Polycab India Ltd IPO - Should You Subcribe?

Incorporated in January 1996, Mumbai based Polycab India Ltd is going to debut in the primary market with its IPO on April 5, 2019. Today, Polycab is a household name. The famous Bollywood actor Paresh Rawal is brand ambassador of the company and appear every now and then on television, advertisement signboards and hoardings. 

Issue details : This IPO is a mix of Offer For Sale and Fresh Issue. The company is going to garner Rs. 400  Crore through Fresh Issue and existing shareholders are offloading 1,75,82,000 shares under Offer For Sale arrangement which are 12.45% of pre-offer issued, subscribed and paid up shares. Total issue sizes is for Rs. 1346 Crore approx. 

The issue is opening on April 5, 2019 and closing on April 9, 2019. The tentative dates of allotment and listing are April 15, 2019 and April 18,2019 respectively. The price is Rs. 533 - Rs. 538 per share. There is no discount to retail investors but employees are offered discount of Rs. 53 per share. Minimum lot size is for 27 shares. The allotment status can be seen on https://karisma.karvy.com.

Overview of the company: Polycab India Ltd is 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, the company manufactures and sells FMEG such as electric fans, LED lighting and luminaires, switches and switchgears, solar products and conduits and accessories. 

The company manufactures and sells a diverse range of wires and cables and its key products in the wires and cables segment are power cables, control cables, instrumentation cables, solar cables, building wires, flexible cables, flexible/single multi core cables, communication cables and others including welding cables, submersible flat and round cables, rubber cables, overhead conductors, railway signaling cables, specialty cables and green wires. 

In 2009, the company diversified into the engineering, procurement and construction (“EPC”) business, which includes the design, engineering, supply, execution and commissioning of power distribution and rural electrification projects. In 2014, the company diversified into the FMEG segment and its key FMEG are electric fans, LED lighting and luminaires, switches and switchgears, solar products and conduits and accessories.

The company has 24 manufacturing facilities, including its two joint ventures with Techno Electromech Pvt Ltd. (“Techno”) and Trafigura Pte Ltd (“Trafigura”), located across the states of Gujarat, Maharashtra and Uttarakhand and the union territory of Daman and Diu. Four of these 24 manufacturing facilities are for the production of FMEG, including a 50:50 joint venture with Techno, a Gujarat-based manufacturer of LED products. In 2016, the company entered into a 50:50 joint venture with Trafigura, a commodity trading company, to set up a manufacturing facility in Waghodia, India to produce copper wire rods (the “Ryker Plant”). The company expects the Ryker Plant to commence commercial operations by the end of Fiscal 2019, with an estimated annual capacity of 225,000 MT of copper wire rods once it is fully operational. 

Object of the issue: 
Offer For Sale :The entire proceeds received through offer for sale shall go to the selling shareholders. Each of the selling shareholders will be entitled to the respective proportion of the offer for sale net of their proportion of offer related expenses

Fresh issue: The Net Proceeds from the Fresh Issue are proposed to be utilized towards the following objects:

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

2. To fund incremental working capital requirements of the company; and

3. General Corporate purposes

The general corporate purposes for which the Company proposes to utilize Net Proceeds include strategic initiatives and acquisitions, funding initial stages of equity contribution towards its projects, working capital requirements, capital expenditure, investments into its Subsidiaries, part or full debt prepayment, repayment or redemption (earlier or scheduled) of the Company, strengthening of the marketing capabilities, as may be applicable.

Profitability: From Fiscals 2016 to 2018, its total income less excise duty grew at a CAGR of 14.31%. During the same period, Fiscals 2016 to 2018, its EBITDA and profit for the year grew at a CAGR of 23.82% and 41.71%, respectively. For Fiscals 2016, 2017 and 2018, its total income less excise duty was Rs. 5,235.55 Crore, Rs. 5,575.65 Crore and Rs. 6,841.49 Crore respectively, its EBITDA margin was 10.01%, 9.96% and 11.74% respectively, its PAT margin was 3.53%, 4.18% and 5.42% respectively, its ROE was 10.34%, 11.67% and 15.76% respectively, its RoCE was 15.99%, 14.98% and 21.25% respectively.

Pricing of the issue: The company has set the price range between Rs. 533 - Rs. 538. The consolidated diluted EPS as on  March 31,2018 was Rs. 26.23. At upper and lower price range, the PE ranges between 20.32 - 20.51. The price seems quite reasonable given the brand name and profitability. The company has asked the price which is mere 2.79 times of its book value. This IPO is good one.

Peer Comparison: Except its competitor KEI Industries Limited, all its competitors are trading at much higher PE. Havells (72.53), Bajaj (61.42), Crompton Greaves (43.73), KEI (23), V-guard (17.89). Polycab share is much cheaper.

Dividend & Debt Equity Ratio : As on December 31,2018, debt equity ratio was 0.19. That means, the company has borrow 19 paisa against its 1 Rupee owned. The company has been paying dividend consistently since 2015.

Competitive strengths of the company: The company is market leader in wires and cables in India. It has diverse suite of electrical products with varied applications across a diverse customer base. It has a strong distribution network and manufacturing facilities with high degree of backward integration. Its already a strong brand in the electrical industry and has experienced and committed management team.

Conclusion: APPLY APPLY APPLY. This share has the potential to be a multi bagger two-three years down the line. Such IPO are very rare and shouldn't be missed for listing gain as well.

Thank you for reading...Jai Hind

(Note : I write reviews based on my knowledge and understanding. The reader of this article should do his/her own research before investing)