AIK Pipes and Polymer Ltd IPO - 5 Key Risks to Consider Before Investing
Risks to Factor In
Majority of Revenues Coming from Top 10 Customers
The company derives most of its revenues from its top 10 customers. A loss of business from one or more such customers can affect the company’s revenues and profitability. Also, the top customers may vary across periods as per demand, and therefore, the revenue generated may differ.
While the company has maintained an excellent long-term relationship with its customers, there’s no assurance that it can generate the same amount of business from all these customers.
Majority of Purchase Coming from Top 10 Suppliers
Another major risk associated with the company is that the top ten suppliers contribute most of its purchases. That said, the firm’s top ten suppliers may vary from time to time depending on the demand-supply mechanism. Any loss of business from one or more suppliers can adversely affect its business.
Like its customers, the company has maintained good long-term relationships with its suppliers. However, there is no assurance that it will continue to do so in the long term. If due to any reason, the relationship suffers, it can adversely affect the company’s profitability.
Failure to Get the Regulatory Approvals and Licenses Can Affect Business
To continue operations, it’s required to hold relevant licenses and approvals from state and central government, subject to fulfilling various conditions.
The firm needs to reapply for the expired licenses and permits. If the company fails to obtain them on time, it can affect its operations. Also, the governing laws are increasingly becoming stringent; the same may increase the company’s compliance costs.
Manufacturing Activities are Dependent on the Availability of Skilled and Unskilled Labour
If the company fails to get the required number of laborers at any time or gets into any dispute with them, the same can affect its production schedule and timely delivery of products.
This, in turn, can affect the company’s business and operations. At the same time, the company spends a significant amount of time and resources in training its manpower. Its success is dependent on how it can train and retain the skilled workforce. In case of high attrition, the company’s growth may suffer.
Instances of Negative Cash Flows in the Past
The company has had instances of negative cash flow in the past. Cash flow is one of the vital indicators of a firm's financial health and shows the extent of cash generated by a firm to meet its day-to-day capital expenditure. If it fails to generate sufficient cash flow, it can affect its financial operations significantly.
Summing it Up
These are some of the risks you need to factor in while investing in the IPO of AIK Pipes and Polymer Ltd. Equally essential is to consider the company’s valuation and go through its red herring prospectus for a granular overview of the company, its financials, and other aspects.
