Initial public offering (IPO) of Mumbai-based polymer Prince Pipes and Fittings, which opens for subscription on December 18, plans to raise up to Rs 500 crore. The price band for the issue has been fixed at Rs 177-178 per share.
The company's promoter group plans to dilute around 29 percent in the proposed IPO, which stands at 90.06 percent in the pre-issue period. Link Intime India Private Ltd is the registrar for the IPO, while JM Financial Limited and Edelweiss Financial Services Ltd are book running lead managers to the issue.
About the IPO
Out of the issue size of Rs 500 crore, Rs 250 crore will be raised as Fresh Issue and the remaining Rs 250 crore will be raised as Offer for Sale. The minimum lot size for the IPO is 84 shares, while the maximum lot size stands at 13 lots in multiples of 84 shares thereafter, amounting to 1,092 equity shares.
While 50 percent of shares have been reserved for Qualified Institutional Bidders (QIB) category, 35 percent of the issue will be allotted to Retail Individual Investors (RII) and the remaining 15 percent will get allocated to Non-institutional bidders (NIB).
Objective of the issue
The company will use the proceeds from the IPO to pare certain outstanding loans, to finance the project cost towards the establishment of a new manufacturing facility and upgrade existing equipment at the manufacturing facilities.
About the Company
The company has a diverse product portfolio, coupled with multi-location manufacturing units as well as a network of distributors pan-India. The polymer fittings company markets its products under Prince Piping Systems and Trubore.
The company markets its products under two brand names: Prince Piping Systems and Trubore. The products have varied applications in plumbing, irrigation, and soil, waste and rainwater management.
Their product range meets the requirements of both the rural and urban markets. They have six strategically located manufacturing plants, which give them a strong presence in North, West and South India.
They currently manufacture polymer pipes using four different polymers: UPVC (unplasticized polyvinyl chloride), CPVC (Chlorinated polyvinyl chloride), PPR(Polypropylene Ran- dom Copolymer), and HDPE (High-density polyethylene), and fittings using three different polymers: UPVC, CPVC, and PPR.
The revenue from operations for fiscals 2017, 2018 and 2019 was Rs 1,330 crore, Rs 1,320.5 crore and Rs 1,571.8 crore, respectively, representing a CAGR of 8.7 percent. However, the revenue from operations for the three-month period ended June 30, 2019, was Rs 379.7 crore.
Profit for the year for fiscals 2017, 2018 and 2019 was Rs 74.1 crore, Rs 72.7 crore, Rs 83.3 crore, respectively, representing a CAGR of 6 percent. The profit for the three-month period ended June 30, 2019, was Rs 26.6 crore.
As of October 31, the total installed capacity of Prince Pipes’ six existing plants was 241,211 tonnes per annum and Prince Pipes plans to expand the installed capacity at its plant in Jobner in Rajasthan from 6,221 tonnes per annum as on October 31, 2019, to 17,021 tonnes per annum by December 31, 2019, and to 20,909 tonnes per annum by the end of the fiscal year 2020.
Outstanding Litigation against the company
Two of the company’s Promoters, Jayant Shamji Chheda (Chairman and Managing Director), and Heena Parag Chheda, are also partners in M/s Aditya Developers, a partnership firm that forms a part of Promoter Group, in which they each own a 10 percent interest.
Aditya had entered into a joint venture agreement dated December 30, 2010, with Montana Developers Private Limited. Montana initiated arbitration proceedings against Aditya and its partners, including Jayant Shamji Chheda and Heena Parag Chheda, seeking, inter alia, specific performance of all the obligations under the JV Agreement along with damages from Aditya and its partners.
The company's primary raw materials comprise UPVC, CPVC, PPR and HDPE resins, which are derived from crude oil by-products. Crude oil prices are volatile and any increases in the price of crude oil would lead to increases in the prices of the raw materials required to manufacture products.
The company has not entered into any long-term supply contracts for such raw materials and, therefore are subject to the risk of increases in the costs of UPVC, CPVC, PPR and HDPE resins and the depreciation of the Rupee against the US dollar. The costs of raw materials as a percentage of revenue from operations is dependent on the costs of raw materials as well as the mix of products sold.
Outlook and Valuations
The management in the analyst meet said that the Q2 performance along with the outlook ahead was good, however, BP wealth feels that Prince Pipes and Fittings is expensively priced at 20.6x P/E (weighted average EPS taken) and 3.4x Price to book. They added that there are much better players already listed such as Finolex Industries which trades at 19.6x P/E and 1.8x price to book having better return ratios and comfortable debt levels.
Therefore, taking into account its debt position and the increased competitiveness of the market it operates in, the stock does not look attractive. BP Wealth gives ‘Avoid’ rating for the IPO.
Meanwhile, Ventura recommended 'subscribe for listing gains' for the IPO.
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