Sanstar IPO: 10 key risks investors should know before subscribing to the ₹510-crore issue

The Sanstar IPO, worth ₹510 crore, commenced for subscriptionon July 19 and will close on July 23. The price band for the shares is ₹90 to ₹95.

The Ahmedabad-based company's proposed initial public offering consists of a new issuance of 4.18 crore shares and an offer for sale (OFS) of 1.19 crore shares. At the top of the pricing band, the IPO size is set at ₹510.15 crore.

The proceeds of the offer, totalling ₹181.55 crore, would be utilised to cover the capital expenditure required for the development of the company's Dhule facility, ₹100 crore for debt repayment, and a portion for general corporate reasons.

Sanstar is a leading manufacturer of plant-based specialty goods and ingredient solutions in India.

The company's specialty goods and ingredients, such as ingredients, thickening agents, stabilisers, and sweeteners, enhance the flavor, texture, nutrition, and usefulness of meals.

It has an installed capacity of 1,100 tons per day from its two manufacturing plants in Dhule, Maharashtra, and Kutch, Gujarat.

The firm exports its products to 49 countries in Asia, Africa, the Middle East, the Americas, Europe, and Oceania, and it has developed a foothold in India, distributing to 22 states.

Sanstar's operating revenue climbed at a CAGR of 45.46 percent to ₹1,067.27 crore in FY24 from ₹504.40 crore in FY22, while profit after tax increased to ₹66.77 crore in FY24 from ₹15.92 crore in FY22.

Here are some of the key risks listed by the company in its Red-Herring Prospectus (RHP):

• Any volatility in raw material costs may have an unfavorable effect on their product pricing, as well as their business, operational results, financial position, and cash flows.
• The company has not entered into any long-term contracts with suppliers for raw materials, and an increase in the cost of, or a shortage of, such raw materials, or their inability to leverage existing or new relationships with their suppliers, could have a negative impact on their business and operating results.
• During the peak arrival season of maize harvesting, the Company purchases and stockpiles large amounts of maize, which is the principal raw material necessary for the creation of their products, necessitating a substantial amount of working capital. Their inability to achieve the stated working capital need during the peak maize harvesting season may have a negative impact on their operating performance and overall business.
• There are pending lawsuits regarding their company. Any negative order or conclusion in such processes may have an impact on their operational outcomes.
• The company's proposed plans for funding the capital expenditure requirement for the Dhule Facility expansion are subject to the risk of unanticipated delays in obtaining approvals, implementation, and cost overruns, which could have a negative impact on their business and operations.

• Any delay or closure of their production activities at their production Facilities may have a negative impact on their business, financial situation, and operational outcomes.
• The firm exports its products to a variety of destinations across the world. Their products may be subject to import tariffs or limitations in the relevant markets. Furthermore, any adverse fluctuations in the foreign currency rate, the absence of any fiscal benefits, or their failure to comply with associated obligations may have a negative impact on their business and results of operations.
• The firm has yet to issue purchase orders or sign into a memorandum of understanding for the majority of the plant and machinery required for the anticipated expansion of our Dhule facility. If there is a delay in placing the balance purchase orders, or if the sellers are unable to furnish the equipment/machinery or complete the civil building and construction work on schedule or at all, the project may be delayed and cost overrun.
• The company's failure to successfully manage its growth or implement its growth initiatives may have a significant negative impact on its business prospects and future financial performance.
• The company's financing arrangements restrict its operations, and failing to comply with operational and financial covenants may have a negative impact on its business and financial situation.

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