Sanstar Limited (Apply for Listing Gains)

Highlights

Sanstar Limited (SL), incorporated in 1982, is one of the major manufacturers of plant-based specialty products and ingredient solutions in India for food, animal nutrition and other industrial applications.

Their products include liquid glucose, dried glucose solids, maltodextrin powder, dextrose monohydrate, native maize starches, modified maize starches and co-products like germs, gluten, fiber and enriched protein, amongst others.

Sanstar’s specialty products and ingredients solutions add taste, texture, nutrients and increased functionality to (i) foods as ingredients, thickening agents, stabilizers, sweeteners, emulsifiers and additives (in bakery products, confectionery, pastas, soups, ketchups, sauces, creams, deserts, amongst others), (ii) animal nutrition products as nutritional ingredients, and (iii) other industrial products as disintegrants, excipients, supplements, coating agents, binders, smoothing & flattering agents, finishing agents, among others.

The company is the 5th largest manufacturer of maize based speciality products and ingredient solutions in India and has 5 decades of presence. Santar has strong export network, they exported their products to 49 countries across Asia, Africa, Middle East, Americas, Europe and Oceania, during FY24.

Sanstar has an installed capacity of 3,63,000 tons per annum (1,100 tons per day), Their two manufacturing facilities, spread across a cumulative area of 10.68 million square feet (approximately 245 Acres) are located at Dhule in the state of Maharashtra and Kutch in the state of Gujarat.

Out of the total proceeds of Rs. 5,101 mn, Rs. 1,815 mn would go towards funding capital expenditure requirement for expansion of their Dhule Facility. Rs. 1,000 mn would go towards repayment and/or prepayment of all or a portion of certain outstanding borrowings availed by the company, ~Rs. 1,155 mn would be utilized for general corporate purpose and ~Rs. 1,130 mn would go towards existing selling shareholders of the company.

Key Highlights

• The Global maize-based speciality products and ingredients solutions industry is estimated to be valued at USD 45,195 mn in CY23 and is estimated to grow to USD 58,021 mn in CY9. Similarly, the Indian industry is estimated to be valued at USD 3,121 mn CY23 and is estimated to grow to USD 4,210 mn in CY29 showing a CAGR of 5.12 pct.
• Sanstar a recognised as a Two Star Export house from Director General of Foreign Trade, Government of India, while Sanstar Biopolymers Limited, the erstwhile company which was merged with the company, is a recognised Three Star Export House.
• Their manufacturing facilities are strategically located in terms of both proximity to raw material sources i.e. maize harvesting belts as well as seaports of Mundra, Kandla, Hazira and Nhava Sheva, for exports of their finished products.
• The company believes that their diversified product portfolio, established market position, commitment to quality and large capacities have enabled them to establish a strong market presence and has provided them with increased visibility domestically as well as globally.
• They believe that their presence in various markets reduces dependence on any single market and minimises the risk of any adverse developments or material changes in economic outlook in any single market. Through their experience in the speciality products and ingredient solutions industry and they have been able to add derivative products to their product portfolio which is expected to be one of the major drivers of their growth going forward.
• Their strategy is to (i) expand their manufacturing capacities to capture additional market share (ii) Leverage their industry-leading capabilities by continuing to diversify their customer base and increase wallet share with existing customers. (iii) Increase their global footprint and augment growth in current geographies (iv) Increase the revenue contribution from derivative products and scale up organic ingredients segment (v) Foray into manufacturing of Ethanol through leveraging their maize sourcing capabilities.
• Sales of the company has grown by ~45.96 pct CAGR during the period FY22-24 while EBITDA and profit grew ~57.20 pct CAGR and ~105.12 pct CAGR over the same period respectively. During FY24, company reported sales of Rs. 10,673 mn which fell by ~11.43 pct YoY s due to the planned boiler maintenance carried out during the months of January and February 2024 for a period of 20 days which affected capacity utilisation at their Kutch Facility consequently the production quantity and sales volume decreased by 1.91 pct and 2.20 pct YoY, while EBITDA increased by 35.49 pct YoY to Rs. 981 mn as EBITDA margin improved from 6.01 pct in FY23 to 9.20 pct in FY24. As of FY24 the company reported profit of Rs. 667 mn which was up 59.80 pct YoY.

Key Risk

• The company sells its products for specific use by certain industries. Any reduction in the demand or requirement of their products in such industries may result in loss of business.
• The primary raw material required by the company, i.e., ‘maize’ has an increased demand in different sectors such as feed manufacturers, ethanol manufacturers and Food and Beverage industry, which may put a strain on the supply of maize.
• Any restrictive change in the regulatory provisions governing the use of modified starches in India, American and European countries may have an adverse impact on Sanstar’s business.

Financial Performance

Peer comparison based on FY24 Financials

Valuation

Sanstar Limited is one of the major manufacturers of plant-based specialty products and ingredient solutions in India for food, animal nutrition and other industrial applications. It is the 5^th largest manufacturer of maize based specialty products and ingredient solutions in India and has 5 decades of presence with exposure to niche sector. At the upper end of the price band of Rs. 95, the issue is priced at a PE of 25.9x its FY24 earnings. The issue looks fully priced. However, one can subscribe for listing gains.

Also read: Evolving Landscape of Financial Advisory in India

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