Prince Pipes IPO kicks off: Here's what 10 brokerages say on the issue

NEW DELHI: Prince Pipes and Fittings IPO opened up for subscription on Wednesday. While the commentary from analysts is a bit mixed, given the outstanding litigations against the company promoters who have exposure to real estate and infrastructure businesses, a few experts believe one could still subscribe to the issue for listing gains.

At the price band of Rs 177-178 per share, the IPO is demanding a PE multiple of 23.5 times on a trailing basis. The company on Tuesday raised Rs 150 crore from 8 anchor investors namely SBI Oman,

Aditya Birla

MF, SBI Life Insurance,

HDFC Life

Insurance, Mirae Asset MF, HDFC MF, Tata MF and NewMark Capital.

Here is what top brokerages said about the IPO:
Motilal Oswal Institutional Equities: Subscribe for listing gains

The brokerage noted that there are concerns over the promoter’s pledge and related party transactions. But it feels that valuations seem reasonable vis-à-vis peers, given the company’s financials and return ratios. “Hence, investors can Subscribe the IPO from a listing gains perspective,” it said.

The brokerage said the company is focusing on improving the product mix to expand its margins to 13.9 per cent as of Q1FY20. Focus will be more on Housing and Water Supply & Sanitation, it said, adding that the firm also plans to take its Trubore brand (premium brand in TN) pan-India over next 3-4 years.

IDBI Capital: Subscribe

This brokerage noted that the company has six strategically located manufacturing plants and extensive distribution network of over 1,400. It’s focus on creating a strong brand recall has supported healthy sales growth over the years, IDBI Capital said.

“With the IPO proceeds, the company intends to repay partial debt and expand capacity at Rajasthan and Telangana plants. At an upper price band of Rs 178, the company is fairly valued at 23 times PE on FY19 EPS of Rs 7.6. We recommend ‘Subscribe’ to this issue, considering healthy sales growth driven by higher volume and improvement in net profitability driven by lower interest outgo, which strengthens its near term growth prospects,” it said.

Reliance Securities: Subscribe

Reliance Securities said that Prince Pipes is one of the leading players in PVC pipes segment with market share of 5 per cent. It noted that the company is planning to increase its capacity to 3,00,000 by FY22 from 2,41,000 currently with focus on higher margin business.

“It has healthy return ratios with average RoE of 22 per cent and RoCE of 20 per cent for the same period. Assuming revenue growth of 13 per cent CAGR through FY19-21E, the company is valued at 14 times of FY21E earnings, which appears to be justified considering its business model, steady growth and healthy return ratios. Hence, we recommend subscribe to the issue,” Reliance Securities.

Prince Pipes valuation looks fair, but there are hurdles to growth

NEW KID ON THE BLOCK

17 Dec, 2019

Prince Pipes and Fittings is raising ₹250 crore in fresh equity and selling another ₹250 crore worth of existing equity shares as a part of its initial public offering (IPO). Most of the total net proceeds from the fresh issue will be utilised for setting up a manufacturing facility and loan repayment. The company has raised over ₹106 crore in a pre-IPO placement.Although the valuation multiple it demands appears fair when compared with peers, there are risks that might lead to investors skipping the IPO.

RISKS

17 Dec, 2019

>> Outstanding dues According to the IPO’s red herring prospectus (RHP), certain promoters and directors have outstanding litigations of over Rs 900 crore with respect to their exposure to real estate projects. However, analysts say that the claims may not be as high if the case goes against the promoters. The promoters may be required to pledge certain equity shares. >> Fund requirements Another risk is the fund requirements for the manufacturing plant mentioned are based on the quotations received from vendors as well as internal management estimates and has not been appraised by any bank or financial institutions and there could be cost overruns. >> Contingent liabilities Other major business-related risks include the contingent liabilities of Rs 72 crore up to June 30, 2019. This mainly includes the guarantee given by the company to the banks for the loans taken by the customers. This is a part of chain financing started by the promoters to improve the credit cycle. >> High degree of competition In addition, the plastic pipes industry too remains highly competitive. The organised industry is 60-65% and over six organised players compete against each other with each owning not more than 11%. Prince Pipes’ market share is 5%. Other major players include Supreme Industries, Finolex Industries, Astral Polytechnik and Ashirvad Pipes.

