IPO Flash

April 03, 2019

Index
Polycab India Limited
About the IPO •
Company background •
Key investment positives •
Key risks •
Financials •

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IPO Details: cables and fast moving electrical goods (FMEG)

Issue opens Friday, April 05,2019
under the “POLYCAB” brand. Apart from wires and
cables, Polycab manufactures and sells FMEG such
Issue closes Tuesday, April 09, 2019
as electric fans, LED lighting and luminaires, switches
Issue size Rs. 1,336.47 crore-Rs. 1,345.26 crore
and switchgears, solar products and conduits
Type of issue Fresh of equity shares + offer for
and accessories. In 2009, they diversified into the
sale of equity shares
engineering, procurement and construction (EPC)
Offer size (fresh) Rs 400 crore
business, which includes the design, engineering,
Offer for sale 17582000 equity shares
supply, execution and commissioning of power
Face value Rs10 per share distribution and rural electrification projects.
Price band Rs533-538
Bid lot Minimum lot of 27equity shares
and in multiples of 27 equity Key investment positives
shares
Market leader in wires and cables with wide range
QIB portion Not more than 50% of the issue
size
of product portfolio
Non-institutional portion Not more than 15% of the issue size Polycab is the largest wires and cables manufacturer
Retail portion Not more than 35% of the issue in India, with a market share of approximately 18%
size of the organized wires and cables industry. It is
Merchant Banker Axis Capital, Kotak Mahindra Cap- one of the faster growing players with operating
ital, Citigroup Global, Edelweiss
revenue growth at a CAGR of 14.2% from Fiscals
Financial
2014 to 2018. It also has one of the most extensive
Source: Company RHP, Sharekhan Research
portfolio of wires and cables to cater to the needs
of their institutional and retail customers in different
industries. Going ahead, Polycab intends to
expand their market share by targeting key growth
About IPO sectors such as mining, oil and gas, shipping,
Polycab India Limited is coming out with an initial power, renewables, infrastructure, construction,
public offering (IPO) of 2.50-2.51 crore equity shares automotive, telecommunication and agriculture. In
(including employee reservation of 0.0175 crore Fiscal 2018 their products were exported to more
shares) with face value of Rs. 10 each. The issue is than 40 countries in the world.
priced at Rs. 533-538 per share and size of the issue High level of backward integration: Polycab has
is Rs. 1,336.47 crore – Rs. 1,345.26 crore comprising 24 manufacturing facilities, 3 of which are dedicated
fresh issue of Rs. 400 crore and offer for sale of 1.75 for FMEG products. The majority of the products are
crore equity share. The objective of the issue is for manufactured in-house with a focus on backward
1) scheduled repayment of all or certain borrowings integration, providing control over quality, costs,
availed by the company amounting Rs. 80 crore 2) and better inventory management. The Ryker Plant,
To fund incremental working capital requirement once fully operational, will fulfill a substantial part
of the company amounting Rs. 240 crore and 3) of the demand for copper wire rods.
general corporate purposes.
Strong distribution network
Company background Polycab has wide distribution network across
India which enables them to roll out new products
Polycab India Limited (Polycab) is engaged in the faster and gives them a competitive advantage
business of manufacturing and selling wires and over their competitors. As on December 31, 2018,

Shareholding pattern
Particulars Pre-issue Post-issue (Lower band) Post-issue (Upper band)
No. of shares % No. of shares % No. of shares %

Promoters 111472029 78.9 102100345 68.7 102100345 68.7

Institutions - - 12455845 8.4 12420972 8.4
Non-Institutions - - 3736754 2.5 3726292 2.5
Public 29733809 21.1 30417585 20.5 30393173 20.4
Total 141205838 100.0 148710528 100.0 148640782 100.0
Source: Company RHP

