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Polycab India Limited IPO Note
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Offer Details

Price band

Rs 533-538 Per Equity Share

Offer Open Date

Apr 05, 2019

Offer Close Date

Apr 09, 2019

Lot Size

27 shares

Shares on Offer

25,022,067 – 25,091,896

Face value

Rs 10 Per Equity Share

Issue Size

Rs 1,336.47 – 1,345.26 Cr

Issue Type

Fresh of equity shares + offer for

sale of equity shares

Offer size (Fresh)

Rs 400 Cr

Offer for sale

17,582,000 equity shares

Book Building

QIBs

Not more than 50% of the issue Size

Non-Institutional

Not more than 15% of the issue Size

Retail

Not more than 35% of the issue Size

Lead Managers

Axis Capital Ltd., Kotak Mahindra Capital Co. Ltd., Citigroup Global Markets India Pvt. Ltd., Edelweiss Financial Services India Ltd., IIFL Holdings Ltd., Yes Securities India Ltd.

Exchange

BSE, NSE

Capital Structure

Pre Issue Equity

141,205,838 shares

Post issue Equity (lower band)

148,710,528 shares

Post issue Equity (upper band)

148,640,782 shares

 

Company Profile:

Incorporated in 1996, Polycab India Limited is engaged in the business of manufacturing and selling Wires and Cables and Fast Moving Electrical Goods (FMEG). According to CRISIL Research, Polycab is the largest manufacturer in the Wires and Cables industry in India, in terms of revenue from the wires and cables segment. 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. 52,500 crore based on manufacturers realization.

 The company has three business lines namely, (i) wires and cables, (ii) FMEG comprising electric fans, LED lighting and luminaire, switches and switchgears, solar products and conduits and accessories, and (iii) EPC. Key wires and cables products include light duty cables (“LDCs”), low voltage, medium voltage, extra-high voltage, instrumentation, building wires and electrical wiring accessories (“EWA”).

The company has 24 manufacturing facilities, including their 2 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. The joint venture with Trafigura was formed in order to set up a manufacturing facility in Waghodia, India to produce copper wire rods (the “Ryker Plant”). The company expects Ryker Plant to commence commercial operations by the end of Fiscal 2019, with an estimated annual capacity of 258,620 MT of copper wire rods once it is fully operational.

 Their Pan India Distribution Network comprises over 2,800 Authorized Dealers and Distributors and 30 Warehouses as at December 31, 2018. Polycab manages their sales and marketing activities through their Corporate Office, 3 Regional Offices and 20 Local Offices in various parts of India as at December 31, 2018. Their customers include institutional clients such as L&T Construction and government clients such as Konkan Railway Corporation Ltd.

 The company has recently received an order worth $137 mln from a refinery in Africa, where it will supply its entire range of products over 12 months.

 

Financial Overview:

(Rs. In Cr)

 

9M2018

9M2017

2018

2017

2016

Revenue from operations

5,506.70

4,834.43

6,923.92

6,047.01

5,714.24

Total Income less excise duty

5,561.05

4,733.58

6,841.30

5,575.33

5,235.54

EBITDA

743.79

438

802.96

554.83

523.88

EBITDA Margin (%)

13.37

9.25

11.74

9.95

10.01

PAT Margin (%)

6.51

3.74

5.36

3.85

3.23

RoE (%)

13.16

8.31

15.76

11.66

10.34

RoCE (%)

19.04

9.88

21.25

14.97

15.99

Debt to Equity

0.23*

0.57#

0.34

0.43

0.45

*As at December 31st, 2018

#As at December 31st, 2017

 Revenue from operations has increased at a CAGR of 10.08% from fiscal 2016 to 2018. For the same period, EBITDA and profit grew at a CAGR of 23.80% and 41.69%, respectively.

 

Polycab

 

Objects of the 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 to the tune of Rs 80 Cr;
  2. To fund incremental working capital requirements of the company to the tune of Rs 240 Cr;
  3. General corporate purposes.

 

Competitive Strengths:

 

  1. Market leader in wires and cables with wide range of product portfolio
  2. Strong distribution network
  3. Manufacturing facilities with backward integration

 

Key Risks

 

  1. Heavily dependent on the performance of the Wires and Cables: Polycab derives majority (89% as of FY18) of its revenues from the manufacturing and supply of wires and cables. Any adverse change in government policies in the wires and cables market, slower execution/delays in projects can negatively affect the demand. 
  2. Substantial requirement of capital expenditure and working capital: The Company manufactures its products in-house and thus, require significant investments in capital expenditure. Significant amount of working capital is required for purchase of raw materials. Trade receivables are non-interest bearing and are generally on credit terms up to 90 days, except for the EPC business for which credit terms are dependent on the terms of contracts.

 

Peer Comparison:

 

Comparison with listed Industry Peers for the financial year ending March 31, 2018

 

EPS

P/E

RoE (%)

Polycab India

25.0

-

15.8

Havells India

10.6

72.9

17.7

Crompton Greaves Consumer Electricals

5.2

44.0

41.0

KEI Industries

18.3

22.5

23.9

 

Conclusion:

 

FMEG segment serves some bright prospects ahead under power for all and LED lighting space; which may be a positive for the company. The company has posted growth in top and bottom lines. However, there are certain red flags. The RoE (as of FY18) is much lower than most peers including Havells and KEI Industries. The company also has substantial capital expenditure and working capital requirements. Company's high dependence on performance of wires and cables segment poses further risk.

Minor gains may be possible on listing but we recommend "AVOID" from a long-term perspective.

 

Source: DRHP filings of Polycab India

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