GEM Enviro Management IPO: Adaptable House of Cards Built on Greenwashing?

GEM Enviro Management Introduction

GEM Enviro Management Limited was established in 2013 and specializes in sustainable plastic waste management. Here are some key details about the company:

• Services: GEM offers a variety of sustainability services, including:
• EPR Consultancy: Assisting businesses with Extended Producer Responsibility (EPR) compliance.
• Industrial Plastic Waste Recycling: Managing plastic waste recycling processes.
• Recycled Product Sales: Selling recycled products.
• ESG Consulting: Providing environmental, social, and governance (ESG) consulting.
• Awareness Programs: Organizing programs to promote proper plastic waste disposal and recycling.

In 2016, the Ministry of Environment, Forest and Climate Change introduced Plastic Waste Management Rules, emphasizing waste minimization, segregation, and responsible disposal. GEM has been actively contributing to these efforts. By leveraging market knowledge, GEM expanded its sustainability services, securing favorable terms for plastic waste trading.

Here’s a snapshot of their recent IPO:

• IPO Date: June 19, 2024, to June 21, 2024
• Listing Date: Expected on June 26, 2024
• Issue Size: ₹44.93 crores
• Price Band: ₹71 to ₹75 per share
• Minimum Lot Size: 1600 shares

Brief about Company GEM Enviro Management

Summary of the business of GEM Enviro Management

Company was originally incorporated as a private limited company under the Companies Act, 1956 in the name and style of “Ganesha Enviro Management Private Limited” bearing Corporate Identification Number U93000DL2013PTC247767 dated February 01, 2013. Thereafter, the name of the Company was changed from “Ganesha Enviro Management Private Limited” to “GEM Enviro Management Private Limited” pursuant to special resolution passed by the shareholders at the Extra Ordinary General Meeting held on October 09, 2013

History of GEM Enviro Management

Established in the year 2013 and initially promoted by Mr. Sachin Sharma, Mr. Dinesh Pareekh and Mrs. Sangeeta Pareekh, has emerged as a trailblazer in the industry, combining cutting-edge systems and processes, environmental stewardship, and a commitment to sustainability to create a more responsible and eco-friendly approach to plastics. Further GEM Enviro Management aspires to create a sustainable future where every producer takes responsibility for their products’ entire life cycle, from production to end-of-life disposal, minimizing the environmental footprint and promoting a circular economy.

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With a diverse portfolio of 100+ clients, GEM Enviro Management has established strong relationships across various industries, including Food and Beverages (F&B), Fast Moving Consumable Goods (FMCG), Cement, Fertilizers, Packaging, Consumer Goods and many more. Few of GEM’s prominent clients are companies such as Bengal Beverages Private Limited (Bottler of THE COCA-COLA COMPANY), Varun Beverages Limited, National Fertilizers Limited, PepsiCo India Holdings Private Limited, Krishak Bharati Cooperative Limited (KRIBHCO) etc. These clients have recognized the importance of EPR in fostering eco- responsibility and have chosen to partner with GEM for their sustainability efforts. GEM team collaborates closely with each client to develop and implement EPR programs tailored to their specific needs and goals. Through these partnerships, GEM has seen the transformation of companies’ attitudes towards environmental responsibility, making it an integral part of their business strategy.

Promotes & Board of Directors of GEM Enviro Management

Current Promoters

• Mr. Sachin Sharma
• Mr. Dinesh Pareekh
• Mrs. Sangeeta Pareekh
• Mr. Sarthak Agarwal
• BLP Equity Research Private Limited

Board of Directors

Share Holding pattern of GEM Enviro Management

Strategy of GEM Enviro Management

• Diversification and Comprehensive Sustainability Services
• Broaden presence in current markets and explore entry into new geographical markets
• Promotion of Environmental Awareness and Acceptance of Recycled Merchandise:
• Prominent Leadership and Strong Industry Relationships:
• Innovation and Technology:

Industry Outlook

Unless stated otherwise, industry data used throughout the Draft Red Herring Prospectus has been obtained or derived from industry and government publications, publicly available information and sources. Industry publications generally state that the information contained in those publications has been obtained from sources believed to be reliable but that their accuracy and completeness are not guaranteed and their reliability cannot be assured. Although our Company believes that industry data used in the Draft Red Herring Prospectus is reliable, it has not been independently verified. The meaningful interpretation of the data depends on the reader’s familiarity with data compilation methodologies. In our industry, there are no standard data gathering methods, and methodologies may vary among different source

