IPO Analysis: Polycab India Limited

IPO Rating - 47 (Invest with limited exposure)*

About the Issue

Polycab India (PIL), a Mumbai-based company engaged into manufacturing & selling of wires & cables and fast moving electrical goods (FMEG) under the 'Polycab' brand is hitting the primary capital market with its initial public offering (IPO) of equity shares of Rs. 10 each. The price band has been fixed between Rs. 533 and Rs. 538.

The issues comprising a fresh issue of shares up to 75 lakh equity shares aggregating up to Rs. 400 crore at upper price band and an offer for sale of up to 17,582,000 equity shares by existing investors. Of these, 175,000 equity shares are being reserved for eligible Employees, who are offered a discount of Rs. 53 per share.

The issue size is between Rs. 1337 to Rs. 1345 crore at lower and upper price band, respectively. The issue constitutes 16.8 per cent of the company’s post-Offer paid up equity share capital at a higher price band.

About the company

PIL was incorporated on January 10, 1996, as a company manufacturing and selling a diverse range of wires and cables. The company's key products in the wires and cables segment are power cables, control cables, instrumentation cables, solar cables, building wires, flexible cables, etc. In 2009, Polycab diversified into the Engineering, Procurement and Construction (EPC) business. In 2014, the company diversified into the Fast Moving Electrical Goods (FMEG) segment with key FMEG products including Electric Fans, LED Lighting and Luminaires, Switches and Switchgear, Solar Products and Conduits and Accessories.

According to CRISIL research for fiscal 2018, Polycab had a market share of approximately 18 per cent of the organized wires and cables industry and approximately 12 per cent of the total wires and cables industry in India. The company has 24 manufacturing facilities, including their 2 joint ventures with Techno Electromech and Trafigura located across the states of Gujarat, Maharashtra and Uttarakhand and the union territory of Daman and Diu.

PIL has pan India presence with distribution network comprises over 2,800 authorized dealers and distributors and 30 warehouses as of December 31, 2018. The company's customers include institutional clients such as L&T Construction and government clients such as Konkan Railway Corporation Ltd. Exports account for around 3.4 per cent of the total revenue for the company as on December 2018 and the company exports to more than 40 countries in the world, mostly to the US, EU and Gulf region.

Financials

For the financial year ending March 2018, the company’s total turnover stood at Rs. 6,986.1 crore compared to Rs. 5,747.3 crore at the end of FY16 showing a CAGR of 10.25 per cent. However, for the nine month ending FY19, the company has shown a growth of 14 per cent on a yearly basis and total income stood at Rs. 5,561 crores for 9MFY19. The EBITDA in the same period increased at a CAGR of 23.8 per cent if you exclude excise duty, which was nil for the latest year. The profit in the same period increased at a CAGR of 41 per cent and was at Rs. 370 crore for FY18.

Wires and cable still form a major part of the revenue while FMEG share is below 10 per cent at the end of FY18.

Valuation and recommendation 

At the higher price band of Rs. 538, the offer is demanding a market cap to sales (FY18) of 1.14 times, which is lower than that of Havells that has current market cap to sales of 5.8 times. However, the other key player KEI Industry is trading at market cap to sales of less than one. In terms of PE, the offer is made at around 21.6 times its FY2018 consolidated EPS of Rs. 24.95 on a post-issue equity share capital of Rs. 148.64 crore of face value of Rs. 10 each. Havells is currently trading at a PE of almost 70x, while KEI industries is trading at a PE of 22.12x.

The following table summarises the valuation of the company against its different peers.

Looking at the above valuation matrices, we believe that the offer is attractively valued and you can subscribe to the issue. 

*40 or lower – Avoid Investment, 41 to 45 – Risky, 46 to 50 – Invest with limited exposure, 51 to 55 – Investment recommended, 56 & above – Excellent Investment