Mr. Arvind Nanda, MD, Interarch Building Products Limited

15 Aug 2024 , 01:31 PM

Please provide us a brief idea of your business model.

Our business, Interarch, specializes in pre-engineered steel building solutions. Essentially, when industrial companies, consultants, or organizations involved in warehousing have a need to construct a facility—be it a plant, factory, warehouse, airport, or mall—they come to us with their requirements. They tell us what they need to facilitate their production, processes, or storage.

From there, we take full responsibility for the project. We start by engineering and designing the entire building in-house, based on their specific needs. They don’t provide us with any predefined plans; instead, we create the design and engineering solutions from scratch. Our team of engineers handles everything, ensuring the design is tailored to their operations.

Next, we calculate the costs involved, including the amount of steel required, the type of materials, hardware, roofing, cladding, and other components necessary to complete the building. We also factor in manufacturing and logistics costs, including transporting the materials to the site and assembling the structure into a fully functional facility.

Our business model is built around being a key partner for these companies—whether they’re Indian or international—who need robust and reliable factory buildings. We’re not just fabricators or contractors; we are the primary supplier of capital goods, providing everything they need to build, manufacture, process, or store their products. For instance, we’ve provided solutions for various industrial sectors and even contributed to the construction of major projects like the airport in Delhi. We offer a comprehensive, one-stop solution, delivering a complete product to the customer.

 

Please elaborate the proceeds and your future expansion plans as you shared in your objects.

As outlined in our RHP, our current plans involve significant expansion in both our production capacity and our product offerings. This expansion not only requires increased physical capacity but also a substantial investment in our workforce. Given that our business is primarily focused on engineering, design, and custom-built solutions, our growth starts with our people—whether they are engineers, designers, or sales professionals.

To successfully expand, we first focus on strengthening our team. These professionals work closely with clients to understand their requirements, suggest improvements, and add value. We believe in educating and advising our clients on how to achieve their objectives in the most efficient, cost-effective, and safe manner, leveraging our expertise.

The second aspect of our expansion is enhancing our manufacturing capabilities. The entire factory for our clients is produced in-house, starting from raw materials like plates or coils. We are currently setting up a new plant in Andhra Pradesh, as mentioned in our prospectus. Phase one is already complete, and phase two will be part of the upcoming projects. Additionally, we plan to upgrade and expand our existing three main plants to increase our overall capacity.

Looking ahead, we also have plans for a new plant in Gujarat, with land already secured. This is part of our longer-term strategy, with the Gujarat plant potentially coming online in 12 to 18 months. These expansions are designed to ensure that we have sufficient capacity to meet demand over the next six to eight years.

 

Please provide us details of your top clients and how much revenue you generate from them?

Interarch Building Products serve clients across India, with a diverse portfolio that includes virtually every major industry. Our clients range from the automobile industry to paint lines, and we’ve recently completed significant projects for large companies like Grasim. We also built a major plant for Exide in the battery sector and are heavily involved in the solar industry, working with various companies to manufacture solar panels.

Additionally, we have extensive experience in constructing large-scale warehousing facilities for Grade A companies in India, and we’re continuously engaged in projects within the auto sector, collaborating with all the major groups.

Our product and service offerings are entirely industry-agnostic, meaning we can work across multiple sectors without being tied to one specific industry. We’ve worked on a wide variety of projects, from the T3 terminal airport to malls, factories, warehouses, high-rise buildings, and housing developments.

Steel construction offers a much faster and higher-quality solution for building needs. Since we manufacture the entire structure in-house at our plant, we can transport it to the site and assemble it efficiently, like a nut-and-bolt Meccano set. This approach ensures speed, quality, and flexibility, allowing us to work with any company requiring a building, regardless of the industry.

 

One of your risks you have mentioned that the availability of raw materials can affect your production. So, how do you ensure the availability of raw materials so the prices remain stable and how the unavailability of raw material can affect your business?