INDIAN PLASTIC INDUSTRY

The Indian plastic industry is one of the leading sectors in the country’s economy. The history of the plastic industry in India dates back to 1957 with the production of polystyrene. Since then, the industry has made substantial progress and has grown rapidly. The industry is present across the country and has more than 2,000 exporters. It employs more than 4 million people in the country and constitutes 30,000 processing units; among these, 85-90% belong to small and medium enterprises. India manufactures various products such as plastics and linoleum, houseware products, cordage, fishnets, floor coverings, medical items, packaging items, plastic films, pipes, raw materials, etc. The country majorly exports plastic raw materials, films, sheets, woven sacks, fabrics, and tarpaulin. The Government of India intends to take the plastic industry from a current level of Rs. 3 lakh crore (US$ 37.8 billion) of economic activity to Rs. 10 lakh crore (US$ 126 billion) in 4-5 years.

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In FY23, India’s plastic exports stood at US$ 11.96 billion. During this time period, the exports of writing instruments and stationery, medical items, plastic pipes and fittings increased by 22.7%, 18.0%, and 0.5% over the same time last year, respectively.

RECYCLING

Recycling emerges as an environmentally conscious process that encompasses the transformation of used materials into fresh products, effectively preventing the squandering of potentially valuable resources. This sustainable practice plays a pivotal role in curbing the depletion of raw materials, minimizing energy consumption, and alleviating environmental issues like air pollution from incineration and water pollution from landfilling. By reducing the dependence on conventional waste disposal methods, recycling contributes significantly to the mitigation of greenhouse gas emissions. Within the realm of modern waste reduction strategies, recycling stands out as a crucial element, involving the reutilization of diverse products such as glass, paper, metal, plastic, textiles, and electronics. The recycling journey typically initiates with the delivery of materials to designated collection centres or curb side pickups, followed by meticulous sorting, cleaning, and reprocessing, ultimately yielding new materials poised for manufacturing.

Some common recyclable materials

Recycling plays a pivotal role in sustainable resource management, encompassing a diverse array of common recyclable materials. The following materials can be recycled through industrial process:

• Non-ferrous Metals: Recycling non-ferrous metals like aluminium, copper, and brass is essential for conserving resources and realizing significant energy savings.
• Ferrous Metals: The recycling of ferrous metals, including steel and iron, contributes to resource conservation and reduces greenhouse gas emissions associated with their production.
• Plastic: Various plastic types, such as PET and HDPE, are recyclable, playing a crucial role in reducing the demand for new plastic and mitigating environmental impacts.
• Glass: Glass is a highly recyclable material, offering endless reprocessing opportunities without compromising quality, thereby conserving energy and raw materials.
• Paper: Recycling paper helps conserve forests, reducing energy and water consumption associated with paper production, and promoting a more sustainable approach to resource use.
• Batteries: Battery recycling is essential for preventing environmental contamination and recovering valuable metals like lead, cadmium, and nickel.
• Electronics: Recycling electronic waste is crucial for resource recovery, particularly valuable components like gold, silver, and copper.
• Other Common Recyclables: Several other materials are also commonly recycled, such as textiles, ship breaking, tires etc.

INDIA’S PLASTIC RECYCLING INDUSTRY

India has a population of more than 1.4 billion and generates 26,000 tonnes of plastic waste – every day. This is the equivalent of approximately 26,000 small cars. India produces 3.4 million tonnes of plastic waste in a year and only 30% of it is recycled. The India Plastic Recycling market stood at approximately 5700 thousand tonnes in FY 2023 and is likely to grow at a steady CAGR of 5.84% in the forecast period by FY 20230. The plastic recycling industry in India is rapidly growing owing to the rise in the number of small-scale plants in the country and the increasing focus of non-governmental entities on the secondary use economy. Plastic recycling has various benefits such as financial benefits, reducing the need for the production of fresh plastics, creating employment, opportunities, and reducing energy consumption. Additionally, development in various industries such as packaging, and automotive, and policies and regulations by the government are driving the market. This can be attributed to the increasing environmental awareness and viable applicability of the products derived from plastic waste. Although this sector is mostly managed by unorganized local players, the Government of India has enforced plastic waste management rules that prohibit the use of single-use plastics that have low utility and high littering potential.