April 03, 2019 2

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their distribution network across India, comprises
2,800 authorized dealers and distributors. The
company supplies their products directly to their
authorized dealers and distributors who in turn,
sell their products to over 100,000 retail outlets
in India. Further, they supply their portfolio of
products to their direct customers including EPC
companies and government companies through
direct sales. Polycab manages their sales and
marketing activities through 1 corporate office, 3
regional offices and 20 local offices in India as on
December 31, 2018. To strengthen their distribution
network, Polycab has undertaken several internal
and external facing initiatives. Key initiatives include
(i) the customer relationship management (“CRM”)
programme, Bandhan, and (ii) Project Josh, which
seeks to increase their market share in the FMEG
segment in a targeted and organized manner.
Valuation
Polycab has a strong growth profile with revenue,
operating profit and net profit reporting a CAGR of
10%, 23% and 42%, respectively, during FY2016-
FY2018. Further, it has low net debt/equity of 0.2x as
on December 2019. At the upper price band, Polycab
is valued at a P/E of 21.6x its FY2018 earnings which
is much lower than the industry average but almost
at par with close peers like KEI Industries and
Finolex cables. However its RoE is tad lower than
industry players barring Finolex cables.
Comparison with listed industry peers for FY2018
Particulars EPS P/E EV/
EBITDA
Polycab India 25.0 21.6 11.8
KEI Industries 18.3 22.5 11.6
Finolex Cables 21.6 21.5 13.6
Havells India** 10.6 72.9 44.8
Bajaj Electricals 15.9 35.0 21.7
Crompton Greaves 5.2 44.0 27.0
Consumer Electricals
Source: Company RHP, Annual Report of individual companies
** P/E appears high due to one-time expenses in FY2018
Key risks
Fluctuations in raw material prices pose a key
challenge: Realisation and profitability in cables
and wires industry is dependent on copper and
aluminium commodity prices. Typically, a change
in the price of raw materials, mainly copper and
aluminium and steel to a certain extent, is passed on
April 03, 2019 3
IPO Flash
to the consumers. This affects the volume of sales,
as an increase in prices may reduce the volumes
of sales. Depending on overall end-industry and
economic outlook, the revenues (prices * volume)
may increase or decrease
Heavily dependent on the performance of the
Wires and Cables: Polycab derives 89% (FY18) of
its revenues from the manufacturing and supply
of wires and cables. The Wires and Cables market
may be affected by, among others, changes in
government policies, slower execution, and delays
in projects, government initiatives, economic
conditions - all negatively affecting the demand.
Inability to maintain the stability of its distribution
network and attract additional distributors and
dealers: Polycab does not have any arrangements
with its distributors and dealers which requires
them to exclusively sell its products. In addition,
the company has no control over its competitors
who may offer greater incentives to its current
distributors and dealers.
Substantial requirement of capital expenditure
and working capital: Since the company
manufactures its products in-house, it requires
significant investments in capital expenditure,
and has higher working capital needs. Significant
amount of working capital is required to finance
the purchase of materials. Trade receivables are
non-interest bearing and are generally on credit
terms up to 90 days, except for the EPC business
P/B RoE for which credit terms are dependent on the terms
(%) of contracts.
3.4 15.8
Currency risk: Polycab faces forex risks as a
5.4 23.9
significant portion of its raw material purchases,
2.9 13.6
particularly aluminum (18.2%), copper (56.8%), and
12.9 17.7
PVC Compound (13.6%), are priced with reference
6.1 17.3
to benchmarks quoted in the USD, and hence the
18.0 41.0
expenditures are largely influenced by the value of
the USD. Further, as the company seeks to hedge
its foreign currency risk by entering into forward
contracts, any steps undertaken to hedge the risks
due to currency fluctuations may not adequately
cover any losses it incurs due to such fluctuations.
Tax benefits: The company is entitled to some
tax benefits in respect of its windmill used for the
generation of power for captive consumption and
additional depreciation benefits. Profitability may
be further affected in the future if any of such
benefits are reduced or withdrawn prematurely.
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Financials
Profit and loss account (Consolidated) Rs. cr
Particulars FY2016 FY2017 FY2018 9M2019
Revenue from operations 5714 6047 6924 5507
YoY growth (%) 81.6 5.8 14.5 13.9
Total Expense 5223 5567 6183 4813
EBITDA 491 480 741 694
EBITDA margin (%) 8.6 7.9 10.7 12.6
Other income 33 76 62 54
Finance costs 147 66 94 90
Depreciation and amortization expense 111 128 133 107
Share in Profit/(Loss) of Joint Ventures 0 0 0 -5
Profit before income tax 265 361 577 546
Income tax expense 81 128 206 188
Profit for the year 185 233 371 358
No of shares 15 15 15 15
EPS 12.4 15.7 25.0 24.1
Source: Company RHP

Restated consolidated summary statement of assets & liabilities Rs. cr

Particulars FY2016 FY2017 FY2018 9M2019
Liabilities
Equity 141 141 141 141
Other Equity 1642 1853 2208 2575
Total equity 1783 1994 2350 2716
Non-controlling interests 3 3 4 7
Borrowings 796 821 728 540
Trade payables 1057 1354 922 1534
Other current liabilities 174 284 319 473
Provisions 31 38 47 49
Other long-term liabilities 31 85 74 67
Total liabilities 3875 4579 4443 5386
Assets
Property, plant and equipment 985 1128 1197 1272
CWIP 138 165 136 143
Investment in Joint Ventures 0 33 31 27
Investments 0 0 0
Trade receivables 1389 1248 1374 1187
Inventories 980 1520 1366 2306
Cash and cash equivalents 51 30 11 8
Other current and non-current assets 332 455 328 444
Total assets 3875 4579 4443 5386
Source: Company RHP

April 03, 2019 4

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