IPO

Founded in 1982, Tolins Tyres is a tyre manufacturer of bias tyres used in a comprehensive range of vehicles, including light commercial, agricultural, and two- and three-wheeler vehicles as well as precured tread rubber. Ancillary products include bonding gum, vulcanizing solutions, tyre flaps, and tubes.

The business is divided into two main verticals: new tyre manufacturing and tread rubber production. Tyre retreading solutions are offered in India and exported to 40 countries, including the Middle East, East Africa, Jordan, Kenya, and Egypt. Exports contributed 5.38% to consolidated revenue, while the domestic market accounted for 94.62% in FY 2024.

Revenue stood at Rs 51 crore from sales of new tyres, which accounted for 24% of the total sales, in FY 2024. Revenue from tread rubber made up the remaining 76% of the total sales.

Product are marketed as Tolins Tyres. They cater to all three segments of market: exports, domestic sales and OEMs including Marangoni GRP, Kerala Agro Machinery Corporation (KAMCO), Redlands Motors, and Tyre Grip. The market share of tyres is 0.06% and retread tyres 2.73% in in India.

Products are sold through a dealership network and depots. There were eight depots and 3,737 dealers across the country end March 2024.

There are 163 stock keeping units (SKU) in the tyre category and 1,003 SKUs in tread rubber. This catalogue has been built over the decades to fit in with market requirements and to fulfil customer requirements.

Over the years, the manufacturing capabilities have been expanded through infusion of capital from the promoters, in addition to growing the dealer and distribution network.

Of the three manufacturing facilities, two are at Mattoor, Kalady, Kerala. The third is in the Al Hamra Industrial Zone in Ras Al Khaimah, UAE. There is an in-house design development team responsible for production and quality testing at various stages, from receiving raw materials to the final products. The consolidated manufacturing capacity across the company and subsidiaries is 1.51 million tyres, producing 12,486 tons of tread rubber and generating 17,160 tons of rubber compound.

There is a dedicated R&D Centre inside the factory at Kalady, Kochi, Kerala. The company spent Rs 22.9 lakh, Rs 21.3 lakh and Rs 19.8 lakh on R&D expenses, respectively in FYs 2024, 2023 and 2022, representing 0.10%, 0.18% and 0.17% of its total revenue, respectively.

The average capacity utilization is around 33.40%. The intention is to increase the capacity utilization progressively in the next few years to go up to 75%. The focus products for capacity utilization would be off-the-road highway, agricultural and industrial segments besides aggressively addressing the ever-growing market of two and three wheelers.

Global presence and domestic reach are to be expanded. Additionally, the product range is being broadened by introducing new variants and entering the radial tyre market.

Various quality certifications received include ISO 9001:2015 and IATF 16949:2016 issued by UK Certifications.

Offer and its objects

The IPO comprises a fresh issue of equity shares worth up to Rs 200 crore and an offer for sale (OFS) totaling Rs 30 crore by existing shareholders Dr. Kalamparambil Varkey Tolin and Jerin Tolin.

The price band of the IPO is Rs 215 to Rs 226 per equity share of face value Rs 5 each.

The objectives of the fresh issue include Rs 69.96 crore to be used for repayment and/or prepayment of certain outstanding loans, Rs 75 crore for augmenting long-term working capital requirements, Rs 23.15 crore for investment in wholly owned subsidiary Tolin Rubbers, and for general corporate purposes.

Promoters Dr Kalamparambil Varkey Tolin and Jerin Tolin and the promoter group holds an aggregate of 2,84,00,899 equity shares, aggregating to 92.64% of the pre-offer issued and paid-up equity share capital. Their post- IPO shareholding is expected to be around 68.53%.

The issue, through the book-building process, will open on 9 September 2024 and will close on 11 September 2024.

Strengths

Impressive financial performance, with profit after tax (PAT) increasing from Rs 0.63 in FY2022 on a standalone basis to Rs 26.01 in FY2024 on a consolidated basis.

