Arunaya Organics Ltd. IPO: Key Details

Arunaya Organics

• Arunaya Organics is coming out with an initial public offering (IPO) of 58,60,000 equity shares in a price band Rs 55-58 per equity share.
• The issue will open on April 29, 2025 and will close on May 2, 2025.
• The shares will be listed on SME Platform of NSE.
• The face value of the share is Rs 10 and is priced 5.50 times of its face value on the lower side and 5.80 times on the higher side.
• Book running lead manager to the issue is Unistone Capital.
• Compliance Officer for the issue is Tanvi Patel.

Profile of the company

Arunaya Organics started its operation in dye industry in the year 2010. The company engaged in trading and manufacturing activities of different types of dyes and its intermediaries. A significant portion of its revenue is generated from outsourcing its key function i.e. manufacturing of its finished product from its group company Chinmay Chemicals Private Limited. It supplies a comprehensive range of products, including reactive, acid, direct, basic, and solvent dyes, as well as dye intermediates. Its products are available in multiple forms, such as standardized spray-dried and tray-dried powders, granules, crude, reverse osmosis-treated products and salt free. 

Additionally, it provides specialty performance chemicals tailored for the paper industry and textile dyeing. Its diverse product portfolio is designed to cater to both domestic and international markets. Its production facility, located in Ahmedabad, Gujarat, has an annual capacity of around 30 metric ton per annum. It is committed to maintaining high standards of quality and environmental management, as evidenced by its ISO 9001:2015 and ISO 14001:2015 certifications.

The company’s manufacturing facility is equipped with the essential infrastructure for raw material storage, product manufacturing, and finished goods storage, all supported by quality control measures. Strategically located in Naroda, Ahmedabad, the company’s facility leverages proximity to Mundra Port and ICD Ahmedabad, enabling logistics for product distribution, raw material procurement, and seamless access to its customers. 

Proceed is being used for:

• Setting up of a new manufacturing facility located at D-3/26/3, Dahej III, Industrial Estate, Dahej-392 130, Vagra, Bharuch, Gujarat (Proposed Greenfield Project)
• Funding working capital requirements of the company
• General corporate purposes

Industry Overview

India is the world leader in dye manufacturing, accounting for 16%-18% of global dyestuff exports. The Indian Dye is exported to 90+ countries. From (April-September) 2023-24 (Provisional), the export of agrochemicals was $1.70 billion, dyes were $867 million and the other dye intermediates were $62 million. The import of agrochemicals was $738 million, dyes were $120 million and the other dye intermediates were $522 million during (April- September) 2023-24 (Provisional). India holds a strong position in international trading of chemicals and ranks 9th in exports and 6th in imports at a global level (excluding pharmaceuticals). India is among the top chemical exporting countries in the world. India exports inorganic and organic chemicals, tanning and dyes, agrochemicals, plastics, synthetic rubber, filaments, etc. In FY23, exports of major chemicals and petrochemical products stood at $23.8 billion. The surge in chemical exports has been achieved because of sustained efforts on the part of the Department of Commerce & Industry and Indian member exporters.

India’s chemical exports promotion council, has also made major efforts by using grants in aid under the market access initiative scheme, organizing B2B exhibitions in different countries, exploring new potential markets through product-specific marketing campaigns with the active involvement of Indian embassies, providing financial aid in statutory compliance in overseas product registration, etc. This export growth has been achieved despite issues like high freight rates and container shortages which has benefitted small and medium exporters from key states like Gujarat, Maharashtra, Karnataka, Tamil Nadu, and Andhra Pradesh. In FY24 (Until August 2023), the exports of major chemicals and petrochemicals stood at $8.4 billion. In FY22, India’s total chemical products exports were valued at $24.31 billion, an increase of 38.67% YoY. The export growth of chemicals has been achieved because of a surge in shipments of organic, and inorganic chemicals, agrochemicals, dyes and dye intermediates and speciality chemicals.

Exports of Chemicals and Chemical products (excluding pharmaceutical products and fertilizers) contributed 11.7% of total export in the year 2021-22 compared to 12.9% in the year 2020-21. It contributed 10.8% of total export in the year 2022-23 (up to Sept 2022). CAGR in Export of total Chemicals and Chemical products (excluding pharmaceutical & fertilizer products) during the period 2017-18 to 2021-22 was 13.86% while CAGR of total national export was 12.62%. The compounded average growth rate (CAGR) during the period 2017-18 to 2021-22 was 4.4% for manufactured product based on WPI while it was 4.4% for Chemicals and Chemical Products. Going forward, the market size of Chemicals & Petrochemicals sector in India is around $215 billion; expected to grow to $300 billion by 2025. 

Pros and strengths

Wide product portfolio: The company has varied products for dye industry in the market and multiple product categories such as Acid Dye, Basic Dye, Direct Dyes or Substantive Dye, Solvent Dye, Intermediate, and Reactive Dye. It offers over six types of dyes, each with various colour options to meet customer preferences. Additionally, it provides customized solutions tailored to specific needs, enabling it to serve a broad range of customers and applications effectively. Its constant efforts are focused towards continuously identifying market demands and introducing relevant products with high quality.

