Marco Cables NSE SME IPO review (May apply)

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Review By Dilip Davda on September 19, 2023

•    MCCL is engaged in the business of manufacturing and supplying electrical wires, cables etc.
•    It posted static top lines for FY22 and FY23.
•    The sudden boost in its bottom lines for FY23 is surprising. 
•    The sustainability of super margins for FY23 raises concern.
•    Well-informed/risk seekers may park funds for the medium to long term. 

ABOUT COMPANY:
Marco Cables and Conductors Ltd. (MCCL) is engaged in the business of manufacturing and selling wires, cable wires, and conductors in India, with an operating history of over 34 years in the power cable industry in India. It commenced operations with the manufacturing of wires (with aluminum/copper conductor), XLPE /PVC cables, and Aerial Bunched Cables, it included AAAC (All Aluminium Alloy Conductor) and ACSR (Aluminium Conductor Steel Reinforced) Conductors and had made a presence in the industry. 

It has been manufacturing XLPE, PVC, and Aerial Bunched Cables for the last 3 decades. Recently, it has started ACSR - Aluminium Conductor Steel Reinforced, AAAC - All Aluminium Alloy Conductor, and ABC - (Aerial Bunched Cable) for distribution and transmission power lines. Over the years the company has developed expertise and upgraded its technology by adding several automatic machineries and equipment to the plant, which has helped boost in production capacity and the quality of products.

The majority of its products are supplied to electricity boards of different states like Maharashtra, Gujarat, Tamil Nadu, Telangana, Haryana, Chhattisgarh, Madhya Pradesh, etc., and turnkey contractors of India. Its products cover the entire range of voltage and transmission lines suitable for up to 1.1 KV. The company sells products through a diversified sales and distribution mix, majorly by 1) securing government tenders for supply to government projects 2) supplying to EPC contractors for turnkey projects, and 3) direct sales to a few private companies. Over the years, it has made continuous investments in manufacturing infrastructure to support product portfolio requirements and reach. As of July 15, 2023, it had 79 employees on its payroll. It keeps hiring contract labourers as and when needed. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden combo IPO of 5202000 equity shares of Rs. 10 each at a fixed price of Rs. 36 per share to mobilize Rs. 18.72 cr. The issue consists of 2601000 fresh equity shares issue (worth Rs. 9.36 cr.) and 2601000 shares (Rs. 9.36 cr.) by Offer for Sale (OFS). The issue opens for subscription on September 21, 2023, and will close on September 25, 2023. The minimum application to be made is for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME emerge. The issue constitutes 27.82% of the post-IPO paid-up capital of the company. MCCL is spending Rs. 0.80 cr. for this IPO process. From the net proceeds of the fresh equity shares issue, it will utilize Rs. 1.86 cr. for the purchase of a solar power system and stranding machine, Rs. 5.00 cr. for working capital and Rs. 1.70 cr. for general corporate purposes.  

Shreni Shares Pvt. Ltd. Is the sole lead manager and Bigshare Services Pvt. Ltd. Is the registrar of the issue. Shreni Shares Ltd. Is also the market maker for the company. 

Having issued initial equity shares at par value, the company issued further equity shares at a price of Rs. 111 per share (FV of Rs. 10 each) in March 2023. It has also issued bonus shares in the ratio of 4 for 1 in April 2023. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 1.73, Rs. 5.06, and Rs. 8.16 per share. 

Post-IPO, MCCL's current paid-up equity capital of Rs. 16.10 cr. will stand enhanced to Rs. 18.70 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 67.32 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a turnover/net profit of Rs. 42.83 cr. / Rs. 0.12 cr. (FY21), Rs. 56.65 cr. / Rs. 0.34 cr. (FY22), and Rs. 56.94 cr. / Rs. 2.81 cr. (FY23). While its top line remained static for FY22 and FY23, its bottom line posting many fold increases for FY23 raised eyebrows and concern over sustainability going forward. 

For the last three fiscals, MCCL has reported an average EPS of 0.97 and an average RoNW of 10.40%. The issue is priced at a P/BV of 3.64 based on its NAV of Rs. 9.89 as of March 31, 2023, and at a P/BV of 2.78 based on its post-IPO NAV of Rs. 12.93 per share. 

If we attribute super earnings of FY23 to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 24. Thus the issue appears fully priced with super earnings of FY23.

DIVIDEND POLICY:
The company has not paid 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 V-Marc, Ultracab, and Relicab Cable as their listed peers. They are trading at a P/E of 25.31, 26.50, and 62.95 (as of September 18, 2023). However, they are not comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 21st mandate from Shreni Shares in the last three fiscals (including the ongoing one). Out of the last 10 listings, 1 opened at a discount and the rest with premiums ranging from 2.74% to 143.24% on the day of listing. 

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