Prince Pipes IPO review (May apply)

•    PPFL is one of the leading polymer pipes and fittings manufacturers.
•    Products are sold under the brand names 'Prince Piping Systems' and 'Trubore'.
•    It currently has 6 plants, 11 warehouses and 1151 distributors in India.
•    This is the combo IPO of an offer for sale (50%) and fresh equity issue (50%).
•    Polymer piping segment is poised for tough competition.

PREFACE:
PPFL originally filed its first DRHP in Sept. 2017 and despite getting SEBI node it allowed to lapse it under the pretext of bad market condition. It again refilled DRHP in October 2018 and got SEBI node that is expiring shortly and hence, in a hurried way, it has planned this IPO.
 
ABOUT COMPANY:
Prince Pipes & Fittings Ltd. (PPFL) is one of the leading polymer pipes and fittings manufacturers in India in terms of the number of distributors (Source: CRISIL Research Report). The company markets its products under two brand names i.e.  Prince Piping Systems; and Trubore. Due to comprehensive product range, it is positioned as an end-to-end polymer piping systems solution provider having more than 30 years' experience in the polymer pipes segment.
 
PPFL currently manufactures polymer pipes using four different polymers: UPVC; CPVC; PPR; and HDPE, and fittings using three different polymers: UPVC; CPVC; and PPR. As of October 31, 2019, it had a product range of 7,167 SKUs. Company's products are used for varied applications in plumbing, irrigation, and soil, waste and rainwater ('SWR') management that meets the requirements of both the rural and urban markets.
 
PPFL has six strategically located manufacturing plants, which gives it a strong presence in North, West and South India. The total installed capacity of six existing plants is 241,211 tonnes per annum as of October 31, 2019. PPFL plans to expand the installed capacity at its plant in Jobner (Rajasthan) from 6,221 tonnes per annum as at October 31, 2019, to 17,021 tonnes per annum by December 31, 2019, and to 20,909 tonnes per annum by the end of Fiscal 2020. The company uses five contract manufacturers, of which two are in Aurangabad (Maharashtra), one is in Guntur (Andhra Pradesh), one is in Balasore (Odisha) and one is in Hajipur (Bihar).
 
PPFL plans to set up a new manufacturing plant in Sangareddy (Telangana), with a total estimated installed capacity of 51,943 tonnes per annum. The company plans to commence production at the Telangana plant in Fiscal 2021.
 
The company distributes products from its six plants and 11 warehouses. Its warehouses are managed by clearing and forwarding agents. As at October 31, 2019, it sold Prince Piping Systems products to 1,151 distributors in India and Trubore products to 257 wholesalers and retailers.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance repayment/prepayment of certain outstanding loans (Rs. 10 cr.), setting up of new facility (Rs. 159 cr.), up-gradation of equipments (Rs. 49.10 cr.) and general corpus fund needs, PPFL is coming out with its maiden IPO of offer for sale amounting to Rs. 250 cr. and fresh equity issue for Rs. 250 crore, thus making the overall size of the issue of Rs. 500 cr. The company has fixed a price band of Rs. 177 - Rs. 178 per share. At the upper price band of Rs. 178, PPFL will issue approx. 28089888 equity shares for the entire issue process, thus offer for sale will be approx. 14044944 shares and equal number of shares will be as a fresh equity issue.  The issue opens for subscription on 18.12.19 and will close on 20.12.19. Minimum application is to be made for 84 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. Issue constitutes 25.52% of the post issue paid-up capital of the company. PPFL has allocated 50% for QIBs, 15% for HNIs and 35% for retail investors.
 
Having issued initial equity at par, PPFL converted CCPS into equity (5965000 shares) at a price of Rs. 178 per share in December 2019 as Pre-IPO placement. It has issued bonus shares in the ratio of 2 for 1 in June 2002, 1 for 1 in December 2005, 1 for 1 in March 2009, 1 for 1 in March 2013, 1 for 1 in March 2014 and 1 for 1 in June 2017. The average cost of acquisitions of shares by the promoters is Rs. 0.10, Rs. Rs. 0.12, 0.62 and Rs. 11.86 per share. Post issue its current paid-up equity capital of Rs. 95.98 cr. will stand enhanced to Rs. 110.03 cr.
 
The company is operating at an average EBITDA margin of around 12.5% for the last three fiscals.

Joint BRLM's to this issue are JM Financial Ltd. and Edelweiss Financial Services Ltd., while Link Intime India Pvt.  Ltd. is the registrar to the issue.  

FINANCIAL PERFORMANCE:
For the last three fiscals, PPFL has posted turnover/net profits of Rs. 1332.50 cr. / Rs. 74.18 cr. (FY17), Rs. 1326.57 cr. / Rs. 72.77 cr. (FY18) and Rs. 1579.00 cr. / Rs. 83.35 cr. (FY19). Thus after two static performances for FY17 and FY18, it has shown growth in top and bottom lines. For the first quarter of FY20, it has earned a net profit of Rs. 26.67 cr. on a turnover of Rs. 380.19 cr. sudden jump top and bottom line for Q1 raises concern.
 
For the last three fiscals, PPFL has posted an average EPS of Rs.8.63 and an average RoNW of 23.68%. The issue is priced at a P/BV of 3.81 based on its NAV of Rs. 46.70 as on 30.06.19.
 
If we annualize FY20 earnings and attribute it on fully diluted equity post issue, then asking price is at a P/E of around 18.35 against industry composite of 38.89. Based on its financial performance, issue appears fully priced discounting near term positives. It has tough competition from other big players as well as from the unorganized sector.
 
COMPARISION WITH LISTED PEERS:
As per offer documents, PPFL has shown Astral Poly, Finolex Ind. And Supreme Industries as its listed peers that are currently trading at a P/Es of 89.52, 19.96 and 35.34. (as on 17.12.19). However, they are not strictly comparable.

MERCHANT BANKER'S TRACK RECORDS:
Two BRLMs associated with the issue have handled 27 public issues in the past three years out of which 5 closed below the issue price on listing date.