Indeed, reliance on a single material like steel does present a risk, as it would for any company. However, India’s steel manufacturing sector is highly advanced, with major players such as Tata Steel, Jindal Steel, and government entities like SAIL, as well as newer entrants like AMNS, which took over from Essar. These companies have vast production capacities, and they are continually expanding. Our demand for steel is quite small in comparison to their total output, so the risk of not securing supplies is minimal. In fact, in our 25 years of operation, we have never encountered an issue with availability.

The real risk with any commodity lies in price volatility, which can be influenced by global events—such as the Ukraine conflict—or shifts in demand from countries like China. Commodity prices are often dictated by international markets, and this fluctuation poses a potential challenge.

To mitigate this risk, we’ve developed a model that protects us from significant price fluctuations. For large orders that require six to nine months for delivery, we have a pass-through agreement with our clients. This means that any changes in steel prices from the time the order is placed until the steel is purchased are passed on to the client, whether the prices increase or decrease. This model has become widely accepted in the industry.

For shorter-term orders, which are typically delivered within three to five months, we maintain a reasonable stockpile of steel—usually about 45 days to two months’ worth. Additionally, we place orders with steel suppliers two months in advance, fixing the price and ensuring stability for that period. This approach covers us for three to four months at any given time, reducing our exposure to price fluctuations.

While commodity prices naturally fluctuate, often moving up and down over time, our dual approach—pass-through agreements for long-term orders and advance purchasing for short-term needs—provides robust protection against these risks. This model has proven effective in safeguarding our business against the inherent volatility in the commodity market.

 

Currently, we are in IPO flurry, why should investors consider investing in your IPO?

Pre-engineered buildings (PEBs) represent the future of construction, offering a fast, high-quality solution that’s increasingly essential as industries and infrastructure develop globally. If we look at the history of PEBs, they originated in the United States after World War II when there was an urgent need to build quickly. Since then, PEBs have become the preferred method for constructing everything from industrial plants and high-rise buildings to malls and even housing. For instance, the iconic Empire State Building was constructed with steel over 110 years ago, demonstrating the long-standing reliability and strength of steel structures.

The trend moved to the Middle East in the 70s and 80s, where oil wealth fueled rapid development, and then to China in the 90s and early 2000s. In India, the adoption of steel and PEBs took off after the economy opened in 1991. Today, PEBs are the fastest way to construct with steel, providing unmatched quality because the entire structure is fabricated in a factory and simply assembled on-site. This method is environmentally friendly, reducing site pollution, water usage, and dependency on labor, which is increasingly scarce.

Our company, Interarch, is uniquely positioned in this industry. We are completely industry-agnostic, meaning we can build anything from a semiconductor assembly plant to a small hilltop house, or even a massive 200,000 square meter factory. For instance, we were responsible for constructing the T3 terminal at Delhi Airport, a significant project that exemplifies our capabilities.

One of the key advantages of PEBs is the comprehensive service we offer—design to execution—ensuring that the client knows the cost upfront, with no hidden surprises. This level of certainty and responsibility is rare in construction, where costs often escalate due to unforeseen issues.

Why Interarch? We have built a solid reputation over the years, with around 80% of our business coming from repeat customers—testament to the trust and satisfaction we have earned. Our relationships with large groups, like Grasim, which we recently helped with their paint line project, have been nurtured over decades. These relationships are not easily replicated, even by companies with deep pockets.

We are also the only pure-play PEB company in India pursuing an IPO, unlike other companies where PEBs are just a small part of their portfolio or are foreign-owned. We pride ourselves on our professionalism, transparency, and ethical standards, with a company culture that has fostered loyalty—many of our employees have been with us for 10, 20, or even 30 years.

As pioneers in the Indian PEB market, we have not only introduced these products but have also shaped the entire architectural products market. Our name, Interarch, stands for international architecture, reflecting our global approach and standards.

 

Last but not the least, do you have any dividend policy or in mind to go ahead?

In the past, we haven’t issued many dividends primarily because we were a private company with a private equity investor who prioritized capital growth over regular payouts. However, as we transition to being a publicly listed company, we recognize the importance of meeting investor expectations. We understand that investors who put their trust in us deserve a good return, and as our company continues to grow and strengthen its position, we are committed to providing attractive dividends to reward our shareholders.