The company, promoted by Mukesh Kumar Patel, Dineshbhai Patel, Rameshbhai Patel and Kirankumar Patel, commenced business in 2007-08 as a manufacturer of frit, which is one of the raw materials used in manufacturing of tiles and have over the years diversified, expanded, and evolved into a manufacturer of vitrified tiles. In FY2021 about 71.9% of the revenue came from Glazed Vitrified Tiles and balance 28.1% from Double Charge Vitrified Tiles.

The company has two state of the art manufacturing facilities that are located at Padra and Talod in Gujarat, with a combined installed production capacity of 1,32,00,000 square meter per annum. The company is in the process of setting up its own LNG gas station on its land for internal gas consumption. Setting up of LNG Gas station for internal consumption will reduce external dependency and optimize operating cost thereby improving the operating margin.

The initial public offerings (IPO) of the company comprises two components 1) fresh issue of 11186000 equity shares and 2) offer for sale of 2238000 equity shares by Dixit Kumar Patel, the selling investor shareholder. Post issue, the selling shareholder will hold 2340916 equity shares, translating into 12.44% stake in the post issue expanded equity of the company. The company will not receive any proceeds from the offer for sale. Of the proceeds from fresh issue of shares, the company proposes to prepay certain secured borrowings of the company amounting Rs 50 crore and meet working capital requirements to the tune of Rs 45 crore.

Gross debt of the company as end of March 2021 was Rs 157.52 crore.

Strengths

The product portfolio of the company is wide,comprising 1000+ designs which are categorised into various series and available over 6 sizes. This wide product portfolio, backed by a strong brand, allows the company to cater to diverse needs of different customer segment and capture higher market share.

Has pan India presence, backed by strong dealer network, with more than 2,000 registered dealers with whom it has developed long term relationship over the years. However,in markets such as Gujarat, Maharashtra, Karnataka, and Tamil Nadu, where it has established presence, the company has scope for deeper penetration into tier 2/3 cities and rural markets as its current presence is largely restricted to Tier 1 and metro cities. Similarly, it has limited presence in states of Arunachal Pradesh, Uttarakhand and Pondichery and has opportunity to widen the market reach. The company is taking efforts to deepen its reach in both established markets as well as markets where it has limited presence.

Significant export presence across 12 countries including Poland, UAE, Italy, and Bosnia. In FY2021, the company got 13.88% of its revenue from exports.

Unlike many of its peers, the company mainly sells own manufactured goods (accounts for 95% of revenue in FY2021) and with better grip on the cost and quality facilitates better margin in relation to some of its peers. The Ebitda margins of the company, at 20.4% for FY21,arehigher compared to 7.5%, 11.3% and 19.1% of Orient Bell, Somany Ceramics and Kajaria Ceramics, respectively.

Weakness

The tiles industry is fragmented and highly competitive,with presence of both large well popular brands as well as large unorganised sector. The ability of the company to price its products significantly depends on market conditions. This may affect the ability of the company to pass on any rise in costs to customers.

Product gap in the form of wall tiles, which the company is not manufacturing in-house.

Vitrified tiles manufacturing process is power &fuel and water intensive. P&F cost accounted for about 30% of the revenue in FY21. The company, while dependent on grid power for its power requirement, has a long-term natural gas supply agreement with various suppliers of natural gas.Any under-utilisation of natural gas than the contracted quantities may attract the take or pay obligations as stipulated in such GSA, requiring it to pay for the quantity under drawn. The company depends on bore well to meet its water requirements. Lack of captive power plant expose the company to increase in power prices and any change in regulations prohibiting drawing water from bore well for industrial use may affect the operations of the company.

Trade receivables (net) as on March 31, 2021, were Rs 90.082 crore, of which Rs 12.243 crore is due for more than year. Against that, provision for doubtful debts was made for Rs 2.391 crore. As on date of RHP, the company was yet to recover an amount of Rs 3.73 crore from 65 of its debtors on which it has filed complaints under section 138 of Negotiable Instruments Act, 1881.

Cash flow from operations in the last three fiscals was volatile. Net cash generation from operations that was Rs 41.084 crore in FY2019 fell to Rs 5.707 crorein FY2020 and rebounded to Rs 37.786 crore in FY2019.

Overall capacity utilisation of the company stands at 70%, which is one of the lowest among major industry peers. While the capacity utilisation of the Talod plant of the company is on a steady ascent, increasing from 47.8% in FY2019 to 64.56% in FY2020 to 71.95% in FY2021. However, the capacity utilisation of Padra facility has declined from 83.36% in FY2020 to 64.43% in FY2021.

Strong demand for housing in the country.

Valuation

Sales for FY 2021 wereup6% to Rs 255.15 crore despite the covid-19challenge. With operating profit margin expand by 80 bps to 18.6% and the operating profit up by 10% to Rs 47.35 crore. The other income was higher by 46% to Rs 4.71 crore and the PBIDT was up 13% to Rs 52.05 crore. With interest cost down 8% to Rs 21.26 crore and the depreciation was down by 5% to Rs 13.63 crore, the PBT was up by 41% to Rs 17.16 crore. With taxation higher by 113% to Rs 1.94 crore, the PAT was up 35% to Rs 15.22 crore.

The EPS for FY2021 was Rs 3.4 and thus on FY2021 EPS the PE works out to about 35.3 times. In comparison,Orient Bell quotes at a PE of 84.9 times of its consolidated FY2021 EPS. Somany Ceramics and Kajaria Ceramics quotes at a PE of 41.3 times and 52.9 times of their consolidated FY2021 EPS.

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