Polycab India IPO Review

Polycab India IPO consists of a Fresh Issue of Equity Shares aggregating up to Rs 400 crore and an Offer for Sale up to 1.75 cr equity shares of face value of Rs10 each. Polycab India Limited is engaged in the business of manufacturing and selling wires and cables and fast moving electrical goods (FMCG) under the “POLYCAB” brand. The Polycab India IPO Bid/Offer Closes on April 9, 2019 and the price band for the offer is from Rs. 533 to Rs. 538 per equity share.

Polycab India IPO Details

Issue PeriodWed, April 5 – April 9, 2019
Issue DetailsFresh Issue Rs.400 Cr +
OFS of upto 17,582,000 Shares.
Face ValueRs.10/-
Issue-Rs. Cr.1,345.26 Cr
Price BandRs.533 – 538
Bid Lot27 Shares
Issue Str :
QIB5% of net offer
NIB15% of net offer 
Retail35% of offer-8,696,474 shares ; Rs. 467.87 cr
Applications needed 1x retail3,22,091
BRLMsKotak, Axis Capital, Citigroup Glbl,   Edelweiss Financial, IIFL  YES Sec

About Polycab Cables

  • Polycab India is engaged in the production and sales of a variety of wires, cables and Fast Moving Eletc Goods (FMEG) like electric fans, LED lighting , luminaire, switches, switchgears, solar products, conduits and other accessories.
  • Polycab India products find wide application in power industry and also find use in petrochemicals, metal, mining, communication, railways, shipbuilding and construction.
  • Its pan India supply chain comprises a network of authorized dealers, distributors and retailers.of over 2,800 authorized dealers and distributors and 30 warehouses.
  • Polycab India diversified into FMEG segment which has grown at a CAGR of 57.96% from FY 2016 to FY 2018 .
  • The company has 24 manufacturing facilities, including two joint ventures with Techno Electromech Pvt Ltd. And Trafigura Pte Ltd, located across the states of Gujarat, Maharashtra and Uttarakhand and the union territory of Daman and Diu.
  • The joint venture with Trafigura, to produce copper wire rods, has started operations recently with capacity of 2.25 lakh tonnes of copper wire rods.

Polycab Cables: Financials

Item/Rs. Crore2018(9m)2017(9m)Fy18FY17Fy16
Revenue 5506.704,834.426923.926047.015714.24
Growth (%)13.91%14.50%5.82%
EBITDA 743.79438803.15555.15523.88
EBITDA (%) 13.37%9.25%11.74%9.96%10.01%
Profit Bef Tax546.16284.01576.52361.32265.42
Profit Aft Tax358.22180.98370.92232.96184.7
Equity 141.21141.21141.21141.21141.21
Net worth2716.202174.602349.521993.761782.80
LT Borrowing93.77166.18158.95161.77100.85
ST Borrowing446.41018.38568.75659.03694.79
EPS (Rs.)25.3112.7926.2316.4813.09
NAV (Rs.)192.36154166.39141.19126.25
IPO Price538.00
Post Issue Eq.148.60
EPS (FY18)24.96
PE 20.51
EPS FY19 ann33.82
PE FY 19 ann15.91
CAGR Sales fy16-1814.80%
CAGR NP Fy16-1823.82%
Market Cap7994.68

Polycab Cables IPO : Pros

  • Polycab India Ltd. (PIL) has a dominant market position and holds the largest market share in the Indian cable and wire industry (FY18: around 18% of the organised wires and cables markets).
  • Polycab India has a diverse suite of electrical products with varied applications across a diverse customer base
  • PIL has Strong distribution network
  • Polycab India’s manufacturing facilities have high degree of backward integration
  • The company has experienced and committed management team.
  • Polycab India exports its products to more than 40 countries. Exports are in range of 5-6% of its turnover.
  • As part of its Backward Integration, PIL has established a 240,000 tonnes copper rod manufacturing plant in Halol at an investment of INR1.65 billion under a 50:50 joint venture (JV) with Trafigura Pte Ltd. The JV will have a five-year sales agreement with PIL (with an option to renew every five years) for supplying 100% of the latter’s copper rod demand.
  • Apart from focus on FMEG segment, Polycab India also intends to focus on street lighting and other specialized products such as domestic and agriculture pumps, domestic air purifiers and domestic water purifiers.

Polycab Cables IPO: Cons

  • Polycab India is heavily dependent on the performance of the wires and cables market
  • Polycab India has limited years of experience in the FMEG business in which it is trying to gain market share.
  • Its manufacturing operations need significant power and fuel requirements and any disruption in the same can lead to loss of production.
  • Polycab India operates in a labor-intensive industry
  • The operations have substantial capital expenditure and working capital requirements

Polycab Cables IPO: Assessment

  • As per CRISIL Research, Polycab India is the largest manufacturer of wires and cables industry in the country.
  • The wires and cables industry in India to grow at a CAGR of ~15% as per CRISIL.
  • Company is pursuing both growwth into FMEG (Fast moving electric goods) and Backward Integration. Its copper rod manufacturing plant with 240,000 tonnes copper rod manufacturing plant capacity is lkely to improve Polycab India Limited (PIL) inventory management cycle.
  • Polycab is Strong brand in the electrical industry
  • Polycab India IPO Issue constitutes ~17.72% of the post issue equity share capital of the company. IFC, an existing investor in Polycab, will sell about 7.5 per cent of its 15 per cent holding while the promoters will dilute about 10.2 per cent to meet the accounting for 17.62 per cent dilution through OFS to meet SEBI norms of minimum public shareholding.
  • Polycab India debt to equity ratio was healthy at 0.23 as on December 31, 2018. This is healthy improvement over 0.57 figure on December 31, 2018. In August 2018,  India Ratings Upgraded Polycab Wires Long term issuer Rating to ‘IND AA’/Stable; 
  • Its revenue from operations increased at a CAGR of 10.08% from ₹57,142.41 million in Fiscal 2016 to ₹69,239.17 million in Fiscal 2018. In this period EBITDA increased at a CAGR of 23.82% from ₹5,238.83 million to ₹8,031.46 million.
  • The issue is priced at a P/BV of 2.80. If annualize latest 9 months earning then IPO is priced is at a P/E of around 15.91 on equity post IPO, which is well below the the industry average . Thus Polycab India IPO issue appears to be reasonably priced.
  • Polycab IPO seems to be commanding good attention in Grey market with some reports of Rs. 600+ kostak.
  • Polycab India appears good both from a short to medium/ Long term investment perspective considering good outlook and reasonable pricing.
  • I intend to apply in Polycab India IPO without any second thoughts.

Standard disclaimer:  I am not a SEBI registered analyst and above analysis is for educational purpose only. Iam a postgraduate in engineering and Certified in some exams like NISM-Series-V-A: Mutual Fund Distributors Certification, NISM-Series-X-A: Investment Adviser (Level 1) Certification and NISM-Series-X-B: Investment Adviser (Level 2)  Examination. This post is my view on the subject matter and is only academic and exploratory in nature. It is not meant to influence investment decisions of investors.  I may have bias/vested interest in covered Stock/Mutual Funds/NCD etc. due to my own investment or  leaning. Further my understanding of the areas on which I write may be imperfect or incomplete and data could be wrong due to limited time and resources at my disposal. Please do your own due diligence as stock market/MF investments have high degree of inherent risk.

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