A day ahead of the opening of the initial public offering (IPO), EPACK Durable raised ₹192.01 crore from anchor investors, which saw participation from marquee investors such as Society Generale, Copthall, Universal Sompo, Reliance General Insurance, SBI General Insurance, HDFC Life Insurance, SBI Life Insurance, Aditya Birla Sun Life Insurance, and others.
The Uttar Pradesh-based company allocated 83.48 lakh equity shares to the anchor investors at the upper end of the price band of ₹218-230 per share. Out of the total allocation, 15.65 lakh equity shares (or 18.75%) were allocated to a domestic mutual fund, which applied through a total of 4 schemes.
Epack Durable, the second largest original design manufacturer of room air conditioners in India, looks to raise ₹640 crore through the IPO route, comprising a fresh issue of equity shares worth ₹400 crore and an offer for sale (OFS) of 1.04 crore equity shares by the existing shareholders.
The three-day public issue of Epack Durable will close on January 23, while the allotment of shares will be finalised on January 24. The shares of the company are expected to be listed on the BSE and the NSE on January 29. This is the third main board IPO of 2024, after Jyoti CNC Automation and Medi Assist Healthcare Services.
Established in 2019, EPACK Durable is an original design manufacturer (ODM) of room air conditioners (RAC). The company, which counts Blue Star, Daikin Airconditioning India, Voltas, Havells India, Haier Appliances (India), Bajaj Electricals as its customers, intends to use capital raised from the issuance of fresh equity shares to expand its manufacturing facilities, repay debts, and meet general corporate purposes.
Out of ₹400 crore raised from fresh equity capital, ₹230 crore will be used to expand manufacturing facilities, ₹80 crore for repaying debts, and the remaining for general corporate purposes.
The lot size of the IPO is 65 equity shares and in multiples thereof, which means the minimum application amount for retail investors will be ₹14,950 for 1 lot, or 65 equity shares.
The company has reserved half of the issue for qualified institutional buyers (QIBs), up to 15% for non-institutional investors (NIIs), and the remaining 35% for retail investors.
For the financial year ending March 31, 2023, Epack Durable reported 83.4% year-on-year growth in net profit to ₹32 crore, while revenue from operations rose 66.5% YoY to ₹1,539 crore. EBITDA (earnings before interest, tax, depreciation and amortisation) stood at ₹102.5 crore in FY23, up 49% as compared to the previous fiscal year. However, the margin dropped 78 basis points to 6.66%, dented by higher input costs.
Should you subscribe to the EPACK Durable IPO?
Choice Equity Broking, Arihant Capital Markets, and BP Equities (BP Wealth) have given "Apply" recommendations to EPACK Durable IPO. Dilip Davda, Contributing Editor at Chittorgarh.com, and Swastika Investmart Ltd have given "May Apply" recommendation, while InCred Equities has suggested investors to "Avoid" the issue.
Choice Equity Broking has assigned a “Subscribe with Caution” rating for the issue, citing the medium-term growth levers and stretched valuations. “At higher price band, EPACK is demanding a P/E multiple of 64.2x (to its FY23 EPS of Rs. 3.6), which is at a premium to the peer average of 60x. Thus the issue is fully priced,” it says in a report.
As per the report, in FY24E, there would be a slowdown in the demand of RACs, but the medium-term growth drivers are intact for the domestic air conditioning market. “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% ODM player with one of the highest integrated operations, however, the benefits are not getting reflected in the profitability margins and return ratios.”
Meanwhile, Swastika Investmart has recommended that investors may apply for this IPO with a mid-to-long-term view, citing that the issue is fully priced at a P/E valuation of 56.4x. However, they should carefully evaluate their risk tolerance and current market sentiments, it says in a report.
“The company 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. And its consistent financial performance demonstrates operational efficiency and growth potential,” the report notes.
The report highlights that some key risks warrant consideration such as its dependence on a limited number of major customers, and the highly competitive nature of the RAC industry. Adding to it, the business's seasonal nature also remains a challenge for the company.
(DISCLAIMER: The views and opinions expressed by investment experts on fortuneindia.com are either their own or of their organisations, but not necessarily that of fortuneindia.com and its editorial team. Readers are advised to consult certified experts before taking investment decisions.)
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