Business Overview:

One of the top five specialised engineering equipment manufacturer for pharmaceutical and chemical sectors in India, with in house capabilities across the entire value chain. Product portfolio include 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)

Scale of Operations:

– one of India’s top three manufacturers of glass-lined, stainless steel, and nickel alloy based specialized engineering equipment
– also one of the top three suppliers of polytetrafluoroethylene (“PTFE”) lined pipelines and fittings in India
– Over the last decade they have supplied over 11,000 products
– their engineered solutions are used in processes across pharmaceutical, chemical, food and beverage, biotechnology and fertilizer sectors. They customize their products basis the unique process requirements of their customers. They also provide turnkey automated equipment solutions, optimising processes like vacuum distillation, solvent recovery and gas dispersion
– customer base includes 30 out of approximately 80 pharmaceutical and chemical companies in the NSE 500 index, and include names of Aurobindo Pharma Limited, CCL Food and Beverages, Cadila Pharmaceutical, Laurus Labs, Granules India, Macleods Pharmaceuticals, Natco Pharma, Piramal Pharma etc.

Geographical Presence:

– Operate 8 manufacturing facilities spread 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
– capacity to manufacture 150-160 vessels per month, ranging from 50 litre to 60,000 litre.
– Sales teams spread across states of Gujarat, Maharashtra, Andhra, Tamil Nadu, Karnataka and Delhi
– agency and distribution agreement for sale, marketing and distribution of products in Bangladesh, Russia
– resale arrangements for North America (excluding Cuba), South America, Europe (excluding Belarus and Russia) and certain countries in Asia and Africa

Strength:
– Established market position supported by the extensive experience of the promoters
– Comfortable financial profile supported by healthy net worth of Rs 447 crore and interest coverage ratio of more than >8x
– Strategically located manufacturing facilities

Weakness:
– Exposure to cyclicality in end-user industries: The demand for the reactors and other products manufactured by the Standard Glass group remains susceptible to capital expenditure (capex) of the key end-user industries such as pharmaceutical and chemicals, which are cyclical.
– Working capital intensive operations and exposure to intense competition: Working capital requirements are large driven by large raw material and work in process inventory and high debtors’ levels. Significant delays in realization of receivables along with high inventory requirements results in an elongated working capital cycle

My take
– Standard Glass Lining is coming with IPO at upper price band of Rs.140 per share implying at PE of 39.7x. Compared with its peer group which match more with GMM Pfaudler and HLE Glascoat, the company is offering – shares a low valuation and that means a significant upside potential for listing
– GMP of Rs. 80 also suggest good listing gains potential
– Moreover, investment for long term also makes sense with company having significant market share (16%) of glass lined equipment market in India. With market growth anticipated in coming years this company will also grow in size and there is potential wealth generation opportunity

For complete details, please read the attached report below: