The worth band of the difficulty has been set within the vary of ₹218 to ₹230 per share. On the higher finish, the corporate’s market cap involves round ₹2,203 crore. Put up-issue, the promoter shareholding will come down from 65 per cent to 48 per cent.
Listed below are 4 issues to know concerning the IPO.
1. Enterprise
Initially established as an Authentic Gear Producer (OEM) for AC manufacturers, the corporate expanded its scope to embody the design and manufacture of a various vary of room airconditioners (RACs) together with window inverter ACs and cut up ACs, in addition to Small Home Home equipment (SDAs), reminiscent of induction cooktops, mixer grinders, and water dispensers.
Presently, the corporate oversees operations throughout three manufacturing amenities, with the newest inauguration of the Sri Metropolis plant in 2023. Greater than 80 per cent of the corporate’s whole income is derived from the RAC phase, with a predominant concentrate on the Indian market.
The corporate serves six out of the highest ten Indian RAC manufacturers (primarily based on home gross sales in FY 2023), together with Voltas, Daikin, Havells, Blue Star, Haier, and Provider. Within the SDA phase, notable clientele includes Bajaj Electricals, BSH Family Home equipment, and Usha.
2. Strengths
EPACK at present holds the second place within the Indian room airconditioner Authentic Design Manufacturing (ODM) house, boasting a 24 per cent market share from lower than 10 per cent three years in the past, underscoring its presence in a quickly increasing market phase. The corporate has established enduring relationships with distinguished AC manufacturers to safe constant provide orders.
Moreover, EPACK has successfully lowered its debt-to-equity ratio from 3.5x in FY 2021 to 1.6x in FY 2023. It has achieved a backward integration in its manufacturing processes, producing key AC elements in-house. Amongst varied client sturdy merchandise, reminiscent of televisions, fridges, and washing machines, the RAC phase displays a relatively decrease penetration fee of 8 per cent in India, whereas the worldwide common RAC penetration stands at 42 per cent. Given this context, the ODM-RAC business is strategically positioned to leverage potential development alternatives because the financial system and client consumption proceed to develop.
3. Dangers
Whereas the corporate has efficiently fostered enterprise partnerships with particular clientele, it at present operates with none long-term contractual agreements. This absence of sustained contractual commitments could pose potential challenges to income visibility. Moreover, a notable focus danger is clear as practically 80 per cent of the corporate’s income is derived from its high 5 purchasers.
The corporate’s major income stream is derived from airconditioners, a seasonal product with demand predominantly concentrated in the summertime months. This inherent seasonality could give rise to uneven money move patterns all year long and impression working capital cycles. Whereas the corporate does manufacture sure vital elements internally, it depends on the import of supplies reminiscent of copper and aluminium sheets, with the related import prices accounting for near 40 per cent of the full value of supplies in FY23. This leads to EPACK’s publicity to forex fee fluctuations and as per the RHP, EPACK has not hedged its international forex danger with derivatives devices.
The ODM and Electronics Manufacturing Service (EMS) house is very aggressive, with established gamers reminiscent of Amber Enterprises, PG Electroplast, Dixon Applied sciences, and Elin Electronics. EPACK’s profitability margins together with gross revenue, EBITDA, and PAT margins are low in comparison with its closest peer Amber Enterprises (the RAC division contributes 43 per cent to the general income). Low-margin firms could face outsized danger within the occasion of a slowdown.
4. Financials and Valuations
Throughout FY21-23, the corporate grew at a CAGR of 45 per cent, attaining revenues from operations totalling roughly ₹1,539 crore on account of elevated gross sales of manufactured items. Concurrently, the corporate’s EBITDA witnessed a CAGR of 56 per cent, and EBITDA margin remained within the vary of 6-7 per cent.
This lack of enchancment in EBITDA margins could be attributed to the inflationary pressures exerted on the price of supplies consumed. PAT exhibited a CAGR of 102 per cent with the PAT margin development in line (margins doubled from 1 per cent in FY 21 to 2 per cent in FY 23). Within the H1 FY24, EPACK reported income of ₹615 crore with an EBITDA margin of 6 per cent and a internet revenue of ₹2.6 crore (PAT margin of simply 0.4 per cent).
On the higher boundary of the value band, the corporate’s valuation stands at roughly 69 instances its FY23 earnings, coupled with an EV/EBITDA (FY23) a number of of 21 instances. Given the seasonality in enterprise now we have thought-about FY23 numbers as a substitute of 1H FY24 numbers. Whereas valuation seems comparatively cheaper when in comparison with Amber Enterprises which trades 80 instances its FY23 earnings and at an EV/EBITDA of 29 instances., contemplating low margins and enterprise focus dangers, the IPO seems to be priced expensively.
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