BUSINESS AND FINANCIALS

17 Dec, 2019

Prince Pipes provides different categories of polymer pipes to irrigation, plumbing and SWR (soil waste and rainwater) segments. They account for nearly 32%, 37% and 30% of the company’s revenue in that order. The company’s revenue grew by 12.6% yearly between FY17 and FY19 to ₹1,571 crore. During the same period, operating profit before depreciation ( Ebitda) rose by 6.9% to ₹186 crore. The Ebitda margin shrank to 11.8% from 13%. Net profit for FY19 was ₹83.4 crore.

​VALUATIONS

17 Dec, 2019

Post dilution, on trailing basis, the IPO demands price-earnings (P/E) multiple of 23.5. This appears fair when compared with the valuations of Supreme Industries, Finolex Industries,and Astral Polytecknik, which and are trading at 33, 20 and 73 times respectively.

Religare Securities: No rating

The brokerage feels that the company’s performance would improve and that it would gain market share in the organized segment driven by positive sector outlook, better product mix and increased focus on high margins business. “However, the company has higher debt compared with its peers but on absolute basis is at comfortable levels (D/E 0.6x). Further, with IPO proceeds the company plans to release pledge shares as well as reduce debt. Valuations look decent considering the company’s promising long-term growth prospects,” it said.

BP Wealth: Avoid

The management in the analyst meet said that the Q2 performance along with the outlook ahead was good. “However, we feel that Prince Pipes and fittings is expensively priced at 20.6 times P/E (weighted average EPS taken) and 3.4x Price to book. We feel that there are much better players already listed such as

Finolex Industries

, which trades at 19.6 times P/E and 1.8 times price to book having better return ratios and comfortable debt levels, BP Wealth said.

“Therefore, taking into account its debt position and the increased competitiveness of the market it operates in , the stock does not look attractive. We give ‘Avoid’ rating for the IPO,” it said.

Equirus Securities: Subscribe

Prince has 40 per cent sales from North India against 20-30 per cent for other players, said Equirus Securities.

“Construction ban in certain areas in North India will impact near term growth. Post anti-dumping duty on CPVC resin from China/Korea, Prince was forced to raise CPVC price higher than others and this will impact growth/profitability,” it said. However, the brokerage said that there is a chance of “one-time valuation jump to IPO investors.”

GEPL Capital: Subscribe

GEPL feels that Prince Pipes and Fittings stands to gain from a well distributed network. At a P/E of 19.2 times as of June 30, Prince Pipe’s reasonably priced offer provides a good opportunity for long-term rewards on investments, it said. It has assigned a Subscribe rating to the IPO.

Investmentz (Asit C Mehta): Subcribe

Prince Pipes is recognised as one of the leading Polymer Pipes and Fittings manufacturers in India in terms of number of distributors, Asit C Mehta said.

Increasing government spending towards irrigation, housing, and construction sectors would boost pipe demand, going ahead, it said.

“With superior product mix, established brand name, strong distribution network, and adding capacities, we believe Prince Pipes is well placed to capitalize on domestic opportunities. At the upper price band of Rs178, the stock trades at 19.22 times its FY19 EPS of Rs 9.26,” it said.

TradingBells: Subscribe with long-term view

If we look at financials, there is decent revenue growth of 10 per cent CAGR whereas 30 per cent CAGR growth in profit for the last four years, said Santosh Meena, Senior Analyst at TradingBells

“If we talk about valuation then at upper price band it is coming with trailing PE of 19 where its peer Astral poly is trading at PE of 70 while Finolex Industries is trading at PE of 20 and the average PE of the industry is around 40, So we can say that

Prince pipes IPO

is fairly priced. It is pure play of Infra and real estate sector whereby looking growth opportunities in India for this sector, one can subscribe it with long term view while listing gain may depend on HNIs' subscriptions,” Meena said.

Ventura Securities: Subscribe for listing gains

Ventura Securities expects revenue, Ebitda and PAT of the company to grow at a CAGR of 5 per cent, 14 per cent and 18 per cent, respectively. For FY21, the stock is available at the offer price of 177-178 at 16 times on a fully diluted basis, this brokerage estimated.

This brokerage has a subscribe on the issue for listing gains.

IPO

via https://www.AiUpNow.com

December 18, 2019 at 12:08AM by , Khareem Sudlow