IPO Review

Cable Company Polycab IPO opens on April 5 – 10 Things you should know!

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About the Company:

Polycab is engaged in the business of manufacturing and selling wires and cables and fast moving electrical goods (“FMEG”) under the “POLYCAB” brand. According to CRISIL Research, they are the largest manufacturer in the wires and cables industry in India, in terms of revenue from the wires and cables segment and provide one of the most extensive ranges of wires and cables in India. For Fiscal 2018, they had 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 (Source: CRISIL Research). Apart from wires and cables, they manufacture and sell FMEG such as electric fans, LED lighting and luminaries, switches and switchgear, solar products and conduits and accessories.

Issue Details:

  • Dates – April 05 to April 09, 2019
  • Price – Rs 533 – 538
  • Minimum Lot – 27 Shares

Strengths:

  • Market leader in wires and cables in India
  • A diverse suite of electrical products with varied applications across a diverse customer base
  • Strong distribution network
  • Manufacturing facilities with a high degree of backward integration
  • Strong brand in the electrical industry
  • An experienced and committed management team

Objects of Issue:

  • The total issue size is 1425 Cr – out of which fresh issue is Rs 400 Cr and offer for sale is 1025 Cr
  • Proceeds from the fresh issue will be used for:
  • Scheduled repayment of all or a portion of certain borrowings availed by their Company;
  • To fund incremental working capital requirements of the Company; and
  • General corporate purposes.

Valuation:

  • Debt to equity at 0.875 as of June 30, 2018
  • 3-year revenue C.A.G.R is 6.61%
  • 3-year profit C.A.G.R is 26.15%
  • FY18 EPS of 26.22 values the company at a price to earnings of 20.52 times
  • 171.68 is the book value as at June 30, 2018, at the upper price band price to book value is 3.13

Promoters:

Peer Comparison:

Risks:

  • The whole promoter group age is above 55!
  • The total cost of copper, aluminum, steel, and PVC Compounds consumed accounted for 56.82%, 18.27%, 4.75%, and 13.60%, respectively, of their total cost of materials consumed in Fiscal 2018, As commodity metals, the prices of copper and aluminum are linked to the prices on the London Metal Exchange (“LME”), while the price of PVC Compounds is linked to crude oil prices.
  • They derive most of their revenue from operations from the manufacture and supply of wires and cables. For Fiscals 2016, 2017 and 2018, wires and cables external sales accounted for 91.58%, 91.60%, and 89.32%, respectively of their total income.
  • The Offer includes an offer for sale of up to Rs 1025 Cr. The proceeds from the Offer for Sale will be paid to Selling Shareholders and the company will not receive any such proceeds.

Outlook:

The Indian cables and wires industry has grown at a CAGR of approximately 11% by value in the last five years to reach Rs 525 billion in fiscal 2018. In general, the realization of the cables and wires industry follows the trend of key raw materials prices, mainly copper and aluminum. In value terms, CRISIL Research expects the industry to grow by approximately 15% CAGR and reach an estimated Rs 1,033 billion by fiscal 2023.

Conclusion: 

The issue is priced at an affordable valuation with the company’s valuation above average industry valuations and return ratios above the industry ratios. Given the attractive outlook ahead, I recommend “Subscribe”.

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2 Comments

  1. This is very useful details. Thanks for such interesting analysis.

    1. Thank you, Sir, for your kind words.

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