PLASTIC WASTE

Plastic waste (PW) is one of the most rapid-growing waste streams in municipal solid waste all over the world. India has become a global player in the plastic value chain. Despite low consumption, domestic generation and imports create a significant burden on the overall waste management system, which requires in-depth understanding of the scenario and pathways that can mitigate the crisis. Although Indian researchers have widely researched technology-related issues in academic papers, a substantial knowledge gap exists in understanding the problem’s depth and possible solutions.

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THE CHALLENGES OF PLASTIC WASTE MANAGEMENT (PWM) IN INDIA

There are a number of challenges to managing plastic waste in India. One challenge is the lack of infrastructure. India has a limited number of landfills and recycling facilities, and many of these facilities are not properly managed. This makes it difficult to collect and dispose of plastic waste in an environmentally sound manner.

Another challenge is the lack of awareness about the environmental impacts of plastic waste. Many people in India are not aware of the harm that plastic waste can cause to the environment. This lack of awareness makes it difficult to change people’s behaviour and encourage them to recycle plastic waste.

Business Data of GEM Enviro Management

Verticals of GEM Enviro Management

• EPR Program Management and Implementation
• Sustainability Consultation
• Collection and Transportation of Plastic waste
• Education and Advocacy

Product wise break-up of GEM Enviro Management

Amount in ₹ Lakhs

Customer dependency of GEM Enviro Management

Supplier dependency of GEM Enviro Management

Group companies of GEM Enviro Management

• Securocrop Securities India Private Limited

Business risk factors

• There outstanding legal proceeding involving the promoters of the company and our group companies. Any adverse decision in such proceedings may have a material adverse effect on our business, results of operations and financial condition
• Company is dependent on and derive a substantial portion of our revenue from a limited number of customers. Cancellation by customers or a delay or reduction in their orders could have a material adverse effect on our business, results of operations and financial condition.
• Company is dependent on few numbers of suppliers for purchase of products. Loss of any of this large Suppliers may affect our business operations
• current assets and net worth are significantly influenced by trade receivables. Inadequate management of these receivables poses the risk of negatively impacting our net sales, profitability, cash flow, and liquidity
• reliance on third-party transportation and logistics service providers makes us susceptible to any potential escalation in their charges. Such an increase could have negative repercussions on our business, operational outcomes, and overall financial condition.
• Company has reported negative cash flows in the recent period. Negative cash flows in the future could adversely affect our results of our operations and financial condition.

Amount in ₹ lakhs

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• operate in highly regulated sector. Regulatory Changes in Plastic Waste Management Laws in India pose operational challenges, requiring swift adaptability to ensure compliance and avert financial and operational repercussions for the company.
• Certain of client contracts can be terminated by our clients without cause and with limited or no notice or penalty, which could negatively impact our revenue and profitability.

Financials

Key Financial Ratios

Key Performance Indicators

(Amount in ₹ lakhs, except EPS, % and ratios)

Profit & Loss

(₹ in lakhs)

Cash Flow

Capital structure

(Amount “Rs. in Lakhs”, unless otherwise stated)

SWOT

• Strength:
  • GEM has in depth understanding of regulatory landscape for EPR.
  • GEM has built in processes and workforce to quickly learn and adapt to the EPR requirements of other sectors.
  • GEM is an emerging player in plastic EPR and has strong brand recall.
  • GEM has relationship with the stakeholders (recyclers and waste aggregators) in the plastic and other EPR value chain.
• Weakness
  • The waste services industry is new and hence, there is dearth of trained manpower available in the market for hiring. Therefore, GEM has to train and retain its executive workforce.
  • Other than Plastic Credit market, GEM’s major market is domestic market in India. Hence, GEM is excessively exposed to the risks in the Indian EPR market.
• Opportunity
  • The market size for EPR is huge and is growing fast as stated in above section.
  • The market size for other businesses of GEM is also huge and presents ample opportunities for GEM to grow.
  • The waste tech / enviro tech industry is new and offers opportunities for high growth with the use of cutting- edge technologies such as AI and Blockchain.
• Threat
  • There is ever growing competition in the EPR segment as there are no entry barriers of licensing or capex.
  • There are frequent changes in regulations by CPCB.
  • There might be pricing pressure in EPR segments due to the increase in bargaining power of the recyclers.
  • SEBI might impose licensing requirements in future to conduct ESG audits.

IPO Details 

GEM Enviro Management IPO Details

Why need of funds

Litigation Involved

Please refer DRHP page no.s 246-252

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