In today’s Finshots, we take you through a simple explainer on the ongoing IPO of Barflex Polyfilms.

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Now, on to today’s story.

The Story

Polyfilms. You may not hear about them much, but they’re absolutely everywhere — in your food packaging, medical supplies and even industrial applications. These are thin, flexible films made of polymer that have revolutionised how goods are stored, transported and consumed. Essentially, they act as a protective layer, enhancing durability and preserving freshness by creating a barrier against moisture, air and contaminants.

And now, Barflex Polyfilms Limited, a player in this industry, is stepping into the spotlight with its SME IPO on the NSE EMERGE platform.

But before we break down the IPO itself, let’s first understand the industry that Barflex operates in.

See, polyfilms are essential in sectors like food and beverage, pharmaceuticals and FMCG, where maintaining product freshness and safety is critical.

Globally, the polyfilm market is projected to grow at a CAGR of about 5% between 2024 and 2030, fuelled by increasing demand for packaged foods and innovative applications in healthcare. The Asia Pacific region holds the lion’s share in this industry at about 52%. And India, with its rising middle class and urbanisation, is experiencing even faster growth, creating ample opportunities for manufacturers like Barflex Polyfilms.

But what does Barflex Polyfilms do, you ask?

For starters, the company was established in 2005, and specialises in producing BOPP (Biaxially Oriented Polypropylene) films and CPP (Cast Polypropylene) films. In simpler terms, BOPP films are often used for snack packaging because of their clarity and strength, while CPP films are favoured for applications requiring high heat resistance and flexibility, such as bakery, candies, or frozen food wraps. These products are tailored to meet the diverse needs of industries ranging from snack packaging to industrial wraps. And Barflex operates three manufacturing units in Himachal Pradesh and caters to a wide domestic and a small export clientele majorly in the processed foods, FMCG and adhesive industries.

That brings us to the IPO itself. The company plans to issue 20.53 lakh new shares, raising ₹12.3 crores, and the promoters are selling 45.16 lakh shares in an offer for sale (OFS), adding another ₹27.1 crores. All in all, that’s 65.69 lakh shares up for grabs. And most of the money from the fresh issue will go towards ramping up manufacturing capacity and keeping the business running smoothly with working capital, while the rest will take care of general corporate needs.

And why should you be interested in Barflex Polyfilms as an investor?

Well, for one, the company knows how to play to its strengths. It has mastered the art of producing high-quality, customisable films at competitive costs. And here’s where it gets exciting. Its solid foothold in the booming FMCG and pharmaceutical packaging sectors as well as widespread market presence in India gives it a front-row seat to industry growth.

But it’s not stopping there. Barflex has got big plans to expand its existing product portfolio. Currently operating at best capacity with its 3 and 5-layer COEX films, the company is set for an ambitious expansion into advanced 7-layer COEX films, and e-commerce packaging—segments with immense growth potential. You see, COEX films, or co-extruded films, combine multiple material layers during production, each serving a specific purpose. The more layers, the more advanced the applications. So with a 7-layer COEX film machine said to be operational by March 2025, Barflex aims to enhance product performance and cut costs.

So these moves aren’t just about keeping up, they’re also about staying ahead, fortifying their presence in traditional sectors like FMCG and pharma, while also making a mark in the packaging space.

However, it’s essential to weigh the risks too. You see, the company operates in a highly competitive market with price-sensitive customers. Raw material prices, particularly polypropylene, are volatile and could squeeze margins. This volatility arises because polypropylene, a derivative of crude oil, is subject to fluctuations in global oil prices and supply chain disruptions. Additionally, Indian polyfilm manufacturers often operate on razor thin margins to remain competitive, given the influx of cheaper imports and high domestic competition. These factors make cost efficiency and scale critical for survival and growth in this sector.

Plus, the company’s financials reveal a modest revenue growth trajectory, and any delay in executing its expansion plans - which still need concrete commitments - could impact future prospects.

If you take a closer look at the numbers, in FY24, Barflex reported revenue of ₹11,023 lakhs and a net profit of ₹1,623 lakhs, with a profit margin of approximately 14%. Its debt has been declining, indicating a manageable leverage level, while return on equity (RoE) stands healthy at about 20% levels. These figures paint a picture of a stable growth story so far.

Here’s how the company stacks up against its peers...

So, is Barflex Polyfilms IPO worth considering?

Well, if you’re keen on tapping into the rapidly growing packaging industry and don’t mind the ups and downs that come with investing in SMEs, this IPO might be worth a closer look.

Remember though that the company is giving up quite a bit of its stake in this IPO. The promoter group’s shareholding will drop from a hefty 92.6% before the IPO to 66.7% after it wraps up. The selling shareholders in the OFS include Mr. Jaiwant Bery (the MD) and Mrs. Nomita Bery (non-executive director), collectively offering up to 45.16 lakh shares and one could question why the owners might offload their skin in the game when the company is projected to grow with new launches instead of relying on debt.

Raw material volatility and execution risks could also make this a bumpy ride. Stock movements in this industry often mirror macroeconomic shifts. Another interesting point to note is that the demand for polyfilms is increasingly influenced by sustainability trends. Companies leading with biodegradable and recyclable innovations tend to command premium valuations. And heavy reliance on a few FMCG and pharma giants for revenue heightens risks. A diversified client base and the ability to pass on raw material costs fluctuations can greatly impact profitability and stock stability in this space.

So yeah, what do you think? Is Barflex Polyfilms worth adding to your portfolio, or will you wait for more clarity on its growth trajectory? Let us know.

Until next time…

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