IPO Analysis: Prince Pipes and Fittings
IPO Rating - Invest for listing gains
About the Issue
Prince Pipes and Fittings (Prince Pipes), a Mumbai-based company engaged in the manufacturing of polymer pipes are entering the primary capital market with its initial public offer (IPO) of equity shares of Rs 10 each. The price band has been fixed between Rs 177 and Rs 178.
The issue size is of Rs 500 crore, including a fresh issue of Rs 250 crore and an offer for sale of Rs 250 crore shares by existing shareholders. At the upper price band of Rs 178, the company will issue up to 1.4 crores of equity shares, aggregating up to Rs 250 crore and a similar quantity will be offloaded by existing investors.
The IPO proceeds will be used for the repayment of the outstanding debt of around Rs 48.1 crore, financing the project cost towards the establishment of a new manufacturing facility (Telangana), estimated at Rs 184 crore and up-gradation of the existing manufacturing facility.
The company plans to set up a new manufacturing plant in Sangareddy (Telangana), with a total estimated installed capacity of 51,943 tonnes per annum. It also plans to commence production at the Telangana plant in Fiscal 2021.
The IPO will open for public subscription on December 18, 2019, and closes on December 20, 2019.
| Prince Pipes IPO Details |
| Issue Open | Dec 18, 2019 - Dec 20, 2019 |
| Issue Type | Book Built Issue IPO |
| Issue Size | Equity Shares of Rs 10
(aggregating up to Rs 500.00 Cr) |
| Fresh Issue | Equity Shares of Rs 10
(aggregating up to Rs 250.00 Cr) |
| Offer for Sale | Equity Shares of Rs 10
(aggregating up to Rs 250.00 Cr) |
| Face Value | Rs 10 Per Equity Share |
| Issue Price | Rs 177 to Rs 178 Per Equity Share |
| Market Lot | 84 Shares |
| Min Order Quantity | 84 Shares |
| Listing At | BSE, NSE |
About the company
Prince Pipes is one of the leading polymer pipes and fittings manufacturers in India in terms of the number of distributors. The company markets its products under two brand names: Prince Piping Systems and Trubore, which it acquired in 2012. The company was established in 1987 and has over 30 years’ experience in the polymer pipes segment. It has positioned itself as an end-to-end polymer piping systems solution provider across the country.
Prince Pipes has six manufacturing plants that are situated at Athal (Union Territory of Dadra and Nagar Haveli), Dadra (Union Territory of Dadra and Nagar Haveli), Haridwar (Uttarakhand), Chennai (Tamil Nadu), Kolhapur (Maharashtra) and Jobner (Rajasthan), with a total installed capacity of 241,211 tonnes per annum as on October 31, 2019.
The company sells its products to distributors, who then resell these products to wholesalers, retailers, and plumbers. As of October 31, 2019, it had 1,151 distributors in India. Trubore products are directly sold to wholesalers and retailers and they had 257 wholesalers and retailers across the country by the end of October this year.
Currently, Prince Pipes manufactures polymer pipes, using four different polymers, namely, UPVC, CPVC, PPR, and HDPE, and fittings, using three different polymers that are uPVC, CPVC, and PPR. At the end of October 2019, the company had a product range of 7,167 stock-keeping units. These products are used for varied applications in plumbing, irrigation, and soil, waste, and rainwater (SWR) management and find their application in both, the rural and the urban setups.
Prince Pipes gains most of his earnings from uPVC, which is also known as rigid PVC since it is not flexible. It is a resistant form of PVC that is often used for pipework and window frames. At the end of Q1FY20, it earned 73.7 per cent of its revenue from uPVC, which was followed by CPVC that contributed 17.7 per cent of the revenue in the same period.
When it comes to the break-up of revenue from the end-use industry, irrigation, plumbing, SWR, and the others segment contributed 32.4 per cent, 37.2 per cent, 29.5 per cent, and 0.8 per cent, respectively, at the end of Q1FY20. In the last three years, it, largely, has remained at the same level, with SWR increasing its contribution from 21.2 per cent at the end of FY17 to 29.5 per cent in the latest quarter.
