IPO listed on 29 Jan'24
EPACK Durable Ltd
Minimum Investment
₹ 14,950 / 65 shares
Grey market premium
₹ 34 (15% premium)
Issue price
₹ 230
Listing price
₹ 221
Listing gains
-9 (-4%)
Listing on
Jan 30, 2023
Our Verdict:
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- EPACK Durable Ltd (EDL) has shown impressive financial growth and has secured a dominant position in India's Residential Air Conditioning (RAC) market, with a significant 24% market share.
- In terms of valuation, the IPO seems fairly priced, with a Price-to-Earnings (P/E) ratio of 49x based on FY23 earnings.
- EDL's strategic positioning in the growing Indian RAC market and advanced production capabilities set it up for potential growth in this sector over the medium term. Additionally, its expansion into the small appliance sector is expected to balance out seasonal variations. This expansion is anticipated to lead to better utilization, increased margins, and improved working capital cycles.
- Given these factors, investors can consider subscribing to the IPO for medium-term investment opportunities.
About the company
Founded in
20 Apr'19
Managing director
Ajay Singhania
- EDL specializes in the design and production of complete room air conditioners (RAC). It ranks as the second largest original design manufacturer (ODM) in the Indian RAC sector, based on the volume of units produced.
- Established in 2003 as an original equipment manufacturer (OEM) for RAC brands, EDL started with a single factory in Dehradun. Over time, the firm has diversified into various segments, including ODM services for RACs, and the production of window and split ACs. Additionally, it has expanded into manufacturing induction cooktops, mixer grinders, heat exchangers, cross flow fans, axial fans, copper fabricated products, and induction coils.
STRENGTHS
- Prominent Market Position: EDL stands as India's second-largest ODM of RAC and commands a significant 24% market share in terms of units produced domestically through ODM in FY23.
- Impressive Financial Growth: Between FY21 and FY23, the firm demonstrated substantial financial growth. This includes a Compound Annual Growth Rate (CAGR) of 45% in Revenue from Operations, an increase of 56% in EBITDA, and a remarkable 102% surge in Net Profit.
- Integrated Manufacturing: The firm’s backward-integrated RAC manufacturing, producing key parts like heat exchangers and fans in-house, has enhanced control and quality. In-house production has jumped from 35-40% to 65-70% in the past nine months, which should boost gross margins going forward (currently at 14%).
- High-Profile Clients: The firm boasts long-standing relationships with a clientele that features four of the top six brands in the domestic RAC market. Prominent among these are industry leaders such as Blue Star, Daikin Airconditioning, Voltas, Havells, and Haier Appliances, among others.
- Decreasing Debt-to-Equity Ratio: The firm has consistently reduced its Debt:Equity Ratio, from 3.47 in FY21 to 3.15 in FY22, then to 1.58 in FY23, and achieving a further reduction to 0.78 as of September 2023. Additionally, the repayment of Rs 80 crore in debt from the IPO proceeds is expected to result in interest cost savings, which would positively impact the net margin.
RISK FACTORS
- Significant Decline in September Earnings: Despite consistent growth over the past three fiscals, EDL experienced a significant decrease in net profit for the six-month period ending in September 2023, recording just Rs 2.65 crore compared to the full-year profit of Rs 31.97 crore in FY23. This decline is particularly notable as the first half of the fiscal year typically sees better performance for the industry in which the company operates.
- Client Dependence: A significant portion of EDL's revenue is generated from a small number of clients. In FY23 and the first half ending on September 30, 2023, 82.66% and 79.62% of its operating income, respectively, came from its top five clients. The loss of any major client could have a substantial negative impact on the company.
- Legal Risks: The firm, including its directors, promoters, and a subsidiary, is engaged in various legal proceedings. Unfavourable outcomes in these legal matters could negatively affect the company's operations.
- Unsecured Loan Vulnerability: The firm faces potential financial instability due to unsecured, on-demand loan from Tata Capital Financial Services Ltd. Early repayment demands could force the company to find alternate funding, possibly under unfavourable conditions, impacting its operational and financial stability.
Issue details
Issue type
Mainstream
Issue size
₹ 640.05 crore
Fresh Issue
₹ 400 crore
OFS
₹ 240.05 crore
Price range
₹ 218 - 230
Lot size
65 shares
Issue Objective
The company proposes to utilize the net proceeds from the fresh issue towards:
- Funding capital expenditure for expansion/setting up of manufacturing facilities;
- Repayment and/or prepayment of certain borrowings; and
- General corporate purposes.
Dates
Bidding open
19 Jan'24
Bidding close
23 Jan'24
Allotment date
24 Jan'24
Refund date
25 Jan'24
Listing
29 Jan'24
IPO Reservations
Qualified institutional buyers
<50%
Non-institutional investors
>15%
Retail individual investors
>35%
Read the Offer Document
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