Global Surfaces Limited IPO: Detailed Analysis

Global Surfaces Limited IPO opens on 13 March: Check the detailed review

Global Surfaces IPO opens for subscription on 13 March. The company looks to raise up to Rs 155 crore through the public issue. Here are the details: 

Global Surfaces Limited IPO Details:

• Global Surfaces IPO Date: 13 March - 15 March 2023
• Global Surfaces IPO Price band: Rs 133 - Rs 140
• Global Surfaces IPO Issue Size: Rs 155.00 crore (Fresh Issue of 8,520,000 Equity shares and Offer for sale of 2,550,000 Equity shares)
• Reservation: QIB 50%, Retail 35%, NII 15%
• Minimum Investment: Rs 14,000
• Post Issue Implied Market Cap: Rs 564 crore – Rs 593 crore
• Bid lot: 100 shares, and in multiples of 100 shares

Global Surfaces Limited IPO: Issue objective

Global Surfaces proposes to utilize the Net Proceeds of the fresh issue towards funding the following objects:

• Investment in the wholly owned subsidiary, Global Surfaces FZE for part-financing it's capital expenditure requirements concerning the setting up of a manufacturing facility for engineered quartz at The Jebel Ali Free Zone, Dubai, United Arab Emirates (UAE).
• General corporate purposes.

Global Surfaces Limited IPO: About Global Surfaces

• Global Surfaces Limited has been engaged in processing natural stones and manufacturing engineered quartz for over three decades now.
• The company has two units, one located at RIICO Industrial Area, Bagru Extn, Bagru, Jaipur, Rajasthan, and the other at Mahindra World City SEZ, Jaipur, Rajasthan. Both units engage in the processing and manufacturing of the products.
• The products of Global Surfaces Limited have applications in flooring, wall cladding, countertops, cut-to-size, and other items. 
• The products are widely used for commercial and residential industries and are sold within and outside India.
• They are focused on exporting their products and have exported to the United States of America, Canada, Australia, and the Middle East.

Global Surfaces IPO: Product range

Below are some of the key products the company offers:

• Natural Stones: Natural stones are produced by complex geological processes and include many products such as granite, limestone, marble, slate, quartzite, onyx, sandstone, travertine, and others that are quarried from the earth. 
• Marble: Marble is the geological name for massive, compact limestone which is completely re-crystallized by heat and pressure that captures several foreign substances, thus creating a unique variety of colors and veining (minerals).
• Granite: Granite is an igneous rock, which, during its development, remains in the form of liquid magma in the center of the Earth.
• Quartzite: It is a non-foliated metamorphic rock composed almost entirely of quartz.
• Engineered Stones: It is a composite material formed out of crushed stone that is held together by an adhesive.
• Engineered Quartz: Quartz is a naturally occurring silicate mineral composed of silicon dioxide (SiO2). It is one of the most common and available minerals on the earth’s surface.

Global Surfaces IPO: Industry Overview

• Natural and Engineered stones can be bifurcated into various segments depending on their type, application, end-use industries, and region.
• In the year 2022, the natural stone segment is expected to account for a major 59% of the market share with $38,829 million while the contribution of the engineered stone segment stood at $26,917 million. 
• In projected years between 2022 and 2027, engineered stone is expected to grow at a higher CAGR of 67% as compared to natural stone which is expected to grow at a CAGR of 5-6%. 
• Commercial construction projects such as the construction of hotels, medical facilities, shopping malls, sports facilities, industrial structures, and retail & grocery stores are expected to grow at a lower CAGR of 6-7% as compared to a CAGR of 7-8% of the residential segment between 2021 to 2026. 

Global Surfaces IPO: Listed Peers

The principal elements of competition in this industry are quality, price, and range of the products offered. The large global players in the industry include Cosentino - Spain, Caesarstone Ltd. - Israel, Cambria - USA, and domestic players include Pokarna Ltd., ARO Granite Industries Ltd. Johnson Marble & Quartz Ltd., and Esprit Stones Pvt. Ltd.

Among these, the only listed peer with which its business can be compared is Pokarna Ltd. The comparison overview is as below:

• In terms of revenue (FY22), Pokarna is a much larger player.
• However, the RoNW of Global Surfaces is much higher.
• Earning Per Share (EPS) of Pokarna is 2.5 times more than that of Global Surfaces.

