one of the top five specialized engineering equipment manufacturer for pharmaceutical and chemical sectors in India, in terms of revenue in Fiscal 2024 (Source: F&S Report), with in house capabilities across the entire value chain. Its capabilities include designing, engineering, manufacturing, assembly, installation and commissioning solutions as well as establishing standard operating procedures for pharmaceutical and chemical manufacturers on a turnkey basis. SGLTL’s portfolio comprises core equipments used in the manufacturing of pharmaceutical and chemical products, which can be categorized into: (i) Reaction Systems; (ii) Storage, Separation and Drying Systems; and (iii) Plant, Engineering and Services (including other ancillary parts). 

It is also one of India’s top three manufacturers of glass-lined, stainless steel, and nickel alloy based specialized engineering equipment, in terms of revenue in Fiscal 2024 (Source: F&S Report). The company is also one of the top three suppliers of polytetrafluoroethylene (“PTFE”) lined pipelines and fittings in India, in terms of revenue in Fiscal 2024 (Source: F&S Report). It has been the fastest-growing company in the industry in which it operates during the past three completed Fiscals in terms of revenue (Source: F&S Report). It possesses in-house capabilities to manufacture all the core specialized engineering equipment required in the active pharmaceutical ingredient (“API”) and fine chemical products manufacturing process (Source: F&S Report). Over the last decade it has supplied over 11,000 products. 

Its engineered solutions are used in processes across pharmaceutical, chemical, food and beverage, biotechnology and fertilizer sectors. It customizes products basis the unique process requirements of customers. It also provides turnkey automated equipment solutions, optimizing processes like vacuum distillation, solvent recovery and gas dispersion. It has a diversified customer base including end users operating in a range of sectors across pharmaceutical, chemicals, paint, bio technology and food and beverages. Its marquee customer base includes 30 out of approximately 80 pharmaceutical and chemical companies in the NSE 500 index as of June 30, 2024 (Source: F&S Report). 

Some of its customers include Apitoria Pharma Private Limited, Aurobindo Pharma Limited, CCL Food and Beverages Private Limited, Cohance Lifesciences Limited, Cadila Pharmaceutical Limited, Deccan Fine Chemicals (India) Private Limited, Dasami Lab Private Limited, Laurus Labs Limited, Granules India Limited, MacLeod Pharmaceuticals Limited, MSN Laboratories Private Limited, Natco Pharma Limited, Honour Lab Limited, Hetero Drugs Limited, Hetero Labs Limited, Hazelo Lab Private Limited, Piramal Pharma Limited, Sanvira Biosciences Private Limited, Suven Pharmaceuticals Limited, Tagros Chemicals India Private Limited, Vamsi Labs Limited and Viyash Life Sciences Private Limited. 

It operates through eight manufacturing facilities spread across built-up/floor area of over 400,000 sq. ft., strategically located in Hyderabad, Telangana, the “Pharma Hub” of India, which accounted for 40.00% of the total Indian bulk drug production in Fiscal 2024 (Source: F&S Report). It has entered into an agreement with HHV Pumps Private Limited (“HHV”), for supply of vacuum pumps along with a private label arrangement. It also has a supply and purchase arrangement for India with Japan based Asahi Glass plant Inc. and GL Hakko Co. Ltd (“GL Hakko”) for procurement of specified grades of glass for glass lining division. These partnerships have enabled it to fortify position in the Glass Lining and Vacuum Pumps market in India (Source: F&S Report). 

Further, it has also entered into an exclusive collaboration with GL Hakko for exclusively purchasing glass lined tubes manufactured by GL Hakko using which the Company will manufacture and sell shell and heat tube exchangers under the name of GL Hakko in India and abroad except Japan. As of September 30, 2024, it had 460 employees on its payroll, additional 731 contract workers and 71 trainees in various departments.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route combo IPO of 29289367 equity shares worth Rs. 410.05 cr. (at the upper cap). The IPO consists of 15000000 fresh equity shares (worth Rs.  210.00 cr. at the upper cap), and an Offer for Sale (OFS) of 14289367 equity shares (worth Rs. 200.05 cr. (at the upper cap). The company has announced a price band of Rs. 133 – Rs. 140 per equity shares of Rs. 10 each. The issue opens for subscription on January 06, 2025, and will close on January 08, 2025. The minimum application to be made is for 107 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 14.68% of the post-IPO paid-up equity capital. From the net proceeds of the fresh equity issue, the company will utilize Rs. 10.00 cr. for capex on machinery and equipment, Rs. 130.00 cr. for repayment/prepayment of certain borrowings, Rs. 30.00 cr. investment in own material subsidiary for capex, Rs.  20.00 cr. for inorganic growth through strategic investments and/or acquisitions, and the rest for general corporate purposes. 

The joint Book Running Lead Managers (BRLMs) to this issue are IIFL Securities Ltd., and Motilal Oswal Investment Advisors Ltd., while KFin Technologies Ltd., is the registrar to the issue. Motilal Oswal Financial Services Ltd. is the syndicate member. 

Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs. 11.67 – Rs. 1152.00 between May 2013, and March 2024. It has also issued bonus shares in the ratio of 9 for 1 in June 2024. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 1.00, Rs. 1.97, Rs. 2.19, Rs. 2.32, Rs. 3.50, and Rs. 68.90 per share. The company did a private placement of 2857142 shares to Amansa Investments at a price of Rs. 140 per share in December 2024.

Post-IPO, its current paid-up equity capital of Rs. 184.49 cr. will stand enhanced to Rs. 199.49 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 2792.88 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit of Rs. 241.50 cr. / Rs. 25.15 cr. (FY22), Rs. 500.01 cr. / Rs. 53.42 cr. (FY23), and Rs. 549.68 cr. / Rs. 60.01 cr. (FY24). For H1 of FY25 ended on September 30, 2024, it earned a net profit of Rs. 36.27 cr. on a total income of Rs. 312.10 cr. 

For the last three fiscals, the company has posted an average EPS of Rs. 3.29 and an average RoNW of 35.37 %. The issue is priced at a P/BV of 5.74 based on its NAV of Rs. 24.40 as of September 30, 2024, and at a P/BV of 3.76 based on its post-IPO NAV of Rs. 37.23 per share (at the upper cap).

If we attribute FY25 annualized earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 38.46, and based on FY24 earnings, the P/E stands at 46.51. The issue appears fully priced on the basis of its recent earnings. 

For the reported periods, the company has posted PAT margins of 10.41% (FY22), 10.68% (FY23), 10.92% (FY24), 11.62% (H1-FY25), and the RoCE margins of 42.03%, 43.43%, 25.49%, 10.81%, and adjusted RoCE margins of 42.51%, 44.10%, 29.41%, 13.09%, for the referred periods respectively. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It has adopted a dividend policy in July 2024, based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown, GMM Pfaudler, HLE Glascoat, Thermax, and Praj Ind., as their listed peers. They are trading at a P/E of 54.2, 83.5, 73.6, and 55.8 (as of January 01, 2025). However, they are not truly comparable on an apple-to-apple basis.

MERCHANT BANKER’S TRACK RECORD:
The two BRLMs associated with the offer have handled 50 public issues in the past three fiscals, out of which 14 issues closed below the offer price on listing date.