Prince Pipes to launch Rs 500-cr IPO today; should you subscribe?

Prince Pipes and Fittings will launch its initial public offer (IPO) today . The IPO through which the firm plans to raise Rs 500 crore will close on December 20. The Mumbai-based polymer pipes and fittings manufacturer has fixed the price band for its IPO at Rs 177-178 per share. The book built issue comprises raising Rs 250 crore through fresh issue of shares and an equal amount through offer-for-sale (OFS).

The company's promoter group which currently holds 90.06% stake plans to sell around 29% in the proposed IPO. One can apply for the IPO in a single lot of 84 shares. The maximum lot size stands at 13 lots in multiples of 84 shares thereafter, amounting to 1,092 equity shares.

While 50% of the shares available have been reserved for Qualified Institutional Bidders (QIB) category, 35% of the issue will be allotted to Retail Individual Investors (RII) and the remaining 15% will get allocated to non-institutional bidders (NIB).

Post the issue, shares of Prince Pipes are proposed to be listed on BSE and NSE on December 31, 2019.

Here's  a look at what analysts and brokerages said about the IPO.

Rahul Agarwal, Director Wealth at Discovery/EZ Wealth said, "The company has a strong brand presence with diverse product portfolio coupled with multi-location manufacturing units as well as a network of distributors pan-India. However, few risk concerns that the business may face includes competition in polymer pipes industry with galvanised iron products, increase in raw material cost and high working capital requirements.

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Any increase in interest rates can affect the performance of company. Based on the last three years average earnings per share, price to equity (P/E) ratio works out to be 20.6 times for the upper price band of Rs 178. And for FY19, P/E works out to be 19 times compared to the upper price band.

Even if we take EPS  for 3 months ending in June 2019 at 2.96, P/E works out to be 15 times. Hence, the company is asking for an issue price of Rs 178 with a valuation of 15 times to 20.6 times  P/E. Its closest peer Astral Poly Technik is trading at P/E of 70 times (highest) and Finolex Industries is trading at 20 times (lowest) and the industry average P/E is 39 times. The IPO is reasonably priced and the company has a relatively consistent revenue growth (except for FY18) with a better margin show. Considering these factors, one can subscribe to the IPO with a long-term investment outlook of at least 3-5 years. However, stellar listing gains that recent IPOs have witnessed should not be expected."

Santosh Meena, Senior Analyst at TradingBells said, "If we look at financials, then there is decent revenue growth of 10% CAGR whereas 30% CAGR growth in profit for last four years. If we talk about valuations, then at the upper end of price band, it is coming with trailing PE of 19 whereas its peer Astral Poly is trading at PE of 70. Another competitor Finolex Industries is trading at PE of 20 and the average PE of the industry is around 40.

So, Prince Pipes IPO is fairly priced. It is pure play of infra and real estate sector considering growth opportunities in India for this sector. One can subscribe to it with a long-term view while listing gains may depend on HNIs' subscriptions."

Motilal Oswal Institutional Equities in a note said, "The issue is priced at 23.5 times FY19 earnings per share (fully diluted). While there are concerns on promoter's pledge and related party transactions, valuations seem reasonable vis-a-vis peers, given its financials and return ratios. Hence, investors can Subscribe the IPO from a listing gains perspective.

Promoters have a pledge on 35% of shares, followed by 16% shares as non-disposal undertaking for securing loans worth Rs 200 crore under promoter entity - Express Infra Projects LLP (Rs 192 crore outstanding currently). Both of these were released on condition to fully repay the amounts from the OFS proceeds within 2 days of the credit of proceeds."

Equirus gave a subscribe call to the issue as valuation discount to peers and industry tailwind will provide listing gains.

"Prince Pipes, the 6th largest pipe player in the industry with largest SKUs of fittings, is well placed to capitalize on ongoing megatrend of unorganized to organized, higher irrigation spending, replacement and new demand from plumbing/drainage," the brokerage said.

Geojit Financial in a note said, "At the upper price band of Rs 178, the company is available at P/E of 23.5 times on FY19 which is 22% discount to its peers and we have a 'SUBSCRIBE' rating with short to medium term perspective."