Emerald Tyre Manufacturers IPO

1. About the company..

• Emerald Tyre Manufacturers produces and supplies a range of tyres designed for material handling applications and provides services for them. The company's products are used on equipment such as forklifts, skid loaders, airport ground support vehicles, Port trailers, agricultural implements, lawn and garden mowers, mining machinery, aerial work platforms, and backhoe loaders.

2. Strengths

1. Emerald Tyre Manufacturer has an annual production capacity of 10,560 metric tonnes of tyres, tubes and wheels.

2. The company claims that the manufacturing facility it operates is capable of producing a diverse range of off-highway tyres under one roof. By managing the entire production processes, from raw materials to finished products, the company states that it ensures strict quality control and adherence to global standards.

3. The company's products are exported to international markets, including the USA, UAE, Russia, and several European countries such as Belgium, Germany, the Netherlands, Hungary, Portugal, Italy, Denmark, Poland, and the UK.

4. Emerald Tyre Manufacturers is ISO 9001:2015 for quality management systems and ISO 14001:2015 for environmental management systems. Additionally the company complies with the European Union's REACH standards.

5. The company has observed a consistent increase in revenue from operations and profit after tax(PAT). Revenue from operations increased from Rs. 133.64 crore in FY22 to Rs. 163.94 crore in FY23 to Rs. 170.99 crore in FY24, while PAT increased from Rs. 4.85 crore in FY22 to Rs.8.93 crore in FY23 to Rs. 12.23 crore in FY24.

3. Risks

1. Emerald Tyre Manufacturer's major revenue is generated from the company's key client. The top 1, 3, 5, and 10 clients contributed 26.47%, 49.01%, 55.32%, and 65.45% of total revenue from operations, respectively for the year ended July 31,2024. Any loss of these clients or a reduction in business from them can adversely affect the company's operations and finance.

2. The uninterrupted operation of the company's manufacturing facilities in Tamil Nādu is critical to its success. Any disruption at these facilities could create significant challenges, and negatively impact business continuity, financial performance, and overall operations.

3. As of July 31, 2024 the company had outstanding borrowings amounting Rs. 87.50 crores. Any inability to repay or service these loans can adversely affect the company's financial standings.

4. The company, its promoters, and one key managerial personnel are involved in certain ongoing legal proceedings. Any adverse judgement in any of these cases could be detrimental to its business prospects.

4. Financial position of the company as on March 2024.

1. Net profit - Emerald Tyre Manufacturing has consistently delivered strong profit growth year after year. The company’s profit has shown significant improvement over time: Rs. 1 crore in March 2021, Rs. 6 crore in March 2022, Rs. 10 crore in March 2023, and Rs.16 crore in March 2024.

2. Dividend Payout % - Until March 2023, the company had not declared any dividend payout, with a payout percentage of 0%. However, for the first time, the company will offer a dividend payout of 11% in March 2024.

3. Reserves - The company is increasingly focusing on growing its reserves. In March 2022, the reserves were Rs. 24 crore, which rose to Rs. 41 crore in March 2023, and was reached Rs. 52 crore in March 2024.

4. Borrowings - One concerning aspect in the financial statement is the continuous increase in the company's borrowings. In March 2022, borrowings stood at Rs. 67 crore, rising to Rs. 79 crore in March 2023, and expected to be Rs. 74 crore in March 2024. However, these borrowings could be strategically utilized by the company to boost operational activities and support its day-to-day operations.

5. Fixed Assets - The company's fixed assets have shown an upward trend. In March 2022, the value of fixed assets was Rs. 31 crore, which increased to Rs. 45 crore in March 2023, and was reached Rs. 54 crore in March 2024. The company is placing a greater focus on expanding its plant and machinery.

6. Inventories - A continuous increase in inventory indicates that the sales process may be slow or there is reduced demand for the company's products. In March 2023, the inventory was valued at Rs. 47 crore, and in March 2024, it rose to Rs. 50 crore.

7. Trade receivable - One of the red flags for the company is the continuous increase in trade receivables, indicating that the company may be struggling to collect payments from customers or facing a slow collection process. In March 2022, trade receivables were Rs. 36 crore, rising to Rs. 41 crore in March 2023, and Rs. 45 crore in March 2024.

8. Cash from Operating Activity - The company has shown strong performance in cash flow from operating activities. Cash flow from operations was Rs. 11 crore in March 2023 and Rs. 21 crore in March 2024.

5. Ratios

1. ROCE % - The company's ROCE percentage has been steadily increasing, reflecting strong performance over the past few years. In March 2022, the ROCE was 12%, which rose to 16% in March 2023, and is reached to 19% in March 2024.

2. Debtor Days - Debtor days were 107 days in March 2022, decreased to 99 days in March 2023, and are return to 107 days in March 2024.

3. Inventory Days - Inventory days were 208 days in March 2022, reduced to 190 days in March 2023, and are increase to 204 days in March 2024.

4. Days Payable - Days payable were 72 days in March 2022, slightly decreased to 71 days in March 2023, and increase to 85 days in March 2024.