Sanstar Limited IPO Review – GMP, Financials And More

Sanstar Company is coming up with its IPO fresh issue of Rs. 397.10 crore and offer for sale worth Rs. 113.05 crores totalling Rs. 510.15 crore, which will open on 19th July 2024. The issue will close on 23rd July 2024 and be listed on the exchange on 26th July 2024. In this article, we will look at Sanstar limited IPO Review and analyze its strengths and weaknesses. Keep reading to understand about the company.

Contents

Sanstar Limited IPO Review – About The Company About The Industry Sanstar Limited IPO Review – Financial Highlights Sanstar Limited IPO Review – Key Players Strengths Of The Company Weaknesses Of The Company Sanstar Limited IPO Review – GMP Conclusion

Sanstar Limited IPO Review – About The Company

Sanstar Limited was incorporated in 1982. Sanstar is one of the manufacturers of plant-based speciality products and ingredient solutions in India. Their products include liquid glucose, dried glucose solids, native maize starches, maltodextrin powder, modified maize starches, dextrose monohydrate, and co-products like germs, enriched protein, fiber, gluten, and others.

Foods as ingredients, stabilizers, sweeteners, thickening agents, and additives (in creams, soups, ketchup, bakery products, pasta, and others),
Animal nutrition products as nutritional ingredients
Other industrial products such as coating agents, supplements, excipients, disintegrants, smoothing & flattering agents, binders and finishing agents, and others.

Sanstar has two manufacturing facilities across 10.68 mn sqft in Dhule in Maharashtra and Kutch in Gujarat. The company has diversified sales channels as it manufactures its products and sells them to its distributors.

About The Industry

India is in growing need of maize, as evidenced by an increase in crop area over the last 20 years and productivity gains from newly created, superior hybrid seeds. The maize starch business and local demand from animal feed manufacturers, together with generally low prices, are driving the expansion.

From 2019–20 to 2023–24, production grew at a 5.5% CAGR. Of all maize, the feed sector uses around 51% of it, and food consumption uses the remaining 29%. With only 1% of maize already being used for this purpose, biofuel generation from this crop is still in its infancy. Competitive prices are supported by domestic demand from the starch sector and feed makers.

Between 2023 and 2029, the Indian maize starch market is expected to grow at a CAGR of around 5.12%. In 2023, the market was valued at USD 3,121 million and had a volume of roughly 7.27 million tonnes.

Sanstar Limited IPO Review – Financial Highlights

Sanstar reported revenue from operations of Rs. 1,067.27 crores in FY24, down 11.43% from Rs. 1,205.06 crores in FY23. Net profits in FY24 were Rs. 667.67 crore, an increase of 59.71% from Rs. 418.05 crore in FY23. The decrease in material cost, reduction in power and fuel consumption, and other expenses have contributed to its profitability.

The company’s current borrowings contribute around 75% of the total borrowings. It projects the need for working capital for operations as the industry is a capital-intensive business.

The RoE in FY24 stood at 30.70%, improved from 27.71% in FY23. As the interest cost is high, RoCE is a more relevant metric to understand operational efficiency, and in FY24, the ratio stood at 25.31% compared to 23.67% in FY22.

Sanstar generates most of its revenue from the sale of products. They recognised their revenue segment under corn wet milling which is used to manufacture starch and its derivatives.

The company earned its operational revenue of 58.12% from Food related sector, 10.45% from animal nutrition, and the remaining 31.43% from Other Industrial Applications in FY24.

The company’s revenue exposure across geographies was 64.46% from India, (down 18.93% YoY), the remaining 35.54% from other regions, (up 4.43% YoY) in FY24.

Sanstar Limited IPO Review – Key Players

Sanstar ‘s listed peers are Gujarat Ambuja Exports Limited, Gulshan Polyols Limited, and Sukhjit Starch and Chemicals Limited. Compared to its peers, the debt to equity is around 0.50 compared to its peers which is the range of in India is around 0.07-0.65 in FY24. Sanstar is near to the higher side of the ratio. However, the ratio decreased YoY for Sanstar and its peers.

The EBITDA margin of Sanstar is around 9.20% in FY24, compared to its peer Sukhjit which is around 9.31%, and Gulshan Polyols’s 4.21%. Sanstar can maintain its margin near its competitor on the higher side.

Sanstar ‘s return on equity is around 30.92%, which is better compared to its peers. Sanstar’s RoE has outperformed its peers by a wide margin because the net worth of its peers is higher. The low base has helped Sanstar to earn better returns to its shareholders.

Strengths Of The Company

High Entry Barriers: The company operates in maize-based speciality products and ingredient solutions which include high costs of capital for building manufacturing facilities and R&D expenses. To achieve economies of scale the companies need to through sourcing raw materials from various suppliers.
Large, diversified customer base with long-term relationships: The company has served over 525 customers in FY24. Sanstar has also established long-term relationships where around 96 customers had placed repeated orders with them in each of the previous three fiscal years.
Management Experience: The company’s promoters have relevant exposure and understanding of speciality products and ingredient solutions and operations of the business.
Well positioned to leverage large opportunities in speciality segment: Sanstar has the experience and long-standing customers. There is a growing demand for raw material maize which is used for various purposes. The company’s main material is maize and any abundance is allowing millers to increase plant capacities.
Wide Global Presence: The company has sold its products across 49 countries across the world in FY24. The company’s top export destinations include Malaysia, Kenya, Indonesia, Nigeria, The UAE, Sri Lanka and others. They are a recognised two-star export house under the Indian Ministry of Commerce.

Weaknesses Of The Company

Fluctuation of raw material prices: The increase in raw materials can create pressure on their margins. The company is dependent on a few suppliers who are local farmers located near the manufacturing plant. In FY24, they procured around 16.03% from farmers and the remaining 83.97% from mandis. They usually do not enter into any contracts for the supply of raw materials.
Peak Inventory during harvesting: Sanstar from September to December, companies stock up the raw material and they require a significant amount of working capital during peak season. Any adverse effect from trade receivables or realising existing inventories can use credit facilities to fund the gap.
Financial Covenants: The company needs to obtain prior permission from its lenders before making any major decisions regarding the use of the loan amount.
Competition from Competitors: The pricing pressure from unorganised competitors can incur pressures on the margin and might lead to a loss of market share. Competitors from other regional markets can have significant advantages based on their procurement of materials and based on product diversification.
Raw Material Scarcity: Sanstar’s main raw material is maize. The raw material is used for ethanol, food and beverages, and other industries. This can create a supply shortage which directly leads to an increase in prices. Any adverse effect can put pressure on the business to procure its raw materials.