Standard Glass Lining Technology (SGLT), an engineering equipment manufacturer, is open for subscription till January 8. The IPO is a mix of fresh issue – ₹210 crore and offer for sale – ₹200 crore, totalling to ₹410 crore. As of close on January 7, on day 2 of the offer period, the issue has been subscribed 35 times.

Of the funds raised, ₹130 crore is intended to be used towards repayment or pre-payment of certain outstanding borrowings, ₹40 crore towards capital expenditure and ₹20 crore towards funding inorganic growth opportunities.

Incorporated in 2012, SGLT is into specialised engineering, primarily focused on the pharmaceutical and chemical sectors. Manufacturing largely customised products and present across the value chain from designing and engineering to installation, commissioning and turnkey solutions, the company has positioned itself as a one-stop shop.

At a PE of 46.5 times FY24 earnings and 38.5 times FY25 annualised earnings, the issue appears priced to perfection, with low margins of safety at current levels. Its closest peers – GMM Pfaudler and HLE Glascoat are trading at around 51 times and 70 times to their trailing 12-month earnings respectively. While SGLT is cheaper than peers on a relative basis, given current growth and business cyclicality risks, it is expensive on an absolute basis. Businesses focused on corporate capex, are cyclical businesses by nature and tend to see volatility in growth trends and margins when the capex cycle turns.

Given this, long term investors can wait and watch for now and not subscribe to the issue. We would however like to note that there might be listing gains given the strong subscription the issue has witnessed so far.

The business

SGLT’s product portfolio is broadly classified into three verticals – reaction systems, storage, separation and drying systems, and plant engineering and services.

These verticals manufacture products that are used by industries dealing with highly corrosive acids and chemicals, which require stainless steel or nickel alloy or PTFE coated or glass-lined equipments, as appropriate. SGLT is placed right in this mix, and it has also diversified into non-corrosive metal equipments too since FY22.

The company stands out from its peers by having plant engineering capabilities along with the typical equipment supply. It has already executed a handful of projects and expects this segment to pick up in the coming years.

While exports were insignificant (less than 1 per cent) until FY24, in H1 FY25, the same improved to 6 per cent. With agency, marketing, sale and distribution arrangements in place, SGLT has presence in Bangladesh, Russia, North America, South America, Europe and certain countries in Asia and Africa, the company is focussing on growing its export business too.

Though pharma continues to be the leading end-use sector, its share has consistently reduced with chemicals, food and beverages, fertilizers and biotechnology picking up pace. The company is also in the works to venture into oil and gas, petrochemicals and hydrocarbon segments.

The customer base looks diversified and includes 30 out of approximately 80 pharmaceutical and chemical companies in NSE-500 as of June 2024. The customer list includes the likes of Aurobindo Pharma, CCL Food and Beverages, Laurus Labs, Natco Pharma and Piramal Pharma. Per the management, around 50 per cent of equipment sold are customised, and repeat orders from its top 20 customers stood at 90 per cent, indicating good customer stickiness.

Primary raw materials are stainless steel, carbon or mild steel, nickel alloy, forgings, castings, chemicals and PTFE (polytetrafluoroethylene) powder and the company, in the absence of hedging, has a policy of placing orders for raw materials on order confirmation from customers, to escape volatility.

Operating metrics

FY24 saw a moderated growth of 9 / 14 / 12 per cent across revenue / EBITDA / PAT to ₹543.7 crore, ₹100.9 crore and ₹60 crore respectively, largely due to manufacturing bottleneck, which was resolved in H2 FY24. Topline and bottom-line in H1 FY25 is already at 56 per cent and 60 per cent of that of FY24.

Revenue / EBITDA / PAT have grown at a CAGR of 50 / 55 / 54 per cent over FY22-24. This was mainly on the back of acquisition of metal equipment business in December 2021 which added substantially to the topline in FY23. Adjusting for the same, revenue growth stands at a CAGR of 17 per cent during the same period. Acquisitions have been integral to the company’s growth, and it is to be seen how the recent acquisitions are scaled up.

EBITDA margin has improved sequentially from 16.8 per cent in FY22 to 18.8 per cent in H1 FY25. PAT margin shows a similar trend and is at 11.6 per cent in H1 FY25. This is on the back of improved product mix and enhanced capacity utilisation. While capacity utilisation, per the management, is at around 50 per cent now, the same is expected to improve with exports picking up.

SGLT claims a quicker order fulfilment cycle compared to its peers, which is made possible with the company maintaining higher inventories, and the company intends to keep it that way. As a result, the working capital cycle, was high at around 150 days for FY24. But this will remain a key monitorable.

Net debt to equity is negligible at 0.3 times as of FY24 and this is expected to further improve post-IPO.

Collaborations, historical inorganic growth

SGLT has strategic alliances, for providing private label arrangements, co-branding initiatives, and the supply of various components with HHV Pumps, a subsidiary of the Swiss industrial giant – Atlas Copco, and Asahi Glassplant (AGI), a leading Japanese glassline player. AGI is also a strategic investor with around 12 per cent stake in SGLT.

SGLT has also tied up with another Japan-based company, GL Hakko, for procurement of specified grades of glass for their glass lining division, alongside a supply and purchase agreement to manufacture shell and heat tube exchangers.

These partnerships are expected to help with technological expertise and leadership as it has in the past, while gaining access to overseas markets.

SGLT, in May 2023, acquired two firms engaged in the business of manufacturing, supply, installation and repair of PTFE lined pipes and fittings, adding to its product offerings.