Sanstar Limited
Company
| Website 🔗 |  |
| Business Activity | Manufacture |
| Division | Food Processing |
| Sub-class | Speciality Starches |
| Location | HQ – Ahmedabad, Gujarat Units – Dhule, Maharashtra Kutch, Gujarat |
| Establishment Year | 1982 |
Management
| Managing Director | Gouthamchand Sohanlal Chowdhary |
| Educational Qualifications | Schooling from Monfort School, Yercaud, Tamil Nadu |
| Experience | Director and Chairman of the Board since February 22, 2012. Served on the board of Sanstar Biopolymers Limited (merged with Sanstar Limited) for 38 years since September 27, 1985. |
| Annual Salary | ₹ 120 Lakhs |
| Total Number of Employees | 60 |
About
Sanstar Limited utilizes maize as its primary raw material to produce a diverse range of products, including native and modified starches, derivatives (liquid glucose, dried glucose solids, maltodextrin powder, dextrose monohydrate), and co-products (germs, gluten, fibre, enriched protein).
These products find applications in various industries such as food, animal nutrition, pharmaceuticals, and other industrial sectors.
Products:
Native Maize Starch:
Used in various food applications like custard, desserts, sauces, and bakery products, as well as in pharmaceuticals.
Modified Maize Starch:
Chemically or enzymatically treated starch with enhanced properties, is used in pharmaceuticals, paper, and other industrial applications.
Derivatives:
Products like liquid glucose, dried glucose solids, maltodextrin powder, dextrose monohydrate, and liquid sorbitol, are used as sweeteners, texture enhancers, and functional ingredients in food, pharmaceuticals, and other industries.
Co-products:
Germ, gluten, fibre, and maize steep liquor, are used in animal nutrition and other industrial applications.
Clients:
Food Industry:
The food industry is the largest consumer of Sanstar’s products. The company’s starches, derivatives, and co-products are used in a wide range of food products, including bakery items, confectionery, snacks, soups, sauces, and ready-to-eat meals. The functional properties of these ingredients, such as thickening, stabilizing, and sweetening, make them essential components in food manufacturing.
Animal Nutrition Industry:
The animal nutrition sector utilizes Sanstar’s co-products, such as maize gluten meal and maize fibre, as valuable ingredients in animal feed. These co-products provide essential nutrients and energy to livestock, contributing to their growth and productivity.
Pharmaceutical Industry:
Sanstar’s products, particularly modified starches and derivatives like dextrose, find applications in the pharmaceutical industry. They are used as excipients, binders, fillers, and diluents in the formulation of tablets, capsules, and other medications.
Other Industrial Applications:
Sanstar’s products also cater to various other industrial sectors, including paper, textiles, adhesives, and personal care. The company’s modified starches and dextrins are used in papermaking, textile processing, adhesive formulations, and cosmetic products, offering functional benefits and enhancing product quality.
Raw Materials and Suppliers:
The primary raw material used by Sanstar Limited is maize, which is procured from various sources, including local farmers(16%), mandis (agricultural markets), and traders(84%). The company also uses other consumables and chemicals in its manufacturing processes.
The company’s strategic location near major maize-producing regions in Maharashtra and Gujarat provides it with a competitive advantage in terms of raw material procurement and cost efficiency.
Manufacturing Process:
Sanstar Limited employs a sophisticated wet milling process to extract starch from maize. This process involves several stages, including cleaning, steeping, grinding, germ separation, fibre washing, starch/gluten separation, starch refining, and drying.
The company’s manufacturing facilities are equipped with state-of-the-art technology and automation systems, ensuring efficient and high-quality production.
Other Key Aspects
Market Position:
The company holds the position of the fifth-largest manufacturer in the maize-based speciality products and ingredient solutions industry in India, boasting an installed capacity of 363,000 tons per annum (1,100 tons per day).
Industry Segment Share:
Sanstar Limited’s revenue distribution among various industry segments is Food Industry at 58.12%, Animal Nutrition at 10.45% and other Industrial Applications at 31.43%.
Manufacturing Facilities:
Dhule Facility (Maharashtra): A state-of-the-art, automated facility commissioned in 2017, with a current capacity of 750 tons per day. It is equipped with advanced technologies like SCADA (Supervisory Control and Data Acquisition) and PLC automation systems and focuses on sustainability through biogas and solar power plants.
Kutch Facility (Gujarat): Operational since 2006, this facility has a capacity of 350 tons per day and is registered with the USFDA.
Manufacturing Flowchart
Revenue – Category
Revenue – Region
Audit and Legal
Auditor’s Remarks:
The auditors provided an unqualified opinion on the Restated Consolidated Financial Information of Sanstar Limited.
