Shree Tirupati Balajee Agro IPO today: 10 key risks you need to be aware of before investing in ₹170 crore issue

Shree Tirupati Balajee Agro Trading Company's initial public offering (IPO) opens for bidding today and will remain available to investors until Monday, September 9. Through this IPO, the company aims to raise ₹169.65 crore, which includes a combination of a fresh issue of shares and an offer for sale.

The price band for the IPO is set between ₹78 and ₹83 per share, with the minimum lot size for retail investors set at one lot, consisting of 180 shares. This means that retail investors will need to make a minimum investment of ₹14,940 to participate in the offering.

As the IPO launches today, potential investors must understand the key risks outlined by the company in its Red Herring Prospectus (RHP). In this article, we will break down some of the key risks.

From raw material costs to competitive pressures: 10 key risks 

Regional Concentration: The company's manufacturing facilities are situated at Pithampur, Madhya Pradesh, resulting in concentration in a single region. Any localised social unrest, natural disaster, production delays, shutdowns, or prolonged interruptions at these facilities could adversely affect its business, financial condition, and operational results.

Impact of Potential Plastic Product Bans: There is growing awareness towards controlling pollution, with many economies, including India, joining efforts to ban plastic products. If any of the plastic packaging products manufactured by Shree Tirupati Balajee Agro get banned in India or other export markets, it could have an adverse material impact on the company's performance.

Exposure to Foreign Currency Fluctuations: As a company heavily reliant on export revenue, it is exposed to foreign currency exchange rate fluctuations, which could harm its financial performance, impact cash flows, and cause its financial results to fluctuate.

Dependence on the Western Zone for Domestic Sales: The company derives a significant portion of its domestic sales, over 85 percent, from the Western zone. Any negative developments in this market could adversely affect its business.

Raw Material Cost Fluctuations: The company's primary raw materials, such as polypropylene granules, LDPE, and HDPE, make up a substantial portion of its total expenses. The business is vulnerable to fluctuations in crude oil prices, which directly affect polymer costs.

Additionally, risks related to foreign exchange movements during polymer imports, raw material price increases, supply shortages, and cost overruns could have adverse effects on its operations.

Risk of Increased Indebtedness: In addition to its existing indebtedness, it or its subsidiaries may incur further debt during the course of business. The company cannot assure that it or its subsidiaries will be able to service this existing or additional indebtedness.

Concentration in Bulk Packaging Products: The company's business is highly concentrated on the sale of bulk packaging products, particularly FIBC. This concentration exposes Shree Tirupati Balajee Agro to vulnerabilities, as any downturn or disruption in this segment could significantly impact its overall financial performance and stability.

Personal Guarantees by Promoters: The company's promoters have extended personal guarantees in connection with some of its debt facilities. The company cannot assure that these personal guarantees will continue to be provided or that they will not be called upon at any time, potentially affecting financial arrangements.

Legal Proceedings: The company mentions that it is involved in certain outstanding legal proceedings, including those involving its subsidiaries, group companies, directors, and promoters. Any adverse decisions in these proceedings could negatively impact the company's reputation, business, and financial condition.

Intense Competition in Fragmented Industry: Operating within fragmented industry segments exposes the company to competition from a diverse array of domestic and international players, ranging from large corporations to smaller entities.

The dynamic business landscape, coupled with competition from large corporations to smaller entities, could significantly impact the company's operations and financial conditions.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.