R&D capability: Research, Development and Quality Control are pillars of the continued growth over the years. It gives equal importance to both these areas as one i.e. R&D leads to new product development required for growth of its business and profitability, whereas the other i.e. QC to achieve customer quality standards for the continued supply of products required by the end user industries. Once it has achieved development of a product in its RD Laboratory, achieving commercial scale with the available equipment is another challenge. Product development on a commercial scale with the QC meeting customer and prescribed standards requires coordination between these functions to ensure that the new products developed are able to scale up, meeting customer quality requirements.

Quality Assurance: The company is committed to upholding the highest standards of quality across its products, processes, and materials. It holds ISO 9001:2015 certification for its Quality Management System, which covers the manufacture, supply, and export of dyestuffs and intermediaries. Additionally, it is accredited with ISO 14001:2015 for its Environmental Management System in the same areas. Its adherence to the quality standards is key to achieving consistent results. Timely delivery of quality products is a core objective, and it allocates significant resources to quality assurance to ensure that its standards are consistently met.

Risks and concerns  

Maximum revenue comes from limited customers: The company is engaged in the business of trading and manufacturing of dyes for various industries. It is dependent upon its long-term customers. The company has garnered 72.86%, 77.73% and 76.22% of its total revenue from its top 10 customers in FY24, FY23 and FY22 respectively. Currently, the company lacks any long-term or exclusive agreements with its customers, leaving it unable to guarantee the continuation of historical sales volumes to these parties. If its competitors offer better margins or incentives, there’s no assurance that its customers will maintain their orders with it. Typically, its transactions with customers operate on a purchase order basis without a fixed volume commitment, further exposing it to uncertainty regarding future orders. Moreover, there’s no guarantee that its customers will adhere to existing terms or continue placing orders with it. Any changes in customer business practices or terms, including payment terms, could significantly impact its business, financial operations, operational results, and cash flow.

Geographical constrain: The company’s existing and proposed manufacturing units are located within the state of Gujarat, India. Its manufacturing operations and consequently its business is dependent upon its ability to manage the unit, which is subject to operating risks, including those beyond its control. In the event of any disruptions at its unit, due to natural or man-made disasters, workforce disruptions, delay in regulatory approvals, fire, failure of machinery, lack of continued access to assured supply of electrical power and water at reasonable costs, changes in the policies of the states or local government or authorities or any significant social, political or economic disturbances or civil disruptions in and around Gujarat its ability to manufacture its products may be adversely affected.

Significant working capital requirement: The company’s working capital needs for a specific period are influenced by various factors, such as the size and timing of orders to be fulfilled, the size of the order backlog, and customer payment terms. Based on historical trends, it anticipates a significant increase in its working capital requirements. The company’s business requires funds towards working capital requirements. In case there are insufficient cash flows to meet its working capital requirement, or it is unable to arrange the same from other sources or there are delays in disbursement of arranged funds, or it is unable to procure funds on favourable terms, at a future date, it may result into its inability to finance its working capital needs on a timely basis which may have an adverse effect on its operations, profitability and growth prospects.

Outlook

Arunaya Organics is engaged in the manufacturing and exporting of specialty dyes and intermediates. The company has garnered a strong reputation for delivering high-quality chemical products across various industries, including textiles, paints, plastics, mining, and food processing. The company has strong R&D capability and also has wide product portfolio. On the concern side, the company is dependent on a few customers for a major part of its revenues. Further it does not enter long-term arrangements with its customers and any failure to continue its existing arrangements could adversely affect its business and results of operations. Moreover, the company does not have any long-term agreements with its raw material suppliers. If it faces difficulties in obtaining the necessary quality and quantity of raw materials in timely manner and at fair prices, or if it fails to secure them altogether, it could detrimentally affect its business, financial performance, and cash flow.

The company is coming out with a maiden IPO of 58,60,000 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 55-58 per equity share. The aggregate size of the offer is around Rs 32.23 crore to Rs 33.99 crore based on lower and upper price band respectively. On performance front, the company’s revenue from operations the financial year 2023-24 is Rs 6,223.32 lakh compared to the previous financial year’s revenue of Rs 7,585.02 lakh. The reason for the decrease in revenue is majorly due to decline in export sales due to less global demand for its industry products. Moreover, the Profit After Tax (PAT) for the financial year 2023-24 reached Rs 405.68 lakh, marking a notable increase from Rs 173.44 lakh in the financial year 2022-23.

The company currently sources Amino C Acid, J ACID, Mixed Cleves Acid, J Acid Urea from the third-party suppliers or imports it, which is a raw material used for manufacturing dye. In its effort to enhance operational efficiency and cost-effectiveness, it plans to implement backward integration by producing Amino C Acid, J ACID, Mixed Cleves Acid, J Acid Urea- which is essential the raw material for Paper dyes at its new manufacturing facility. This strategic move aims to reduce its dependency on external suppliers and imports. By producing Amino C Acid, J ACID, Mixed Cleves Acid, J Acid Urea in-house, it expects to lower its material costs. Consequently, this reduction in expenses will lead to a decrease in its overall production costs. This enhanced cost efficiency is expected to provide it with a competitive advantage in the market, allowing it to offer more competitive pricing and improve its profit margins.