EPACK Sturdy IPO: The corporate is is India’s second-largest unique design producer (ODM) of room air conditioners (RAC)
The general public subject of EPACK Sturdy is about to open for subscription on January 19. The inventory’s gray market premium (GMP) has jumped to 13 p.c from 6 p.c within the final two days.
A number of analysts have assigned a ‘subscribe’ ranking to the problem owing to cheap valuation, respectable monetary efficiency and dominance within the RAC ODM house.
Nevertheless, there are just a few considerations that may’t be ignored resembling consumer focus, hefty debt load of Rs 369 crore, decrease return ratios in H1FY24 in comparison with friends, a extremely aggressive RAC trade, and imports of a number of the uncooked supplies from China.
The enterprise
EPACK Sturdy is India’s second-largest unique design producer (ODM) of room air conditioners (RAC). The corporate additionally manufactures parts resembling sheet metallic elements, injection moulded elements, cross-flow followers, and PCBA parts which are actively used within the manufacturing of RACs.
The corporate commenced operations with a single manufacturing unit in Dehradun, Uttarakhand, in 2003, and has since expanded manufacturing operations with Dehradun Unit II, Dehradun Unit III and Dehradun Unit IV, Bhiwadi Manufacturing Facility and Sri Metropolis Manufacturing Facility.
The corporate’s buyer base contains Blue Star, Daikin Airconditioning India, Service Midea, Voltas Restricted, Havells India, Haier Home equipment (India), Panasonic Life Options India, Godrej and Boyce Manufacturing Firm and Bajaj Electricals.
Additionally Learn: EPACK Sturdy IPO: 10 issues to know earlier than subscribing to Rs 640-crore subject
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The corporate is specializing in diversifying its product portfolio, increasing past RAC to incorporate semi-commercial air conditioners, air coolers, hair dryers, induction water heaters, Nutri blenders, tower followers, kitchen chimneys, and twin ICTs to scale back reliance on seasonal RAC demand by tapping into the constant demand for SDAs (small home equipment).
Supply particulars
EPACK Sturdy plans to lift Rs 640.05 crore from the IPO. The general public provide consists of a recent subject of 1.73 crore shares value Rs 400 crore and an OFS of 1.04 crore shares value Rs 240.05 crore. The worth band for the problem, which can shut on January 23, has been mounted at Rs 218-230 per share. Bajrang Bothra, Laxmi Pat Bothra, Sanjay Singhania, and Ajay DD Singhania are the corporate promoters.
The corporate plans to make use of the online proceeds to fund capital expenditure necessities for organising manufacturing capacities in Bhiwadi, Rajasthan and Sri Metropolis, Andhra Pradesh. Additional, funds will probably be utilised to buy gear for the Bhiwadi manufacturing facility and compensation or prepayment of sure excellent loans of the corporate. The remaining funds will probably be used for normal company functions.
Anchor buyers
The corporate raised Rs 192.02 crore from institutional buyers via its anchor ebook on January 18. Optimix Wholesale World Rising Markets Share Belief, Built-in Core Methods (Asia), Societe Generale Copthall Mauritius Funding, and HDFC Mutual Fund had been a number of the marquee names invested within the firm via the anchor ebook.
Additionally learn: Epack Sturdy IPO | Institutional buyers decide Rs 192 crore shares through anchor ebook
Insurance coverage firms, together with SBI Life Insurance coverage Firm, HDFC Life Insurance coverage Firm, Aditya Birla Solar Life Insurance coverage Firm, Bajaj Allianz Life Insurance coverage Firm, SBI Basic Insurance coverage Firm, Reliance Basic Insurance coverage Firm, and Common Sompo Basic Insurance coverage Firm, additionally confirmed good curiosity within the firm, investing Rs 116 crore.
Financials
The Bothra and Singhania-promoted firm recorded wholesome monetary efficiency previously years however there was strain on the working margin because of increased enter prices. Web revenue grew 83.4 p.c on-year to Rs 32 crore for the in FY23, and income from operations throughout the identical interval elevated by 66.5 p.c to Rs 1,539 crore.
EBITDA (earnings earlier than curiosity, tax, depreciation and amortisation) in FY23 got here in at Rs 102.5 crore, rising by 49 p.c in comparison with FY22. Nevertheless, the margin dropped 78 bps to six.66 p.c in the identical interval. The highest line for H1FY24 was Rs 616.32 crore.
In FY23, the income contribution from the highest 10 clients was 93.17 p.c, whereas the highest 5 contributed 82.66 p.c of complete income. As of September 30, 2023, the corporate had a complete excellent indebtedness of Rs 369.57 crore.
The corporate imports a number of the uncooked supplies from China and any restriction whether or not from the state or central authorities could adversely have an effect on the enterprise. As of September 30, 2023, the price of supplies imported as a proportion of the entire price of supplies bought stood at 39.87 p.c.
Valuation
The worth-to-earnings (P/E) ratio primarily based on diluted EPS (Rs4.64) for FY23 on the higher finish of the worth band comes at 49.56 instances and on the decrease finish, it stands at 46.98 instances, which is relatively cheaper than Amber Enterprises (66.28x), PG Electroplast (67.27x), Dixon Applied sciences (139.96x) however greater than Elin Electronics (24.28x).
Additionally Learn: 4 IPOs value Rs 738 crore to hit Dalal Road on January 19
As of September 30, 2023, EPACK Sturdy had one of many lowest RoE (0.67 p.c), RoCE (2.71 p.c) and PAT margin (0.43 p.c) in its peer group. The debt-to-equity ratio stood at 0.78x.
Do you have to subscribe to the EPACK Sturdy public subject? Let’s hear out what analysts must say…
Alternative Fairness Broking: Subscribe with warning
In FY24, there could be a slowdown within the demand for RACs, however the medium-term development drivers are intact for the home air con market.
“EPACK claims to be a one hundred pc ODM participant with one of many highest built-in operations, nevertheless, the advantages will not be getting mirrored within the profitability margins and return ratios. Contemplating the medium-term development levers and stretched valuations, we assign a ‘Subscribe with Warning’ ranking for the problem,” Alternative Fairness Broking analysts wrote in a word.
Arihant Capital: Subscribe for long-term
The brand new product launches within the home equipment portfolio would scale back the enterprise fluctuation because of seasonality going ahead.
“On the higher band of Rs 230, the problem is valued at an EV/EBITDA of 20.2x primarily based on FY23 EBITDA. We’re recommending ‘Subscribe for long run’ for this subject,” mentioned analysts at Arihant Capital Markets wrote.
BP Equities: Subscribe
On the monetary efficiency entrance, the corporate’s income/EBITDA/PAT grew at a CAGR of 44.6 p.c/56.2 p.c/102.5 p.c throughout the FY2021-23 interval.
“On the higher worth band, the problem is valued at a P/E of 49.6x primarily based on FY2023 earnings which we really feel is pretty valued and is decrease than its comparable friends. We, due to this fact, advocate a ‘Subscribe’ ranking to the problem from a medium to long-term perspective,” BP Equities mentioned.
Swastika Investmart: Subscribe for mid to long-term
EPACK Sturdy is India’s second-largest RAC ODM. “Nevertheless, some key dangers warrant consideration. The corporate’s dependence on a restricted variety of main clients. Moreover, the RAC trade is very aggressive, and the enterprise experiences seasonal fluctuations. We advocate that buyers apply for this IPO with a mid to long-term view,” mentioned an analyst at Swastika Investmart.
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