Polycab India IPO Review
Polycab India is a market leader in the cables and wires segment having a high market share in the cable industry. The company has both cables and wires in the equal mix revenues from both segments. With Cable industry growing faster rate in India, is Polycab India IPO worth applying? What factors you must consider before applying this IPO? can we expect listing gains? Read to know more.
Polycab India IPO Synopsis- Company details
The company is in the business of manufacturing wires and cables and has many Fast Moving Electrical Products(FMEG) like Fans, Wires, Switches, switchgear, LED Lighting, and Luminaries, solar products, etc for households and Industries. Polycab India is a Market leader with healthy growth in cable and wires business and has a wide range of sizes in wires and cables. They enjoy a high market share of around 12% in this segment.
Polycab India has seen strong growth in revenues of around 18%(CAGR) since inception and with more than 10%(CAGR) over the last 5 years period. Polycab India has strong dealer franchise, branding, and aggressive growth path over the years. The company has a healthy mix of both cables and wires and should benefit from infrastructure, industry, and housing spend in the years to come.
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Polycab India IPO – Key Details
These key dates are fetched from Polycab IPO DRHP Prospectus
IPO opening date: 5th April 2019
IPO closing date: 9th April 2019
Polycab India IPO price Band: Rs. 533 to Rs. 538 per share
Issue size: Rs. 1337Cr
IPO Lot: 27 shares and in multiples thereof
Maximum investment per lot: Rs. 14,526 on the higher price band
Why is Polycab India going for IPO?
The Polycab India IPO consists of two parts. Offer for sale and Fresh Issue of shares
- Offer for Sale: Existing shareholders( Promotors) are selling the stake in the company. The amount received in this IPO process will be given to promotors selling the stake proportionately to their selling stake, hence the company will not receive this amount for Offer of sale proceeds.
- Fresh Issue of shares: Means company will issue fresh equity shares by raising its Equity proposition and company will receive proceeds of this issue of shares. This money is proposed to be used for repayment of their debt, to fund working capital requirements of the company, and General company expenses for this IPO.
Polycab India Financials
1) The company generated revenue of Rs 5714 Cr for the year ended Mar-16, Rs 6047Cr for the year ended Mar-17 and 6923.9 Cr for the year ended Mar-2018. Its revenues are at Rs. 5561Cr for 9 months ended Dec-2018.
2) The company’s Revenue is growing in the range of 7% in Mar 2017 and 14% in Mar 2018.
How Polycab India Limited has grown over the years? Major Milestones
- Polycab was incorporated on January 10, 1996, at Mumbai
- in 1998, Polycab has set up a manufacturing facility for PVC insulated power cables house wires, polyethylene insulated jelly filled telephone cables, optical fibre cables, switchboard cables, and quad cables at Daman
- In the year 2008, The turnover of Polycab India increased from over Rs.100Cr in FY2006 to over Rs.210Cr in FY2008
- Investment from IFC in the Company of Rs. 400Cr in 2009
- Polycab Industries Private Limited was amalgamated into Polycab Cables pursuant to a scheme of amalgamation. The turnover of the Company
increased to over Rs.310Cr in 2011
- Entered into the switch and switchgears segment in the year 2013
- Entered into the fans and LED lighting segment. Set up manufacturing facilities for MCBs at Nashik, Maharashtra in 2014
- Set up manufacturing facilities for ceiling fans at Roorkee, Uttarakhand in 2016
- in 2016, Polycab has entered into an agreement with Trafigura Pte. Limited to form a joint venture, Ryker Base Private Limited for setting up a copper rod manufacturing plant
- In 2016 the company has set up a modernized facility for the manufacture of higher voltage cables up to 220 kV at Halol, Gujarat
- In the year 2017, Entered into an agreement with former promoters of Techno Electromech Private Limited in respect of an acquisition of a joint venture, Techno Electromech Private Limited for manufacturing LED lighting products
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Reasons to consider investing in POlycab India IPO- Positives
1) Polycab has generated revenues growth of around 13% on annualized basis form past 4 years.
