Polycab India IPO – Does this give listing gains ahead of elections?
Polycab India IPO Review
Polycab India IPO would open for subscription on 5th April, 2019. Polycab India is engaged in the business of manufacturing and selling wires and cables and fast moving electrical goods (FMEG) under the “POLYCAB” brand. Its revenues grew at 14% CAGR in the last 3 years. It is consistently improving margins year on year. What are the positive factors in Polycab India IPO? What are the some of the hidden factors in Polycab India IPO? Should you invest in the Polycab India IPO? In this article we would do Polycab IPO Review and provide interesting insights about this IPO.
About Polycab India Limited
They are engaged in the business of manufacturing and selling wires and cables and fast moving electrical goods under the “POLYCAB” brand. According to CRISIL Research, they are the largest manufacturer in the wires and cable industry in India, in terms of revenue from the wires and cable segment and provide one of the most extensive range of wires and cables in India. For Fiscal 2018, they have a market share of approximately 18% of the organized wires and cable industry and approximately 12% of the total wires and cables industry in India, estimated at ₹ 525 billion based on manufacturers realization. Apart from wires and cables, they manufacture and sell FMEG such as electric fans, LED lighting and luminaires, switches and switchgears, solar products and conduits and accessories.
Polycab India IPO Issue details
IPO opening date: 5-April-2019
IPO closure date: 9-April-2019
Face Value: Rs 10 per share
Issue price band: Rs 533 to Rs 538 per share.
Issue size: 1,337 Crores
IPO Lot size: 27 shares and 27 shares, there-off
Minimum investment: Rs 14,526 on higher price band
Leading Managers: Axis Capital, Kotak Mahindra Capital, Citigroup Global Markets, Edelweiss Capital, IIFL Holdings and Yes Securities.
Listing: BSE / NSE
Objects of the Polycab India IPO issue
The Offer comprises of the Fresh Issue and the Offer for Sale.
1) Offer for Sale:
Each of the Selling Shareholders will be entitled to the respective proportion of the proceeds of the Offer for Sale net of their proportion of Offer related expenses. Company shall not receive any proceeds from the Offer for Sale.
2) Fresh Issue
The Net Proceeds from the Fresh Issue are proposed to be utilised towards the following objects:
a) Scheduled repayment of all or a portion of certain borrowings availed by our Company;
b) To fund incremental working capital requirements of the Company; and
c) General corporate purposes.
The Promoters of the company are Inder T Jaisinghania, Ajay T Jaisinghania, Ramesh T Jaisinghania and Girdhari T Jaisinghania.
Company Financials (Reinstated-Consolidated)
1) The company generated revenue of Rs 5,747 Crores for the year ended Mar-16 and Rs 6,986 Crores for the year ended Mar-18.
2) The company posted a profit of Rs 184.7 Crores for the year ended Mar-16 and profit of Rs 370.9 Crores for the year ended Mar-18.
3) Its EPS for FY2018 is Rs 26.23 and 3 years average EPS is Rs 20.79. Its EPS for 9 months ended Dec-18 is Rs 25.31.
What are the key strengths of Polycab India Limited?
Here are the key strengths of the company.
1) They believe that the following competitive strengths have contributed to its business growth and will continue to drive its success.
2) Market leader in wires and cables in India.
3) Diverse suite of electrical products with varied applications across a diverse customer base.
4) Strong distribution network.
5) Manufacturing facilities with a high degree of backward integration.
6) Strong brand in the electrical industry.
7) Experienced and committed management team.
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What are the Strategies of Polycab India Ltd?
Here are the key strategies of the company.
1) Enhance and strengthen its leadership position in wires and cables.
2) Continue to expand its FMEG business.
3) Expand distribution reach.
4) Continue to invest in technology to improve operational efficiencies, customer satisfaction and sales.
5) Strengthen brand recognition.
What is Polycab India IPO GMP?
Currently Polycab IPO GMP is between Rs 92 to Rs 104.
Why you should invest in Polycab India IPO?
1) It revenues grown at 14% CAGR in the last 3.5 years (Rs 5,747 Crores in FY16 to Rs 6,986 Crores in FY18).
