EPACK Durable IPO opens today: Should you subscribe to the issue?

The Rs 600 crore-initial public offering (IPO) of EPACK Durable will open for public bidding on Friday, January 19 and investors can bid for the issue till Tuesday, January 23. The company has fixed the issue price at Rs 218-230 apiece and suggested  a lot size of 65 equity shares.

Incorporated in 2019, EPACK Durable is an original design manufacturer (ODM) of room air conditioners (RAC). The company also manufactures components such as sheet metal parts, injection moulded parts, cross-flow fans, and PCBA components that are actively used in the production of RACs.

The issue includes a fresh share sale of Rs 400 crore and an offer-for-sale (OFS) of up to 1,04,37,047 equity shares by promoter, promoter group and other selling shareholders, amounting to Rs 240 crore. The net proceeds from the issue would be utilised towards funding capital expenditure, repayment/prepayment of certain outstanding loans; and general corporate purposes.

Promoters such as Bajrang Bothra, Laxmi Pat Bothra, Sanjay Singhania, Ajay DD Singhania, Pinky Ajay Singhania, Preity Singhania, Nikhil Bothra, Nitin Bothra and Rajjat Kumar Bothra  --- along with other investors including India Advantage Fund and Dynamic India Fund,  will be participating in the OFS.

Ahead of its IPO, EPACK Durable mobilised Rs 192.02 crore by allotting 83,48,504 shares at a price of Rs Rs 230 apiece to anchor investors, which included Optimix Wholesale Global Emerging Markets Share Trust, Integrated Core Strategies (Asia), Societe Generale Copthall Mauritius Investment, HDFC Mutual Fund and other domestic insurance companies.

The company has expanded its business into the small domestic appliance market, particularly given the seasonal demand for RACs and is currently developing and producing induction hobs, blenders, and water dispensers. The company has four production facilities, of which are located in Dehradun and one manufacturing facility at Bhiwadi, Rajasthan.

For the period ended on September 30, 2023, EPACK Durables reported a net profit of Rs 2.65 crore with a total revenue of Rs 616.32 crore. The company clocked a net profit of Rs 31.97 crore with a total revenue of Rs 1,540.25 crore for the financial year ended on March 31, 2023.

The company has reserved half of the net offer or 50 per cent of shares for the qualified institutional bidders (QIBs). The quota for non-institutional investors (NIIs) has been reserved at 15 per cent. The remaining 35 per cent of shares would be allocated towards retail investors.

Axis Capital, Dam Capital Advisors (formerly IFDC Securities) and ICICI Securities are the book running lead managers of the EPACK Durable IPO, while Kfin Technologies is the registrar for the issue. Shares of the company shall be listed at the bourses on both BSE and NSE on Monday, January 29. Here's what brokerage firms say about the IPO of EPACK Durables:

Arihant Capital Markets
Ratings: Subscribe for long-term
EPACK Durables held a 24 per cent market share in terms of domestically manufactured units by ODM in FY23. The plants are vertically integrated and automated would improve the margins going forward. The IPO proceeds of Rs 230 crore would be used for capacity expansion would lead to incremental business going forward, said Arihant Capital Markets.

"The increase in wallet share from existing customers through cross-selling and expanding the customer base will increase the business going forward. The new product launches in the appliances portfolio would reduce the business fluctuation due to seasonality going forward. We are recommending 'subscribe for the long term' for this issue," he said.

InCred Equities
Rating: Avoid
EPACK Durable is the second-largest ODM in RACs, posting the highest volume growth compared to its peers in FY20-23. Over the past few quarters, key AC brands are raising their insourcing capacity, which is a big negative for outsourcing companies like Epack Durable, said InCred Equities.

"EPACK Durable’s customers include four of the top six RAC brands in the Indian market. Some of its customers for RAC products. EPACK reported dismal financials versus its peers. Despite assuming strong growth in 2HFY24F and a PAT of Rs 32 crore, we feel the stock’s valuation is expensive compared to PG Electroplast," it added with an 'avoid' rating on the issue.

Swastika Investmart
Rating: Subscribe with caution
EPACK Durable boasts long-standing relationships with top customers, leverages advanced vertically integrated manufacturing and possesses robust product development capabilities. EPACK Durable prioritizes continuous product portfolio expansion, said Swastika Investmart.

“Its consistent financial performance demonstrates operational efficiency and growth potential. However, some key risks warrant consideration. The company's dependence on a limited number of major customers. The RAC industry is highly competitive, and the business experiences seasonal fluctuations. The issue is fully priced at a P/E valuation of 56.4 times, with 'subscribe with caution' rating,” it said.

Choice Broking
Rating: Subscribe with caution
EPACK is demanding a P/E multiple of 64.2 times, which is at premium to the peer average of 60 times. Thus the issue is fully priced. In FY24E, there would be a slowdown in the demand for RACs, but the medium-term growth drivers are intact for the domestic air conditioning market, said Choice Broking.

"The company with its expanded manufacturing capacities is well positioned to capture the medium-term growth in the RAC market. EPACK claims to be a 100 per cent ODM player with one of the highest integrated operations, however, the benefits are not getting reflected in the profitability margins and return ratios," it added with a 'subscribe' for caution rating.

StoxBox by BP Equities
Ratings: Subscribe for long-term
Long-standing relationships with marquee customers, diverse product portfolio, backward integrated manufacturing facilities and strong management experience in the field of component and RAC manufacturing positions EPACK favorably for the future, said StoxBox.

"On the upper price band, the issue is valued at a P/E of 49.6 times based on FY2023 earnings which we feel is fairly valued and is lower than its comparable peers. We, therefore, recommend a 'subscribe' rating to the issue from a medium to long-term perspective," he said.
 

Disclaimer: Business Today provides stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.

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