Related Party Transactions:
The percentage of related party transactions relative to total revenues has been decreasing over the years. In fiscal 2022, related party transactions represented 6.66% of the company’s gross revenue from operations. This percentage decreased to 4.03% in fiscal 2023 and further down to 0.11% in fiscal 2024.
Non-Compliances and Other Issues:
Late Filings:
Sanstar Limited had a history of late filings related to various forms like Form 23ACA (Profit & Loss Account), Form 20B/Form MGT-7 (Annual Return), Form 23B/Form ADT-1 (Appointment of Statutory Auditors) and many other such forms for multiple fiscal years.
Missing Secretarial Records:
The company states that it cannot locate its historical secretarial records prior to 2006. This raises concerns about the company’s record-keeping practices
Changes in regulations governing the use of modified starches:
The company’s modified starches are subject to regulations in India, the US, and Europe. Any restrictive changes in these regulations could adversely affect the demand for these products and impact the company’s business.
Transfer and assignment of licenses and permits:
The company is in the process of transferring various licenses and permits held by Sanstar Biopolymers Limited (the merged entity) to its own name. Any delays or failures in this process could disrupt operations and impact the company’s business.
Contingent Liabilities:
As of March 31, 2024, Sanstar Limited has contingent liabilities amounting to ₹4.55 Crores. The primary component of these contingent liabilities is bank guarantees issued in favour of government departments.
Legal Cases:
Criminal Complaints filed by the Company
The company has filed several criminal complaints (3 cases) under Sections 138 and 142 of the Negotiable Instruments Act, 1881, primarily related to dishonoured cheques. The cases involve various individuals and proprietorships who failed to make payments to the company with an aggregate amount of ₹46.5 Lakhs.
SWOT Analysis
Strengths
| Established Market Presence: The company is the fifth-largest manufacturer of maize-based speciality products in India, indicating a strong foothold in the market and brand recognition. |
| Strategically Located Facilities: The proximity of manufacturing plants to maize-producing regions and seaports ensures cost-effective raw material procurement and efficient export operations, contributing to cost competitiveness. |
| State-of-the-Art Infrastructure: Modern, automated manufacturing facilities with advanced technologies like SCADA ensure high efficiency, product quality, and cost savings, providing a competitive advantage. |
| Strong Export Performance: The company’s exports to 49 countries and its recognition as a Two Star Export House demonstrate its ability to compete in the global market and diversify its revenue streams. |
Weaknesses
| Dependence on Limited Suppliers: Reliance on a few suppliers for maize, the primary raw material, can lead to supply chain vulnerabilities and potential price fluctuations, impacting profitability. |
| Limited Diversification: The company operates solely in the maize-based products industry, making it vulnerable to industry-specific risks and challenges. |
| Substitute Products: Maize starch though rarely replaceable, researchers and innovators are trying to replace it with starches from other crops such as rice, tapioca, and arrowroot |
Opportunities
| Capacity Expansion: The planned expansion of the Dhule facility can significantly boost production capacity, enabling the company to meet growing demand and introduce new products, driving revenue and market share growth. |
| Growing Demand for Organic Products: The increasing consumer preference for organic and natural ingredients presents a significant growth opportunity for Sanstar’s organic starch segment. |
| Expansion into New Markets: The company’s plans to increase its global footprint by entering new markets and strengthening its presence in existing ones can lead to significant revenue growth and market expansion. |
| Ethanol Manufacturing: The planned foray into ethanol manufacturing, leveraging existing maize sourcing capabilities, can open new revenue streams and benefit from government support for the sector. |
| Rising Demand for Processed Foods: The increasing consumption of convenience and processed foods, both domestically and globally, creates a favourable market for the company’s products, driving demand and growth. |
Threats
| Intense Competition: The industry is becoming increasingly competitive, with the emergence of smaller players and potential price wars. |
| Regulatory Changes: The company’s operations are subject to various regulations, and any changes in these regulations, especially those related to modified starches, could impact its business. |
| Foreign Exchange Fluctuations: The company’s export operations expose it to foreign exchange risks, which could impact profitability if not managed effectively through hedging or other strategies. |
Porter’s Five Forces1
| Threat of New Entrants | LOW |
| The industry has high entry barriers due to factors such as high capital costs, long gestation periods for R&D and customer relationships, and economies of scale requirements. The need for specialized technology and established distribution networks further adds to the challenges for new entrants. |
| Bargaining Power of Suppliers | MODERATE |
| The company faces moderate bargaining power from suppliers. The primary raw material, maize, is subject to price volatility and availability issues due to factors like weather conditions, demand from other industries, and global supply-demand dynamics. |
| Bargaining Power of Buyers | MODERATE |
| The company faces moderate bargaining power from buyers. While it has a diversified customer base, it also relies on a few key customers for a significant portion of its revenue. The price sensitivity in certain markets and the potential for customers to switch suppliers or import products could exert pressure on the company’s pricing and margins. |
| Threat of Substitute Products or Services | MODERATE |
| The threat of substitute products is moderate. While maize starch has limited direct substitutes, researchers are exploring alternatives from other crops. |
| Rivalry Among Existing Competitors | MODERATE |
| The industry is moderately competitive, with several established players and the emergence of smaller manufacturers. The competition is primarily based on factors like product quality, price, innovation, and customer relationships. The company’s strong market position, diverse product portfolio, and focus on quality and sustainability provide it with a competitive edge. |
Peer Comparison
The company’s performance on various financial and operational metrics compared to its peers can be observed in the following table, which presents the Key Performance Indicators (KPIs) for Sanstar Limited and its selected peer group for the fiscal year ending March 31, 2024
It can be observed from the table below that Sanstar Limited has above-average EBITDA and PAT Margins and high RoE and RoCE compared to its peers.