2) It has shown good improvement in margins in the last 3.5 years (Rs 184.7 Crores in FY16 to Rs 370.9 Crores in FY18). It earned 3.2% margins in FY14 Vs 5.3% in FY18. It further improved the margins to 6.4% for 9 months ended Dec-18.
3) Polycab India is niche player in FMEG Segment.
4) Company has posted good growth in revenue and profits as the capex investments made in earlier years started yielding results now.
Risk Factors and reasons not to invest in a Polycab India Ltd IPO
1) Significant increases or fluctuations in prices of, or shortages of, or delay or disruption in the supply of primary raw materials could affect its estimated costs, expenditures and timelines, which may have a material adverse effect on its business, financial condition, results of operations and cash flows.
2) Its continued operations at its manufacturing facilities are critical to its business and any disruption, breakdown or shutdown of its manufacturing facilities may have a material adverse effect on its business, financial condition, results of operations and cash flows.
3) They are heavily dependent on the performance of the wires and cable market. Any adverse changes in the conditions affecting the wires and cable market can adversely impact its business, financial condition, results of operations, cash flows and prospects.
4) Its inability to maintain the stability of its distribution network and attract additional distributors and dealers may have a material adverse effect on its results of operations and financial condition.
5) If they are unable to maintain and enhance its brand, the sales of its products will suffer, which would have a material adverse effect on its results of operations.
6) They are exposed to foreign currency fluctuation risks, particularly in relation to its borrowings, import of raw materials and export of products, which may adversely affect its results of operations, financial condition and cash flows.
7) They have substantial capital expenditure and working capital requirements and may require additional financing to meet those requirements, which could have a material adverse effect on its results of operations, cash flows and financial condition.
8) They have significant power and fuel requirements and any disruption to power sources could increase its production costs and adversely affect its results of operations and cash flows.
9) They operate in a labor-intensive industry and are subject to stringent labor laws and any strike, work stoppage or increased wage demand by its employees or any other kind of disputes with its employees could adversely affect its business, financial condition, results of operations and cash flows.
10) They regularly work with hazardous materials and activities in its operation can be dangerous, which could cause injuries to people or property.
11) Its Subsidiaries, Joint Ventures, Directors and Promoters are involved in certain criminal and civil legal proceedings. Any adverse decision in such proceedings may render us/them liable to liabilities/penalties and may adversely affect its business, financial condition, results of operations and cash flows.
12) For complete internal and external risk factors, you can refer the RHP of the company.
Polycab India IPO Schedule
5th April, 2019 – Offer Opens
9th April, 2019 – Offer Closes
12th April, 2019 – Finalization of Basis of Allotment
15th April, 2019 – Unblocking of ASBA / Initiation of Refunds
16th April – Credit of shares to Demat Accounts
18th April – Listing on NSE & BSE
Polycab India IPO – What should be the investment strategy?
If we annualize consolidated EPS of Rs 25.31 for 9 months ended Dec-18 and a higher price band of Rs 538, the P/E works out to 16x. Similarly, if we take consolidated EPS of 3 years average of Rs 20.79, P/E works out to be 26x. Means company is asking highest price band of Rs 538 in the P/E of 16x to 26x. Its competitors like Havell India is trading at P/E of 72.5x (Highest) and KEI Industries at P/E of 23x (Lowest) and the industry average is at 54x, hence the highest Polycab IPO Price of Rs 538 per share is reasonably priced.
The company has shown good revenue growth in the last 3.5 years. Its margins are improving year on year. The issue price is reasonably priced. It is niche player in FMEG segment. Considering all these factors, long term investors who are willing to create good wealth can invest in this IPO. Alternatively, if such share prices are available at discounted prices post listing, one can accumulate for medium to long term perspective. Owning to the elections ahead in India, stock markets are volatile, hence one may or may not get listing gains.
Disclaimer: I do not have an interest in investing in this IPO and above analysis is based on my personal views. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy or not to buy. Please consult your investment advisor before you invest in such high risk investment options.
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Polycab India IPO Review