2) The company has shown growth in profits in the past 4 years period (Rs 184.7Cr in Mar 16 to Rs. 370.9 Cr in Mar 18). The company made a profit % of 3.23% as on Mar 16 as against 5.36% in Mar 18.
3) Polycab India Ltd is a Market leader with a healthy growth trajectory.
4) The shift from unorganized to the organized market being seen most in cables & wires post GST, due to which Polycab is a major player to take advantage of this shift.
5) Polycab India is Expanding product lists to other electrical products in FMEG.
6)Polycab Limited has maintained heavy capex made keeping a check on free cash flow.
Reasons not to invest in a Polycab India Ltd IPO- Negatives
1) The company deals with highly volatile commodities like Copper, aluminum and steel, etc as their primary raw materials. There were several instances these prices fluctuate a lot and sudden spike in these prices could affect Polycab’s Profits, and their Business could be at risk if these materials struggle any availability crunch or shortage in future.
2) Their major revenues are from the wires and cable market. Any adverse impact in these markets will directly impact their performance and their profits.
4) Their main business is coming from building wires, which are mainly controlled by Distributors and Dealers. In case if they fail to influence these dealers, this market can be easily taken over by other competition.
5) Since they are in the consumer market(FMEG), Brand Power & Brand Value plays a major role in getting revenues and profits. If they are unable to maintain and enhance its brand, it will have an adverse impact on the bottom line of business.
6) The company’s major input raw materials costs are in foreign currency, like copper, Aluminum etc. volatility in these currencies will affect their costs and financial results
7)Polycab products require high capital and huge working capital loans, which may get compensated by customer receivable on time. any delay in payments from customers will have an impact on cash flows and Debt may raise which is very dangerous.
8) They engage huge labor for their operations and in factories, they are exposed to local labor laws and regulations, any dispute or strike by labor will stop their factory production, this will lead to huge crises and losses to the company.
9) Their subsidiary company’s directors are said to have few court cases including criminal cases, any negative development in these cases will impact their credibility among stakeholders and share price will move southwards if that happens!
10) You may refer to other negative factors from their risk section in Polycab IPO filing in this link.
Polycab India IPO key dates
IPO opening date: 5th April 2019
IPO closing date: 9th April 2019
Finalization of Basis of Allotment on 12th April 2019
Unblocking of ASBA accounts & Refunds on 15th April 2019
Credit of polycab shares in Demat Account: 16th April 2019
Listing on NSE & BSE : 18th April 2019
Polycab India IPO – Share price Check- How an Investor should see
Considering their last 3 years financials, and earnings their average EPS will be around Rs. 20.7, and for the last 9 months period Dec 18, annualized EPS works out to be Rs. 25.3. If we consider the highest price band of Rs. 538/share and EPS of 20.7, then PE works out to be around 26x and if we consider EPS as 25.3 then PE works out to be 16x. which means the company is asking price is in the range PE of 16x to 26x.
As mentioned in the company filing their listed peers includes Havells ( has the highest PE of 72x), KEI ( has the lowest PE of 23x) and Industry Average PE is 54x
The company has listed few peers like Havels, Apar, Bajaj Electricals, CG consumer, KEI, and V guard , however many of them are not related directly.
Considering the market peers and industry average PE, Polycab IPO Ltd Price of Rs. 538/share is reasonably priced.
Considering all the facts mentioned above, Polycab IPO is a good company to invest in, considering long term view, Investors with the investment time period of 5 to 8 years period may apply in this IPO. Also, if the share price falls post listing, one may accumulate for the long term. This stock may not give good results in the short term period.
Considering upcoming general elections in India, stock markets are expected to be volatile, hence this IPO may not fetch listing gains, however, if you are lucky enough you may get as their Gray Market Premiums are high at the moment.
All the best for allotment and listing gains.
Disclaimer: I do not have an interest in investing in this IPO and the above analysis only for investor’s awareness on positives and negatives of this IPO.