HP Adhesives IPO: Information analysis

Starting its journey as a partnership firm in 1987, this multi-product adhesive and sealant company came into being as a full-fledged company in May 2019. It is involved in manufacturing a wide range of adhesives and sealants, such as PVC, cPVC and uPVC solvent cement, synthetic rubber adhesive PVA adhesives, silicone sealant, acrylic sealant and PVC lubricants. Adhesives and sealants are used in various industries such as plumbing, sanitary, water distribution, construction, interior operations, footwear, automotive and so on. Besides, the company sells ancillary products such as ball valves, FRP products, thread seals and other tapes.

As of FY21, the company had 295 SKUs (stock-keeping units) in PVC, CPVC and UPVC solvents, 16 SKUs in silicone sealants and 75 SKUs in PVA adhesives. With its multi-product manufacturing unit located in Maharastra and four depots with 750 distributors in four states, the company distributes its products across the country. It exports its products to 21 countries, including the US, the UK, the Philippines, Qatar and Saudi Arabia. Of its total sales for FY21, exports accounted for 17 per cent. On the other hand, a major portion of its revenue comes from PVC, cPVC and uPVC solvent cement, together contributing 70.4 per cent to the FY21 revenue.

In India, the PVC adhesives industry is expected to grow at a CAGR of 11 per cent and out of this, PVC and UPVC adhesives are expected to grow at 10 per cent and CPVC is expected to grow at 15 per cent during 2022-2026. Since these products are used in various industries, economic growth is expected to result in an increase in their applications.

Strengths

1) Consistent growth: Starting its journey as a single-product company, it later emerged as a multi-product company on the back of its consistent expansion and distribution network. Over the last 11 years, its revenue from operations has grown at a massive 37.5 per cent CAGR to Rs 118.2 crore from Rs 3.6 crore. During the same period, exports have grown at 17.5 per cent CAGR.

2) A diversified customer base: The company gets almost 70 per cent of its revenue from distributors but each distributor contributes not more than 5 per cent to its total revenue. Besides, it exports to 21 countries and caters to a large base of buyers.

3) Applications in various industries: PVC, CPVC and UPVC adhesives are important components in various industries such as automobile, footwear, construction, plumbing and more. It helps the company find new areas to sell its products easily.

Weaknesses

1) Price fluctuation of raw materials: Its raw materials are mainly derived from crude oil. As the company does not have any long-term contract with its raw-material suppliers, any huge fluctuations in price will increase the costs of raw materials, thereby casting a shadow on the company's margins.

2) Geographical concentration: The company gets almost 47 per cent of its revenue from western India. Any adverse development in the economic conditions or distribution activities may affect its topline drastically.

3) A highly competitive industry: The industry is highly competitive, with Pidilite Industries having almost 65 per cent market share. There are both organised and unorganised players in the industry, which can make it difficult for the company to compete and grow.

Also, read about HP Adhesives IPO: How good is it? to learn how we evaluate HP Adhesives on various metrics.

Disclaimer: The author may be an applicant in this Initial Public Offering