Backward integrated with raw materials, design, process engineering, casting and machining capabilities, allowing greater control over process, timelines, pricing and quality.

The location of the manufacturing facilities in India is strategically close to the raw material source of natural rubber and infrastructure such as airports, seaports and national road network, giving a competitive edge to address the market requirements.

Has long-standing relationships with several Indian and global clients, such as Marangoni GRP, Kerala Agro Machinery Corporation Ltd (KAMCO), Redlands Motors, and Tyre Grip, helping to understand customer requirements better and contributing to a stable revenue stream.

Indian tyre exports are projected to grow significantly due to increasing global demand, anticipated interest rate cuts, advancements in technology, and competitive pricing. The focus on expanding geographical presence and an increased capacity in place can meet the demand.

Adding new and adjacent product verticals can be used to leverage increased cross-selling opportunities. The approach broadens the product offerings to meet diverse customer needs.

Extensive experience of promoters and senior management personnel.

Weaknesses

The tyre manufacturing industry is facing challenges due to a limited number of suppliers for key raw materials such as natural rubber and carbon black. Sourced 29.07% of the total requirement of rubber compounds from Tolin Rubbers, the wholly owned Indian subsidiary, as of 31 March 2024. The high dependence on subsidiaries. Volatility in raw material prices carries significant operational and financial risks.

The sale of products is primarily concentrated in Kerala. Revenue from product sales in Kerala accounted for 46.71%, 66.91%, and 63.33% of total consolidated revenue in FY 2024 and standalone revenue in FY 2023 and FY 2022, respectively. Any adverse developments affecting operations in this region could have a significant impact on the business.

Derived a significant 72% portion of revenue from products sold to dealers and distributors in FY 2024. There are no formal contracts in place with these distributors and dealers.

The flagship and subsidiaries Tolin Rubbers and Tolins Tyres LLC reported negative operating cash flows in the past. Continued negative cash flows in the future could potentially lead to tighter credit terms.

The trademarks are registered in the name of promoter Dr. Kalamparambil Varkey Tolin. The arrangement could lead to complications if there are disputes or changes in the management, potentially affecting the protection and control of intellectual property.

Faces intense competition from domestic and multinational corporations.

There have been instances of delays in the payment of statutory dues by the parent and Indian subsidiary Tolin Rubbers in the past. Such delays could lead to regulatory actions and penalties.

Valuation

Consolidated sales increased by 92.16% to Rs 227.22 crore in FY 2024 as compared with standalone sales in FY2023. The OPM expanded 1,005 bps to 20.41%, leading to 278.41% higher OP to Rs 46.48 crore. OI rose 2.93% to Rs 1.48 crore. Interest cost went up 129.22% to Rs 11.58 crore. Depreciation increased 108.86% to Rs 3.37 crore. PBT spurted 368.49% to Rs 32.9 crore. Tax expenses were Rs 6.89 crore as compared with Rs 2.04 crore in FY2023. Net profit surged 421.45% to Rs 26.01 crore.

The TTM EPS on post-issue equity works out to Rs 5.06. At the upper price band of Rs 226, the P/E works out to 45.

The total outstanding borrowings were Rs 101.32 crore on a consolidated basis as of 23 August 2024. The plan is to repay 69% of the debt using the issue proceeds. This will significantly reduce interest costs and boost profits. The FY2024 EPS would be Rs 6.62 if 69% of the interest cost is eliminated, assuming all other factors, including the tax rate, remain unchanged. The adjusted P/E ratio, at the upper price band, moderates to 34.

Listed peers such as Indag Rubber traded at TTM P/E of 44, Vamshi Rubber at TTM P/E of 32, TVS Srichakra at TTM P/E of 33, and GRP at TTM P/E of 72 as on 04 September 2024. The OPM and ROE stood at 20.41% and 25.87%, respectively, in FY 2024 as compared with 7.05% and 7.38% for Indag Rubber, 4.21% and 4.46% for Vamshi Rubber, 10.14% and 9.70% for TVS Srichakra, and 10.99% and 13.57% for GRP respectively.

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