DCG Cables & Wires NSE SME IPO review (Apply)

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Review By Dilip Davda on April 5, 2024

•    DCWL is in the business of manufacturing and marketing copper cables and other related products with and fiber glass covered copper products. 
•    After average performance till FY23, it marked windfall gains with high margin products.
•    Based on FY24 super earnings, the issue appears fully priced. 
•    Well-informed investors may park moderate funds for the medium term rewards. 

ABOUT COMPANY:
DCG Cables & Wires Ltd.(DCWL) is manufacturer of copper cables and wires. It primarily focuses are on manufacturing of different types of copper cables which finds application in Transformers. DCWL's product portfolio consists of Copper Strips, Paper Covered Copper Strips and Wires (Kraft/Crepe/Nomex/Mica) Bare Copper Wires and Strips, Copper Tapes and Fiber Glass Copper.

The company offers a wide range of copper products. Its products include bare copper strips, conductors, and wires, ensuring optimal conductivity for various applications. It also provides paper-covered copper conductors in both rectangular and round shapes, as well as multi-paper-covered copper conductors and connection cables designed specifically for transformers. For added durability, the company offers fiber glass-covered copper strips and wires. Additionally, its copper submersible wires and strips are perfect for submersible applications. It also supplies twin and triple bunched paper-covered copper strips and bunch conductors.

It majorly supplies products to the transformer manufacturing companies in India and DCWL's main marketing strategy is to develop and maintain good relationships with customers. As on the date of this Prospectus, the company has three manufacturing units -  Odhav, Ahmedabad, Kubadthal, Ahmedabad, and Waghodia, Vadodara, with a combined installed capacity of 5868 MT for manufacturing bare Copper wire & Strips, 1404 MT for Paper Covered Copper Strips & wire, 1512 MT for Cable Wires, 5,760 MT for Copper Rods, 10080 MT for Copper Flats, 972 MT for Submersible Wires and 540 MT for Fiber Glass Covered Copper Strips. 

DCWL is currently in process of setting up a new manufacturing plant at Bhayla, Bavla, Gujarat, in order to increase its manufacturing capabilities. The land on which the said plant is being constructed comprises of over 8308 sq. mtrs. area and is obtained by it on lease from Promoter Director for a period of 7 years from November 20, 2023. As and when needed, the company is gradually planning to consolidate and shift all three existing manufacturing facilities to this new manufacturing facility for better administration, efficiency and cost optimization.

DCWL is in B2B (Business to Business) Segment only. Currently, its more than 94.81% of sales comes from Gujarat and recently, it started selling in Maharashtra and Karnataka region, which contributes close to 5.16% of total sales for the period ended September 30, 2023. As of February 29, 2024, it had 69 employees on its payroll.

For the sudden boost in its bottom lines for 11M-FY24, the management said that due to its cost control and major focus on high margin product portfolio, it managed double digit growth in the net profits. It has more thrust for such high margin products going forward and will be able to maintain the trends. Higher spending by the Government of India on energy augurs well for the company, that is partnering with many blue-chip companies for niche components and other related materials. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 4999200 equity shares of Rs. 10 each at a fixed price of Rs. 100 per share to mobilize Rs. 49.99 cr. The issue opens for subscription on April 08, 2024, and will close on April 10, 2024. The minimum application to be made is for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 27.54% of the post-IPO paid-up capital of the company. The company is spending Rs. 2.70 cr. for this IPO process, and from the net proceeds, it will utilize Rs. 5.36 cr. for building construction, Rs. 33.20 cr. for working capital, and Rs. 8.73 cr. for general corporate purposes. 

The issue is solely lead managed by Interactive Financial Services Ltd., and Bigshare Services Pvt. Ltd. is the registrar of the issue. Nikunj Stock Brokers Ltd. is the market maker for the company. 

The company has issued entire equity capital at par so far. The average cost of acquisition of shares by the promoters is Rs. 10 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 13.15 cr. will stand enhanced to Rs. 18.15cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 181.50 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last fiscal, the company has (on a consolidated basis) posted a total revenue/net profit of Rs. 54.55 cr. / Rs. 1.72 cr. (FY23). For 11M of FY24 ended on February 29, 2024, it earned a net profit of Rs. 8.47 cr. on a total revenue of Rs. 76.39 cr. 

On a standalone basis, for the last three fiscals, the company has posted a total revenue/net profit/-(loss) of Rs. 14.63 cr. / Rs. 0.10 cr. (FY21), Rs. 27.70 cr. / Rs. 0.37 cr. (FY22), Rs. 54.55 cr. / Rs. 1.72 cr. (FY23), and for 11M of FY24 ended on February 29, 2024, it earned a net profit of Rs. 8.47 cr. on a total revenue of Rs. 76.39 cr. The super profit for 11M-FY24 despite paying the highest ever finance cost of Rs. 2.67 cr. raise eyebrows. However, as clarified by the management, its due to eased metal prices, pre-booked orders at higher margins resulted in higher earnings and as the inflow of orders due to higher spending by the Government of India on energy sector augurs well for the company, it is confident of maintaining the trends indicated by recent performance.

For the last three fiscals, it has reported an average EPS of Rs. 19.47, and an average RONW of 21.54%. The issue is priced at a P/BV of 5.57 based on its NAV of Rs. 17.94 as of February 29, 2024, and at a P/BV of 2.47 based on its post-IPO NAV of Rs. 40.54 per share.

If we attribute annualized FY24 super earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 19.65. Based on FY23 earnings, the issue is priced at a P/E of 105.26. Thus issue appears fully priced.  

For the reported periods, the company has posted PAT margins of 0.70% (FY21), 1.34% (FY22), 3.15% (FY23), 11.09% (11M-FY24), and RoCE margins of 78.79%, 8.38%, 11.22%, 59.10% respectively for the referred periods. 

DIVIDEND POLICY:
The company has not declared any dividends since incorporation. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Cords Cable, and Universal Cables as their listed peers. They are trading at a P/E of 25.8 and 17.0 (as of April 05, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 16th mandate from Interactive Financial in the last four fiscals, out of the last 10 listings, 2 opened at discount, 2 at par and the rest with premiums ranging from 1.46% to 20.74% on the day of listing. 

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