Revenue Growth: Sanstar Limited has exhibited remarkable revenue growth, with a CAGR of 45.46% from Fiscal 2022 to 2024, outpacing all its peers in terms of growth rate.
| Key Performance Indicators (FY 2024) | Sanstar Limited | Gujarat Ambuja Exports Limited | Gulshan Polyols Limited | Sukhjit Starch and Chemicals Limited |
| Revenue from Operations (INR Crores) | 1,067.20 | 4,926.70 | 1,377.90 | 1,375.30 |
| EBITDA Margin (%) | 9.20% | 8.98% | 4.21% | 9.31% |
| PAT Margin (%) | 6.17% | 6.82% | 1.28% | 3.61% |
| ROE (%) | 30.92% | 12.49% | 2.30% | 9.94% |
| ROCE (%) | 25.43% | 10.90% | 2.31% | 11.48% |
| Debt-Equity Ratio | 0.5 | 0.07 | 0.46 | 0.65 |
Green Box
IPO Funds:
Funding the capital expenditure requirement for the expansion of the Dhule Facility:
The company plans to expand its manufacturing capacity at the Dhule Facility by 1,000 tons per day. The estimated cost for this expansion is ₹201.5 Crores, and the company intends to use ₹181.5 Crores from the net proceeds to fund this project.
Repayment and/or pre-payment of certain borrowings:
The company plans to utilize up to ₹100 Crores from the net proceeds to repay or pre-pay some of its existing borrowings.
Enhanced brand name and image: The IPO is expected to increase the company’s visibility and reputation among its customers, suppliers, and other stakeholders.
Capacity Utilization as of March 31, 2024:
The Dhule Facility had a capacity utilization of 89%.
The Kutch Facility had a capacity utilization of 81%.
The Kutch Facility’s capacity utilization was impacted by planned boiler maintenance during January and February 2024, which lasted for approximately four weeks.
Research and Development:
The company has seen some success in its R&D efforts. The company has developed two new products through R&D
san-o-gel pre-gelatinized starch: This product has applications in the oil & gas industry.
san-o-mould (mold starch): This product is used in the food industry.
Focus on High-Margin Derivatives and Organic Ingredients:
The company’s strategic focus on increasing revenue contribution from high-margin derivative products and scaling up its organic ingredients segment differentiates it from competitors.
Strong Financial Performance:
The company has demonstrated robust financial growth, with a 45.46% CAGR in revenue from operations and a 104.79% CAGR in profit after tax between FY 2022 and 2024. The company’s improving profitability and strong return on equity (ROE) and return on capital employed (ROCE) compared to its peers further underscore its financial strength.
Amber Box
The value of the maize-based speciality products and ingredient solutions industry is estimated at $3,121 million in 2023 and is forecasted to reach $4,210 million by 2029, demonstrating a CAGR of about 5.1%.
Operating Cash Flow(OCF):
Regarding the company’s operating cash flow, the picture is mixed with negative OCF in FY 2023, but a positive OCF in FY 2022 and FY 2024.
Red Box
Lack of Diversification:
The company operates solely in the maize-based speciality products and ingredient solutions industry. This lack of diversification could make the company vulnerable to industry-specific downturns or challenges.
Execution Risks Associated with Capacity Expansion:
The company’s planned capacity expansion at its Dhule facility is subject to various risks, including delays, cost overruns, and the inability to obtain necessary permits and approvals.
Images
- The force value of “LOW” is considered good Click Porter’s Five Forces article for more information. ↩︎
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