IPO Analysis: R R Kabel Ltd

IPO Rating: Apply for the long-term

About the Issue

The company ranks among India's largest conglomerates within the electrical sector, boasting a diverse portfolio spanning various business verticals such as wires & cables, switches, fans, lighting, switchgears, and appliances. 

The company is gearing up to launch its Initial Public Offering (IPO) for equity shares, each having a face value of Rs 5. The IPO price range is set between Rs 983 and Rs 1,035 per equity share, resulting in a total issue size of Rs 1,964.01 crore at the upper price band. 

The IPO is scheduled to commence on September 13, 2023, and will conclude on September 15, 2023. The anticipated listing on the exchange is set for September 26, 2023. The market lot size for the IPO is 14 shares, with the option to apply for multiples of this lot. Individual retail investors have the opportunity to apply for a maximum of 13 lots, equivalent to 182 shares or a total investment of Rs 1,88,370, assuming the upper price band. Eligible employees participating in the Employee Reservation Portion have the opportunity to avail of a discount of Rs 98 per equity share. 

Objects of the Issue 

The company plans to allocate the net proceeds raised from the issue for the following purposes: 

1. Repayment or pre-payment, either in full or in part, of loans obtained from banks by the company (136 crore) 

2. Meeting general corporate requirements and expenses 

Promoter holding 

Mahendrakumar Rameshwarlal Kabra, Hemant Mahendrakumar Kabra, and Sumeet Mahendrakumar Kabra are notable promoters of the company. The promoters currently hold a pre-issue shareholding stake of 66.42 per cent in the company. 

Company profile 

The company's product offerings are categorized into two primary segments: wires and cables, encompassing house wires, industrial wires, power cables and special cables; and fast-moving electrical goods (FMEG), which include fans, lighting, switches, and appliances. 

In addition to its presence on well-known e-commerce platforms, the company boasts an expansive nationwide distribution network and holds the position of being the fifth-largest player in India's wires and cables market. The company's products hold noteworthy international product certifications, and it boasts one of the highest counts of such certifications among its peers. 

The company also has one of the largest networks of distributors catering to the widespread retail presence within the consumer electrical industry, and it has significantly expanded its retail outlets. The company operates its manufacturing facilities in multiple locations, including Silvassa, Waghodia, Bengaluru, Roorkee, and Gagret

Financials 

Outlook and Valuation  

Considering the sector's outlook, especially amid the fluctuating temperatures in India, which led to a surge in electricity demand, particularly during August, stocks in the power and electrical appliances sector delivered impressive returns during this period, highlighting their resilience. The power sector's new domestic sourcing rules and the ‘Make in India’ initiative are giving the sector a much-needed boost. Additionally, the recent push to make India self-sufficient is encouraging for the industry.  A favourable environment for the industry is being enabled by tailwinds like the government's emphasis on infrastructure, the real estate sector's revival, and healthy demand across end-user industries.   

The company generates a significant 97 per cent of its revenue from the FMEG segment, representing the largest share among its peer companies. While the company has showcased consistent growth in its sales and operating profit, it encountered margin pressures in FY23. As of March 31, 2023, it commands approximately 5 per cent market share by value. 

For the purpose of offering a comparative context, the prospectus emphasizes Polycab India, KEI Industries, Finolex Cables, Havells India, Crompton Greaves Consumer, and Bajaj Electricals as listed peers of the company. Shares of these companies are currently trading at PE ratios of 52, 47, 31, 79, 42 and 57 respectively. When we compute the PE ratio for R R Kabel Ltd by considering FY23 earnings to the post-IPO fully diluted paid-up equity capital of the company, the resulting PE ratio is around 39, which stands notably more favourable when compared to its peers. 

The issue is priced with a P/BV ratio of 7.69 times, calculated using its Net Asset Value (NAV) of Rs 134.57 as of June 30, 2023. At the upper price cap, it is priced at a P/BV ratio of 6.97, considering its post-IPO NAV of Rs 148.44 per share. Over the past three years, the company has reported a 16 per cent return on equity. 

The Grey Market Premium (GMP) is the difference between the IPO's issue price (the price at which the company is offering its shares to the public) and the price at which those shares are trading in the Grey Market. In the case of R R Kabel Ltd, there is anticipation of a 21 per cent potential gain upon listing, bolstered by a Grey Market premium of Rs 220 on top of the IPO price of Rs 1,035. 

Therefore, we recommend that investors consider subscribing to the issue with a long-term perspective, as this company appears poised for sustained growth.