Global Surfaces IPO: Financials

• In terms of revenue for FY20, FY21, and FY22, the company has reported revenue of Rs 163.29 crore, Rs 175.39 crore, and Rs 190.31 crore, respectively. The revenue has grown at a decent pace in this period.
• The EBITDA for FY20, FY21, and FY22 was Rs 40.32 crore, Rs 47.43 crore, and Rs 41.80 crore, respectively. The EBITDA margin in the same period was 24.69%, 27.05%, and 21.97%, respectively.
• The profit for the same period was Rs 20.96 crore, Rs 33.93 crore, and Rs 35.63 crore, respectively. The profit has grown at a good pace in the period.
• For the last three financial years, the company reported an average EPS of Rs. 9.63 and an average RoNW of 30.20%. 
• If we annualize FY23 earnings and attribute it to post-IPO fully diluted paid-up equity capital, the asking price is at a P/E of around 21.84. We attribute FY22 earnings, the P/E stands at 16.67. 
• The debt-to-equity ratio has decreased year on year (last three years). It has fallen from 0.83 in FY20 to 0.28 in FY22.

Global Surfaces Limited IPO: Unique Selling Propositions

Consistent Growth: The company has grown from a single-category to a multi-category stone manufacturing company. The revenue from operations has grown from Rs 23.39 crore in Fiscal 2011 to INR 190.31 crore in Fiscal 2022, registering a CAGR of 21.04% in the last 11 years.  

Wide product portfolio and multiple designs: They started the business activities with the processing of natural stones and have since branched out to manufacturing engineered quartz which has enabled them to diversify their product portfolio manifold.

Established presence in international markets: The company’s philosophy has always been to manufacture and process quality products which in turn has helped them to build a sustainable export business. As of date, various regions of the USA are the primary focus in international markets. The export business constitutes 99.13%of operating revenue in the Fiscal 2021-22 and has grown at 21.60% CAGR over the last 11 years.

Effective quality checks, thereby reducing loss: They have developed quality control processes for inspecting the raw materials as well as the final products. The raw materials undergo a strict quality check and for this purpose, the company has even implemented internal procedures for procurement of the raw material as the quality of the final product is dependent on them.

Global Surfaces Limited IPO: Growth Potential

Increasing global footprint and augmenting growth in current geographies: To further diversify their customer base and increase market share, they intend to augment sales in the markets where they sell products as well as expand into new geographies. Over the last several years, the company has consistently expanded its customer network across the North American continent and this continues to be one of the core strategies of the company for the future.

Setting up strategically located manufacturing facility: They are in the process of setting up a manufacturing facility in Jebel Ali Free Trade Zone, Dubai, UAE through its wholly owned subsidiary which is scheduled to commission production by FY2023-24. 

Continue to add to product portfolio by introducing new designs: The company’s strategy is focused on introducing new product designs to meet the ever-changing demands of the market as well as garnering the attention of more end-users. 

Technology integration and plant automation to improve productivity: They have invested in the latest technology for manufacturing and processing and strive to continuously upgrade to the latest technology which ensures the delivery of high-quality products.

Global Surfaces Limited IPO: Risks

Limited customer base: The sales are concentrated on a few customers with the top 3 customers contributing 67.38%, 73.08%, 65.41%, and 60.11% respectively. and the top 10 customers contributing 83.63%, 86.04%, 82.77%, and 83.14% respectively, of revenues during the Fiscal 2020, 2021 and 2022 and the period ended September 30, 2022. The company does not have a long-term agreement with these customers and the loss of any top customers affects the financials.

No long-term agreement with suppliers: They do not have long-term agreements with suppliers for raw materials and an inability to procure the desired quality, and quantity of raw materials promptly and at reasonable costs, or all, may hurt the business.

Major part of the revenue from export to the US: They have historically derived a significant portion of revenues from exports to the United States of America. In FY22 and the period ended September 30, 2022, the revenue generated from exports to the USA represented 99.13%and 94.85%, respectively of operating revenue.

This is not investment advice. Investments in the securities market are subject to market risk, read all the related documents carefully before investing. Past performance is not indicative of future returns.