In terms of the geographical spread, the northern part of the country contributed 38.6 per cent of revenue at the end of FY19, followed by 26.9 per cent from the south, and the western and eastern parts contributed 23.5 per cent and 11.0 per cent, respectively.
Prince Pipes has a technical collaboration with Wavin Overseas B.V., which has helped it to improve the quality of products and manufacturing efficiency. This agreement is going to expire on January 1, 2020, and the company is in discussions with Wavin to enter into a new agreement.
Financials
For the financial year ending March 2019, the company’s total turnover stood at Rs 1,571.9 crore compared to Rs 1,246.5 crore at the end of FY17, showing a CAGR of 12.3 per cent. However, for the first quarter of the FY20, the company’s total income stood at Rs 379.8 crore. The EBITDA in the same period, however, grew at a slower pace at a CAGR of 6.9 per cent. The margins, too, remained volatile and after posting 11.8 per cent for FY19, it increased to 13.9 per cent for the first quarter of FY20. The profit growth remained weaker and the company’s profit grew at a CAGR of 6 per cent for three years ending FY19. The net profit margins remained below 6 per cent for all the periods. The operating performance of the company is very much dependent upon the prices of crude oil, which is a feedstock for the company’s raw material. Hence, the movement in the prices of crude oil impacts the margins of the company severely, as it is operating in a highly competitive market.
All the figures are in Rs crore except for EPS
| Particulars | For the three month period ended June 30, 2019 | As at March 31, 2019 | For year ended March 31, 2018 | For year ended March 31, 2017 | For year ended March 31, 2016 |
| Revenue from Operations | 379.766 | 1571.869 | 1320.545 | 1330.015 | 1081.057 |
| Other Income | 0.426 | 7.126 | 6.026 | 2.48 | 0.561 |
| Total Revenue | 380.192 | 1578.995 | 1326.571 | 1332.495 | 1081.618 |
| Expenses: | 0 | 0 | 0 | 0 | 0 |
| Cost of Materials Consumed | 278.992 | 1072.859 | 893.814 | 836.474 | 704.706 |
| Employee Benefit Expense | 19.783 | 78.331 | 72.561 | 60.956 | 52.722 |
| Finance Cost | 7.385 | 36.4 | 36.108 | 36.374 | 33.497 |
| Depreciation and Amortization Expenses | 11.823 | 45.164 | 38.088 | 32.829 | 29.684 |
| Other Expenses | 38.367 | 180.271 | 157.714 | 133.849 | 108.854 |
| Total Expenses | 346.261 | 1467.527 | 1231.404 | 1236.587 | 1044.619 |
| Profit before exceptional items and tax | 33.931 | 111.468 | 95.167 | 95.908 | 36.999 |
| Profit for the year | 26.669 | 83.351 | 72.766 | 74.182 | 29.535 |
| Total Comprehensive Income for the year | 26.905 | 83.247 | 73.317 | 73.138 | 29.348 |
| Basic (in Rs) | 2.96 | 9.26 | 8.08 | 7.85 | 3.18 |
| Diluted (in Rs) | 2.96 | 9.26 | 8.08 | 7.85 | 3.18 |
Valuation and recommendation
At the higher price band of Rs 178 and on the expanded equity base, considering the IPO, the offer is demanding market cap to sales (FY19) of 1.25 times, which is one of the lowest in the industry. In terms of PE, the offer is made at around 23.54 times its FY2019 on a post-issue equity share capital of around Rs 11 crore at the face value of Rs 10 each. Other established players, such as Finolex industries, are available at PE of 20 times. The return ratios of Prince Pipes are comparable with other listed players in the industry. For example, RoCE and ROEs of the company for FY19 were at 22.6 per cent and 20.5 per cent, respectively.
Looking at the current vibrant IPO market, we believe that the issue is fairly priced and one can subscribe only for listing gains. Long term investors can wait for the price to settle down after listing to commit to any fund.