The initial public offering (IPO) of RR Kabel Ltd kicked off for subscription on Wednesday (September 13). The three-day bidding process will conclude on Friday, September 15.

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NSE

As per the data on NSE, investors made bids for 1,85,71,364 equity shares, or 1.39 times, compared to the 1,33,17,737 equity shares offered for the subscription so far on the second day (September 14).

The portion for non-institutional investors saw a subscription of 2.10 times, while the category reserved for qualified institutional bidders was subscribed 1.65 times. Meanwhile, the portion for retail investors was subscribed 0.95 times.

The company has fixed a price band of 938-1035 per share, and investors can bid for 14 shares in one lot and and in multiple thereof.

Shares of RR Kabel were commanding a premium of Rs 220 in the grey market. The grey market is an unofficial market wherein the IPO shares can be bought and sold till the listing.

Apply or not?

Analysts mostly advised investors to subscribe to the issue, considering the company is well-positioned for growth in the FMEG segment. However, the issue seems to be fully priced considering its subdued profitability and return ratios, analysts said.

"While we had hoped that RR Kabel would have kept the pricing of their comparable peers at the time of their initial public offers in mind while pricing their issue, hopes need not necessarily become a reality, yet we recommend investors to 'Subscribe' to the IPO," LKP Securities said.

"We like RR Kabel given its strong positioning in cable and wire industry with good brand recall and extensive distribution network. The issue is valued at 39 times annualised Q1FY24 P/E which is in line with peers. We believe RR Kabel could benefit from the industry tailwinds given its size and higher presence in B2C segment. Hence, we recommend Subscribe," said Motilal Oswal.

According to Choice Broking, "Profitability margins and return ratios are likely to improve going forward mainly in the anticipation of lower raw material prices and improved business dynamics. At a higher price band, RKL is demanding a TTM P/E multiple of 47.4 times, which is at discount to the peer average. However, the issue seems to be fully priced considering its subdued profitability and return ratios."

Market expert Hemang Jani said that he would 'Subscribe' to the IPO. RR Kabel is a good quality wire cable company with a fair bit of a balancing between domestic market and exports. It also has a good amount of market share, he said.

"We have all seen how the growth has been for that category over the last few years. The only thing is that if you have a sentiment, which is dampened because of the way we have seen this correction – if this lasts a bit longer and if it is a bit deeper, that could dent the sentiment for the IPOs also. That is something that we should bear in mind but pure in terms of the business fundamentals and valuations, this is looking quite compelling," Jani noted.

About the offer

RR Kabel aims to raise Rs 180 crore through a fresh issue, which has been reduced from Rs 225 crore earlier. The IPO also includes an offer for sale (OFS) segment of up to 1.72 crore equity shares.

At the upper end of the price band, RR Kabel aims to raise Rs 1,964.01 crore from the public issue.

Proceeds from the fresh issue would be used towards repayment or prepayment, in full or in part, of borrowings availed by the company from banks and financial institutions and general corporate purposes.

Under the OFS, TPG Asia VII SF Pte Ltd would sell 1.29 crore equity shares, and other selling stockholders in the OFS include Ram Ratna Wires, promoters Mahendrakumar Rameshwarlal Kabra, Hemant Mahendrakumar Kabra, and Sumeet Mahendrakumar Kabra, and Kabel Buildcon Solutions.

Rs 585.62 cr raised from anchor investors

The Gujarat-based company has raised Rs 585.62 crore from anchor investors on September 12, ahead of its public issue opening. As many as 54 investors participated in the anchor book, including marquee investors such as Abu Dhabi Investment Authority, Government Pension Fund Global, HSBC Global, Ashoka Whiteoak ICAV, Carmignac Portfolio, TIMF Holdings, 3P India Equity Fund, Elara India Opportunities Fund, and Morgan Stanley Asia (Singapore).

Domestic investors like HDFC Mutual Fund, ICICI Prudential, Axis Mutual Fund, Aditya Birla Sun Life Trustee, Kotak Mutual Fund, Nippon Life India Trustee, Mirae Asset, Franklin Mutual Fund, Bandhan Mutual Fund, Tata Mutual Fund, SBI Life Insurance, HDFC Life Insurance Company, and Max Life Insurance also invested in the company via the anchor book.

Financials

The company’s revenue on consolidated basis has grown at a CAGR of 43.4 percent over FY21 to FY23 wherein wires and cables has grown at a CAGR of 40.3 percent (contributes 88 percent to revenues) and FMEG has grown at a CAGR of 77.4 percent (contributes 12 percent to revenues) over FY21 to FY23.

EBITDA has grown at a CAGR of 18.8 percent over FY21 to FY23 and margins has been at 9.2 percent/7.98 percent/6.35 percent for FY21/22/23. Margins have come of in the recent years due to higher advertisement cost which being one of the highest compared to its peers.

PAT has grown at a CAGR of 18.4 percent over FY21 to FY23. The company has reported an average EPS of Rs. 16.97 (fully diluted) and an average RoNW of 14.78 percent for the last three fiscals. It has posted PAT margins of 4.93 percent (FY21), 4.83 percent (FY22), 3.337 percent (FY23), and 4.61 percent (Q1-FY24), and RoCE of 13.59 percent, 17.41 percent, 15.57 percent and 5.95 percent for the corresponding periods, respectively.

On the dividend policy front the company has declared dividends of 100 percent (FY22), 180 percent (FY23) and 90 percent (FY24) so far. It will continue to follow a prudent dividend policy based on its financial performance and future prospects.

Company overview

RR Kabel is one of the leading companies in the Indian consumer electrical industry comprising wires and cables and fast-moving electrical goods (FMEG), with an operating history of over 20 years in India.

The company is the fifth largest player in the wires and cables market in India, representing ~ 5 percent market share by value as of March 31, 2023. RR Kabel is the fastest growing consumer electrical company among their peers in India, growing at a CAGR of 43.4 percent between fiscal 2021 and fiscal 2023.

Axis Capital, HSBC Securities and Capital Markets (India), Citigroup Global Markets India and JM Financial are the book-running lead managers to the issue, while Link Intime India is the registrar.

The equity shares of the company will be listed on both BSE and NSE with Tuesday, September 26 as the tentative date of listing of shares.

First Published:Sept 13, 2023 9:53 AM IST