Polycab India IPO Analysis (5th April-9th April 2019)

Should I Invest in Polycab India IPO Or Not?

Polycab is engaged in the business of manufacturing and selling wires and cables and fast moving electrical goods(FMCG). In this article, we will analyze the Polycab India IPO. Whether should we invest ot not?

Polycab India IPO Details

1. Subscription Dates : Polycab India’s IPO opened for subscription on Friday, 5^th April 2019. The subscription for this IPO will be open till 9^th April 2019.
2. Issue Price : A price band of Rs. 533 – Rs. 538 a piece has been set for the Polycab India IPO.
3. Lot Size : Shares under the Polycab IPO can be subscribed in the lots of 27 units. That is investors can subscribe to the IPO at a minimum of Rs. 14,391- Rs. 14,526 (27 x 533-538).
4. IPO Amount : The IPO is worth Rs. 1,350 Cr. From this the company will retain Rs. 500 Cr with them, will use Rs. 300 Cr for working capital requirements, will pay-off short-terms debt worth Rs. 100 Cr and will use the remaining amount for general corporate purposes.

Business Details of Polycab India

1. Business Segments

• Polycab India is in the business of wires and cables. They earn 90% of their revenue from their business of wires and cables, which is their major business. In March 2019, the company’s overall revenue is expected to be around Rs. 7,200 Cr.
• The other business segment is Engineering, Procurement and Construction (EPC). Their EPC division provides electrical turnkey solutions comprising project management, onsite execution and resource management. 3%-4% of the revenue is earned from this business segment.
• The rest of revenue (6%-7%) is earned from Fast Moving Electrical Goods (FMEG). Its FMEG products include electric fans, LED lights, switches, switchgears, solar goods, conducts and accessories. This business segment has a lot of potential and can grow huge just like that of Havells.

2. Presence

• The company has a presence in almost 1 lakh retail stores. Thus, they already have a very strong distributor network.
• This network will also help them grow their FMEG business.

Wires & Cables – Indian Market

• India has a wires & cables market of around Rs. 50,000 Cr to Rs. 55,000 Cr.
• Polycab India earns 90% revenue from wires and cables. Thus, 90% of Rs. 7,200 Cr will amount close to Rs. 6,400 Cr.
• This means that Polycab India has a market share of around 12% to 13%. This is very healthy number. Compared to other organised players such as Havells, the market share of Polycab India is almost twice. Thus, this is very advantageous to the company. Among only organised players, that is leaving all the unorganised players (local brands) aside, Polycab India has a market share of 18%, which is definitely very healthy.
• But the wires and cables business of Polycab has become and general business segment with very less opportunities to do something new.

Financial Numbers of Polycab India

1. Net Profit

A healthy growth in net profit numbers can be observed. In 9MFY18-19 (April 2019 – December 2019), the company has already earned net profit worth Rs. 351 Cr. From this point forward, if maintain the same expectations, the company can report net profits of Rs. 480 Cr.

2. Market Capitalization

• When the IPO gets listed as per the specified prices then the company will have a market capitalization of around Rs. 8,000 Cr.
• This means that Polycab India will be a small cap company. But as the market is already euphoric and along with some listing gains, this stock can also move to the mid-cap category. This is just an assumption and nothing concrete can be said. But according to the current details, it is a small cap company.

3. Price-to-Earnings (PE) Ratio

• If we divide the market capitalization of Polycab India (Rs. 8,000 Cr) with their net profit (Rs. 480 Cr), then the PE ratio of Polycab India comes out to be around 16-17.
• This PE doesn’t look very high and the IPO definitely doesn’t look overvalued, in fact it looks like a fairly valued IPO.

Investors Exit from Polycab India

• Some existing private equity investors are also exiting from the company. This might be because they don’t thing the company will continue to give phenomenal or exponential as it has been until now.
• So, a selling of Rs. 1,150 Cr is being done by some investor. Thus, this will provide the company with extra equity.
• This is nothing to worry about and is a normal part of any company.

Summary

1. There are many other similar fairly valued stocks in the market.
2. There is nothing unique to gain from the IPO of Polycab India, but also nothing negative.
3. As it is involved in wires & cables business, it requires aluminium and copper as raw material, and the prices of these commodities can always vary, which can be problematic. The company is looking for tie-ups with copper production houses to set up their own copper production house. Th company is going through all of this right now.
4. Polycab India fits perfectly in the typical consumption theme.
5. The FEMG business segment of Polycab India can have a lot of scope and opportunities in the coming future.

Notes: –

• The numbers that are used are approximate and have been rounded for presentation purposes.
• We are not in any way saying that this is a bad company, or the stock of this company is bad.
• We are also not suggesting anyone to immediately go and subscribe to the IPO of this stock or invest in the stock markets.
• Only an analysis has been presented here. No judgments or final statements are being made here.