Plaza Wires IPO review (Apply)

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Review By Dilip Davda on September 28, 2023

•    PWL is engaged in the business of electrical wires and FMEG.
•    The company posted steady growth in its top and bottom lines for the reported periods.
•    Based on FY23 earnings, the issue appears fully priced. 
•    It is operating in a highly competitive segment with many big players around.
•    Investors may consider parking funds for the medium to long-term rewards.

PREFACE:
Plaza Wires is expanding its wires portfolio with a new manufacturing unit which is under construction and will be operational from August 2024. However, the company also has other FMEGs that include PCB, Fans, Iron, water heaters, etc. Thus it fits in the rank of Polycab, and RR Kabel - to name a few. Due to this, a P/E of 31+ appears legitimate. 

 ABOUT COMPANY:
Plaza Wires Ltd. (PWL) is engaged in the business of manufacturing and selling wires, and selling and marketing LT aluminium cables and fast-moving electrical goods ("FMEG") under its flagship brand "PLAZA CABLES" and home brands such as "Action Wires" and "PCG". 

In 2021, it launched a line of house wire under the brand "Action Wires" for the product at an economical price range. According to the Resurgent India Research Report, it is one of the growing manufacturers in the wires and cables industry in the northern region of India and provides an extensive range of wires and cables. Its product mix comprises different types of wires and cables, and FMEG such as electric fans, water heaters, switches, switchgear, PVC insulated electrical tape, and PVC conduit pipe and accessories. According to Resurgent India Limited, the wires and cables industry in India, in value terms, has grown at a compound annual growth rate ("CAGR") of approximately 13.68% in the last five years to reach Rs. 788.00 billion in Fiscal 2021. Resurgent India Limited expects the wires and cables industry in India to expand at a CAGR of approximately 14.50% in value terms to reach approximately Rs. 1550.00 billion by Fiscal 2026.

PWL sells its products through a variety of distribution channels depending on geography, industry norms, and trends. Its Business model includes 1) dealer and distribution network to sell and promote products, including sales through C&F agents. The company selects its dealers and distributors based on their sales network, market reputation, and financial strength including sales and 2) Securing government tenders for supply to government projects and 3) Direct sales to infrastructure projects

The company billed 1249 dealers and distributors as of the year ended March 31, 2023. As of March 31, 2023, it had 192 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden book-building route IPO of 13200158 equity shares of Rs. 10 each. It has announced a price band of Rs. 51 - Rs. 54 per share of Rs. 10 each and mulls mobilizing Rs. 71.28 cr. at the upper cap. The issue opens for subscription on September 29, 2023, and will close on October 05, 2023. The minimum application to be made is for 277 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 30.17% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, the company will utilize Rs. 24.41 cr. for capex towards the proposed manufacturing unit for house wires, fire-resistant wires, and cables, aluminium cables, and solar cables to increase its product portfolio, Rs. 22.00 cr. for working capital, and the rest for general corporate purposes.  

The company has allocated not less than 75% for QIBs, not more than 15% for HNIs, and not more than 10% for Retail investors. 

Pantomath Capital Advisors Pvt. Ltd. is the sole Book Running Lead Manager (BRLM) and KFin Technologies Ltd. is the registrar of the issue. 

Having issued initial equity shares at par value, the company issued/converted further equity shares in the price range of Rs. 50 - Rs. 60 (based on FV of Rs. 10) between November 2007 and March 2016. It has also issued bonus shares in the ratio of 7 for 1 in March 2022. The average cost of acquisition of shares by the promoters is Rs. 8.40 and Rs. 38.32 per share. 

Post-IPO, PWL's current paid-up equity capital of Rs. 30.55 cr. will stand enhanced to Rs. 43.75 cr. Based on the upper cap of the IPO pricing, the company is looking for a market cap of Rs. 236.26 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, PWL has posted a total income/net profit of Rs. 145.60 cr. / Rs. 4.24 cr. (FY21), Rs. 176.94 cr. / Rs. 5.95 cr. (FY22), and Rs. 182.60 cr. / Rs. 7.51 cr. (FY23). 

For the last three fiscals, the company has reported an average EPS of Rs. 2.11 and an average RoNW of 13.23%. The issue is priced at a P/BV of 3.11 based on its NAV of Rs. 17.37 as of March 31, 2023, and at a P/BV of 1.90 based on its post-IPO NAV of Rs. 28.42 per share (at the upper cap). 

If we attribute FY23 earnings to the post-IPO fully diluted paid-up equity capital of the company, then the asking price is at a P/E of 31.40. The issue appears fully priced based on its financial performance so far. It is poised for bright prospects ahead with its expansion plans afoot. 

For the last three fiscals, the company has posted PAT margins of 2.91% (FY21), 3.37% (FY22), and 4.11% (FY23), and RoCE margins of 11.62%, 13.90%, and 15.57% for corresponding periods respectively. Thus the company marked steady growth in its margins.  

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. 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, Ultracab, V-Marc, Dynamic Cables, and Paramount Communications. They are trading at a P/E of 18.29, 26.53, 21.47, 28.52, and 27.49 (as of September 27, 2023). However, they are not comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
The BRLM associated with the issue has handled 7 public issues in the past three fiscal years, and none of them closed below the issue price on the listing date.

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