The ₹1,964-crore initial public offering (IPO) of consumer electrical firm RR Kabel opened for subscription today, September 13 and will close on September 15, Friday. The firm has fixed the price band in the range of ₹983-1,035 per share for the issue.
Issue size: The issue consists of a fresh issue worth ₹180 crore and an offer for sale (OFS) of 1.72 crore shares by promoters as well as investor TPG Asia. The promoter stake post the sale would reduce to 62.8 percent.
Objective: The net proceeds from the fresh issue would be utilised towards repayment or prepayment, in full or in part, of borrowings availed by the company from banks and financial institutions and general corporate purposes.
Subscription status: The issue has received a weak response from investors. At 12:20 pm on its first day of bidding, the IPO was subscribed 9 percent against its offer. It has received bids for 11.86 lakh shares against 1.33 crore shares on offer. The category for retail investors was bid the most, 15 percent, followed by that of non-institutional investors (NII), which was subscribed to 6 percent. However, the qualified institutional buyers (QIBs) portion has not received any bids till now. Meanwhile, the employee part was bid 28 percent.
Grey market premium: Shares are commanding a premium of ₹150 apiece in the grey market today, indicating a decent 14.5 percent premium at listing.
However, it is important to note that grey market premiums are just an indicator of how the company's shares are stacked up in the unlisted market and are subject to change rapidly.
Reservation: Up to 50 percent of the net offer is reserved for qualified institutional bidders (QIBs) whereas 15 percent will go to non-institutional investors (NIIs) and the rest 35 percent is reserved for retail investors. Meanwhile, shares worth ₹10.80 crore have been reserved for eligible employees of the company at a discount of ₹98 per share.
Lot size: Potential investors can bid for a minimum of 14 shares and in multiples of 20 shares thereafter. Hence, one lot will cost investors ₹14,490.
Anchor investors: Ahead of the issue, RR Kabel raised ₹585.62 crore by allotting 56,58,201 equity shares at ₹1,035 apiece to 54 anchor investors including 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 on Tuesday.
About the firm: Incorporated in 1995, RR Kabel is one of the leading companies in the Indian consumer electrical industry (comprising wires and cables and fast-moving electrical goods), with an operating history of over 20 years in India. RR Kabel is the 5th largest player in the wires and cables market in India, representing 5 percent market share by value as of March 31, 2023. It generates the highest share (74 percent as of FY23) of the C&W revenue from B2C in the industry. RR Kabel is the fastest-growing consumer electrical company among their peers in India, growing at a CAGR of 43.4 percent between 2021-2023. It has one of the highest number of distributors servicing the extensive retail footprint in the consumer electrical industry as of March 31, 2023, and has increased its retailer outlets by 3.5 times from 30,570 in 2021 to 106,626 in 2023.
Peers: As per the RHP, the listed industry peers of the company are Havells India Ltd, Polycab India Ltd, KEI Industries Ltd, Finolex Cables Ltd, V-Guard Industries Ltd, Crompton Greaves Consumer Electricals Ltd, and Bajaj Electricals Ltd.
Financials: RRKL’s revenue, EBITDA, and PAT grew at 43 percent, 18 percent, and 18 percent CAGR, respectively, over FY21-23, wherein wires and cables grew at a CAGR of 40.3 percent (contributing 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 margin however is lower at 7-8 percent vis-à-vis 10-13 percent for peers. RoE also stood healthy at 21 percent as of FY23.
Book-running managers: Axis Capital, Citigroup Global Markets India, HSBC Securities & Capital Markets and JM Financial are book-running lead managers for the issue, while Link Intime India has been appointed as the registrar for the issue.
Important dates: Shares of the company will be listed on both BSE and NSE with Tuesday, September 26, as the tentative date of listing of shares.
Brokerage Views
Brokerage firms have recommended subscribing to the issue citing growth potential, diversified product portfolio, industry tailwinds and strong business model. However, pressure on margins and expensive valuations leave little room for upside in the near term. Let's see what brokerage firms said about the issue:
Motilal Oswal Financial Service: Subscribe
We like RRKL given its strong positioning in the C&W industry with good brand recall and an extensive distribution network. The issue is valued at 39x annualised Q1FY24 P/E which is in line with peers. We believe RRKL could benefit from the industry tailwinds given its size and higher presence in the B2C segment. Hence, we recommend Subscribe.
LKP Securities: Subscribe
RR Kabel is one of the leading Indian consumer electrical goods manufacturers and enjoys brand value with quality products across its diversified product portfolio, strong distribution, and strategic manufacturing facilities. It has posted steady growth in its top line but suffered pressure on margins for FY23 which is expected to improve going with prudent approach ahead.
Equirus Securities: Subscribe
RR Kabel is India’s fastest-growing consumer electric company (FY21-FY23) and the fifth largest in the W&C space with a branded value market share of 7 percent at FY23-end (FY15: 5 percent). The company is also amongst India’s leading W&C exporters. While 89 percent of the company’s FY23 revenues were W&C-driven, RR Kabel has been focusing on growing its FMEG business both organically and inorganically. RR Kabel has all the key growth levers in place: strong industry tailwinds, a solid brand name, and an extensive product portfolio and distribution network.
Choice Broking: Subscribe with caution
With solid brand recognition, diversified product profile, scale of operations, certified manufacturing facilities and wide & largest distribution network, RRKL is well positioned to capture the growth in the domestic consumer electrical market. Profitability margins and return ratios are likely to improve going forward mainly in anticipation of lower raw material prices and improved business dynamics. At a higher price band, RRKL is demanding a TTM P/E multiple of 47.4 times, which is at a discount to the peer average. However, the issue seems to be fully priced considering its subdued profitability and return ratios. Hence we have a 'subscribe with caution' rating for the issue.
InCred Equities: Subscribe
We expect revenue, EBITDA, and PAT CAGR of 16 percent, 33 percent and 36 percent over FY23-26F, respectively, led by capacity expansion, higher domestic sales growth, and higher margins. At the upper price band, the implied P/E is 32 times, which is better than peers. We find the risk-reward ratio favourable, and have a 'subscribe' recommendation for the issue.
Ventura Securities: Subscribe
RR Kabel is strategically positioned for growth with an extensive PAN India distribution network including over 3,400 distributors, 3,600 dealers, 1,14,000 retailers, and an impressive 2,98,000 electricians. This vast network sets it apart as it has the highest reach among its industry peers, enabling the company to effectively serve customers across India. Hence, we have a 'subscribe' rating.
