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Polycab India IPO note (Apply)

Review By Rudra Shares & Stock Brokers Ltd on Apr 6, 2019

THE OFFER

 

Issue Open : 05 April 2019 to 09 April 2019


  »»  Issue Type:  Book Built Issue IPO

 
  »»  Total Issue Size:  Rs 1346 cr

       a) Offer for Sale:  17,582,000 Equity Shares @ 10 aggregating up to Rs  946 cr 

       b)  Fresh Issue :      Equity Shares @ 10 aggregating up to Rs 400 cr 

     

       »»  Face Value:  Rs 10 Per Equity Share 


  »»  Issue Price:  Rs 533  - Rs 538 Per Equity Share 


  »»  Market Lot:  27 Shares 


  »»  Minimum Order Quantity:  27 Shares 


  »»  Listing At:   NSE & BSE

 

CAPITAL STRUCTURE

 

The  share capital of Company, is set forth below:-

                                                                                 (Amount in Rs except share data)

Authorized Share Capital :-

    186,250,000 Equity Shares @10 Aggregate value  1,862,500,000 cr

 

Issued, subscribed and paid up capital before the Issue :-

    141,205,838 Equity Shares @10 Aggregate value  1,412,058,380 cr

 

Fresh Issue:-

     Equity Shares @ 10 aggregating up to Rs  400 cr 

 

OBJECT OF THE OFFER

The objects of the Offer are:

a)  Scheduled repayment of all or a portion of certain borrowings availed by the company.

 

b) To fund incremental working capital requirements of the company.

 

c)  General corporate purposes.

 

COMPANY OVERVIEW

 

Incorporated in 1996, engaged in the business of manufacturing and selling wires and cables and fast moving electrical goods ('FMEG') under the 'POLYCAB' brand. Apart from wires and cables, we manufacture and sell FMEG such as electric fans, LED lighting and luminaries, switches and switchgears, solar products and conduits and accessories

For Fiscal 2018, company have a market share of approximately 18% of the organized wires and cables industry and approximately 12% of the total wires and cables industry in India, estimated at Rs 525 billion based on manufacturers realization.

In 2016, Polycab Wires Private limited entered into JV with Trafigura, to set up a manufacturing facility in Waghodia, India to produce copper wire rods (the 'Ryker Plant'). Plant is  expected  to commence commercial operations soonly, with an estimated annual capacity of 258,620 MT of copper wire rods once it is fully operational. With full operational activities, the Ryker Plant will strengthen the backward integration and  will meet a substantial part of demand for copper wire rods in future.

 

STRATEGIES  AHEAD

 

a) Make market presence more prominent in wires and cables sector.

b) Continue to expand FMEG business.

c)  Expand distribution reach

c)  Continue to invest in technology to improve operational efficiencies, customer satisfaction and sales

d) Strengthen brand recognition

 

STRENGTHS

 

a) Market leader in wires and cables in India

b) Diverse suite of electrical products with varied applications across a diverse customer base

c) Strong distribution network

d)  Manufacturing facilities with high degree of backward integration

e)  Strong brand in the electrical industry

 

FINANCIAL HIGHLIGHTS

 

Company has established a consistent track record of financial performance and growth. Revenue from operations on consolidated basis for the FY 2018 and the 9M FY 19 aggregated to Rs 6779.27 cr and Rs 5506.7 cr, respectively. Net profit stood at Rs 370.92 cr and Rs 358.22 cr, respectively, for the same periods. EBITDA for FY 2018 was recorded at  Rs 803.14 cr & Rs 743.78  cr for 9M FY 19. EBITDA margin for FY 2018 & 9M FY 19 at 11.74% and 13.37% respectively.

Company  had a debt of close to Rs 620 crore as of Dec. 31, which would reduce to Rs 540 crore once the company uses part of the IPO proceeds to repay debt. The firm's total debt-to-equity ratio is as low as 0.2 times, despite incurring a capital expenditure of over Rs 900 crore and distributing dividends at least in the last four years.

 

RISK FACTORS

 

1) Any adverse changes in the conditions affecting the wires and cables market can adversely impact  business.

2) Significant power and fuel requirements and any disruption to power sources could increase production costs and adversely affect results of operations and cash flows.

3) Performance is dependent in part on the industries of its customers and demand for their end products.

4) Inability to compete effectively with competitive pressure would be detrimental to business and prospects for future growth.

5) Business is substantially affected by prevailing economic, political and other conditions in India.

6) Fluctuations in prices of its primary raw materials—copper, aluminium, polyvinyl chloride compounds and steel could impact Polycab's margins.

 

INDUSTRY OVERVIEW

 

Cables and wires industry in India has seen many improvements in the last decade. It has grown from a small industry to a substantially large one during this period. The electrical cables and wires segment of the industry constitutes 40-45% of the electrical equipment industry in India, which constitutes 8% of the manufacturing sector in terms of value, and 1.5% of the overall GDP in fiscal 2018.

Wires and cables industry in India, in value terms, has grown at a CAGR of approximately 11% in the last five years to reach Rs 525 billion in Fiscal 2018 and expect to expand at a CAGR of approximately 15% in value terms to reach approximately Rs 1,033 billion by Fiscal 2023.

Investments in power transmission projects, execution of solar and wind energy projects, metro rail projects, and increased household spending have all led to an increase in demand for power and building wires and cables. Further, growth in the industrial sector has resulted in increased demand for flexible cables and wires and control and instrumentation cables.

 

 


Conclusion / Investment Strategy

Being market leader in wires and cables in India has diverse suite of electrical products with varied applications across a diverse customer base having strong distribution network could bode well for POLYCAB's  for enhancing market share by targeting growth segments  and ramp-up of  FMEG business. In addition, government initiatives in electrification, housing for all and better prospects in the electrical goods may be added triggers for potential  business growth in years ahead.

Backward integration into polymers, wire rods, cable/wire colors (Ryker Plant which expect to commence operation soonly) reduces costs and improves the quality which will continue to drive superior growth and margins ahead. Looking forward, company is poised to see potential growth prospects in wires and cable business owing to improving the quality and range of FMEG products , brand  positioning, reduction in working capital due to channel financing and  export order for an upcoming plant.


On the upper price band of Rs 538, the stock would trade at P/E of 20.5x for FY18 earnings, which we think is fairly priced and is available at reasonable valuations amongst peers. Therefore, we recommend to SUBSCRIBE  the IPO for listing as well as for long term.

Reviewer recommends Subscribing to the issue.

Review By Rudra Shares & Stock Brokers Ltd on Apr 6, 2019

Review Author

Rudra Shares & Stock Brokers Ltd.

Rudra Shares & Stock Brokers Ltd. is Kanpur based brokerage houses offering services to Retail and HNI customers. Rudra Shares offer a range of financial services which includes institutional and retail brokerage of Equity, Currency, Commodities, Derivatives, Online Trading, Depository Services, Fixed Deposits, IPOs and Mutual Funds Distribution, Wealth Advisory and Research.

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