IPO Size: Rs. 71 cr, Entirely Fresh Issue   

• Capex Rs. 24 cr, to fund Rs. 27 cr greenfield plant
• Working Capital Rs. 22 cr   

Price band: Rs. 51-54 per share

• 75% reserved for institutions and 10% for retail, as operating profits are less than Rs. 15 cr

M cap: Rs. 236 cr, implying 30% dilution

IPO Date: Fri 29^th Sep to Wed 4^th Oct 2023, Listing Thu 12^th Oct 2023

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

Wire and Cable Manufacturer in North India

Plaza Wires is a wire and cables manufacturer, having capacity of 12 lakh coils pa manufacturing plant in Baddi, Himachal Pradesh. It also trades in fast moving electric goods (FMEG) such as fan, water heater, switch, switch gears and PVC pipes, tapes and accessories, through a distribution network of 1,240 dealers, under brands Plaza Cables, Action Wires, PCG.  

Greenfield Capex

Company plans Rs. 27 cr capex for a greenfield plant, with a capacity of 8.4 lakh coils pa, to manufacture higher value add products, such as fire survival wires, LT cables, solar cables. Rs. 24 cr fresh issue proceeds will part fund this plant, likely to be commissioned in Q2FY25.

Stagnant Profit

Company’s annual production volumes have remained flat, at 9.5 lakh coils, for the past 3 years i.e. since FY21. On comparison with pre-covid levels, revenue has grown at mere 3.6% CAGR between FY19 to FY23, when overall Indian wires and cables industry has grown between 5-6%! In comparison to FY19, FY23 profit has also not grown, with bottomline flat at Rs. 7.5 cr, leading to an EPS of Rs. 2.5 for FY23.

If one derives Q4FY22 financial data from the RHP and DRHP, March 2022 quarter revenue comes to Rs. 50 cr, whereas PAT is just at Rs. 21 lakh (0.4% margin)! Cash on books, as of 31.3.23, is just at Rs. 36 lakh (yes, you read it right), with gross debt of Rs. 39.7 cr.

Such poor financials do not build any sort of confidence.

Weak Fundamentals

With FY23 PAT of less than Rs. 8 cr, this looks more like an SME IPO. Nevertheless, on Rs. 236 cr m cap, company will be a Nano cap stock, and subject to additional surveillance mechanism (ASM). Besides weak fundamentals, valuation is also aggressive with a PE multiple of 22x, based on FY24E EPS of Rs. 2.5, for a small topline, stagnant profits and just 4% net margin.