Market experts see strong listing gains for investors in Polycab India IPO considering comfortable valuation, after the public offer of the wires and cables manufacturer got overwhelming response. Polycab India’s IPO saw a stellar response on the last day of bidding, and closed yesterday with a massive 51 times oversubscription, mainly due to heavy bidding by institutional investors and HNIs.
“We expected a decent response for the Polycab IPO, considering the valuations compared to peers. At upper price band of Rs 538, the IPO was priced at 17x its FY19 annualized earnings, which is pretty reasonable compared to peers like Havells and KEI industries,” Narendra Solanki, Head Fundamental Research (Investment Services) – Assistant Vice President, Equity Research, Anand Rathi Shares & Stock Brokers, told Financial Express Online. “The current response to the IPO was largely on expected lines and there is some room for listing gains for investors,” Solanki said.
Another senior analyst said he was positive on Polycab’s IPO given its market leadership and strong brand name. There is a strong possibility of listing gains on the back of comfortable IPO valuations, Siddhartha Khemka, Senior Vice President, Motilal Oswal Financial Services, said.
“Polycab has healthy financials with EBITDA margin of 10%, return ratios of 15%, and strong cash flows, which is at par with its peers. The company also had comfortable valuation at the upper price band. It is valued at 16.8x P/E on FY19 annualized basis, compared to KEI Industries and Finolex Cables. Given the strong industry growth trends, leadership position, healthy financials and comfortable valuations, we were positive on the IPO,” Khemka told Financial Express Online.
Polycab India’s Rs 1,345 crore initial public offer got bids for 91.13 crore shares as against the issue size of 1.76 crore shares, implying a total subscription of 52 times. The non-institutional investor portion saw total demand for 110 times the portion reserved for them. QIBs were the next highest bidder with their portion subscribed about 92.5 times the reserved portion. Retail investors too bid for a total of four times their quota, implying a robust demand. The employees bid for a total of 2.8 times the portion reserved for them.
Polycab’s IPO opened for subscription on April 5. The firm had set a price band of Rs 533-538 for the issue. The bid lot had been kept at 27 shares and in multiples of 27 shares thereafter. Polycab’s IPO looked to raise Rs 1,346 crore, including Rs 400 crore fresh issue and offer for sale of Rs 945.91 crore at the upper end of the price band.
According to the IPO note of Motilal Oswal, Polycab India is the largest player in the wires & cables industry in India. As of FY18, it had an 18% market share of the organized and 12% of the total wire and cable industry. Crisil research expects the Indian wire and cable market to grow at 15% CAGR to over Rs 1 lakh crore by FY23, on the back of key government initiatives in housing, power and infrastructure. Polycab has a strong distribution network of 2,873 dealers and distributors who supply products to over 1 lakh retail outlets in India. The company also exports to 40 countries.