EPACK Durable IPO Analysis: Launching its IPO worth Rs. 640.05 Cr, this company will commence on January 19, 2024. The IPO will conclude on January 23, with the listing scheduled for January 29, 2024.
Let’s delve deeper into understanding the company—its operations, clientele, and examine its financial performance to gauge how it has been expanding its revenue and profits. Additionally, we’ll compare the company with its peers to assess its potential for standing out as a lucrative opportunity. Stay tuned until the end to discover our insights on the company.
About EPACK Durable
EPACK, India’s second-largest Original Design Manufacturer (ODM) for air conditioners, provides its products to major brands such as Blue Star, Daikin, Carrier Midea, and Voltas.
Initially, the company commenced its operations as an Original Equipment Manufacturer (OEM) in 2003. Subsequently, it pivoted its strategy to evolve into an Original Design Manufacturer (ODM).
For those curious about the distinction between an OEM and ODM, an OEM is a manufacturer responsible for the complete process of designing, manufacturing, marketing, and quality control of the product.
On the other hand, an ODM exclusively handles the manufacturing of a product for another company, following the design and branding provided by that company. This enables the ODM to concentrate solely on manufacturing without the concerns of designing and marketing the products.
While primarily focused on air conditioner manufacturing in 2013, the company expanded its operations to include the production of Small Domestic Appliances (SDA) for companies such as Bajaj Electricals, Usha Electricals, and others.
With manufacturing facilities in Dehradun, Uttarakhand, and Rajasthan, the company has a collective production capacity of 110,000 water dispensers, 1.2 million induction cooktops, and 300,000 mixer grinders annually.
Having gained a brief understanding of the company, let’s delve deeper into its industry.
Industry Overview
Over the last five years, the Indian consumer durable market has witnessed substantial growth, currently holding a valuation of approximately Rs. 1.3 trillion. It is projected to maintain a growth rate of 13.7% CAGR until FY28.
As of 2022, the penetration of Room Air Conditioners (RACs) in India stood at a mere 8%, indicating ample room for increased penetration driven by rising temperatures and growing household incomes.
The Consumer Durable industry is expanding, driven by a surge in online sales and a growing interest in health and wellness. The significant force propelling this robust growth is the increasing availability of financing options and the accessibility of No-EMI loans.
The PLI scheme for White Goods has significantly boosted the manufacturing capacities of air conditioner manufacturers. In FY21, the government identified 42 white goods companies, pledging an investment of Rs. 3900 Cr. Subsequently, an additional Rs. 900 Cr was invested in 6 more companies.
Financial Highlights
In FY23, the company posted a revenue of Rs. 1540 Cr, marking a robust growth of 66.09% compared to FY22 and achieving a 44.3% Compound Annual Growth Rate (CAGR) since FY21. The net profits of the company witnessed an even more substantial increase, surging by 84% from Rs. 17.4 Cr in FY22 to Rs. 32 Cr in FY23.
The company’s net profits have witnessed an impressive growth, recording a phenomenal rate of 102% Compound Annual Growth Rate (CAGR) since FY21. However, the results from the first half of FY24 don’t match the strength seen in FY23. Revenue growth was less than half of the previous fiscal year, and net profits were only Rs. 2.6 Cr in H1FY24, compared to Rs. 32 Cr in FY23.
The company has posted positive operating cash flows in two out of the last three financial years. The operating cash flow witnessed a remarkable surge of 7.4 times from FY23 to H1FY24, primarily attributed to a significant reduction in inventories and trade receivables.
With a net profit margin of 2.1% in FY23, the company operates within the realm of a low-margin, high-volume business model. Nonetheless, it sustains a Return on Equity (ROE) of 14.68% and Return on Capital Employed (ROCE) of 9.2%.
The company’s debt-equity ratio is a minor concern, standing at approximately 1.58x. Nevertheless, this ratio has consistently decreased from a peak of 3.47x in FY21.
Competitors
When comparing EPACK with other listed peers in the industry, it ranks as the second smallest company by revenue, trailing only behind Elin Electronics Ltd. The largest company in the sector is Dixon Technologies, which recorded a revenue of Rs. 12,192 Cr.
These publicly traded firms are valued at a median of 66.8 times their FY23 earnings, all the while maintaining a median Return on Net Worth of 15.3%. At the upper limit of the price band at Rs. 230, EPACK will have a relatively high Price-to-Earnings ratio of 49x.
| Name of the Company | Consolidated / Standalone | Face Value (Rs per share) | Closing Price on December 8, 2023 (Rs) | Revenue from Operations (in Rs million) | EPS (Rs) | NAV (Rs per equity share) | P/E | RONW (%) | |
| Basic | Diluted | ||||||||
| EPACK Durable Limited | Consolidated | 10 | NA | 15,388.32 | 4.71 | 4.64 | 46.21 | NA | 14.68 |
| PEER GROUP | |||||||||
| Amber Enterprises India Ltd | Consolidated | 10 | 3,092.40 | 69,270.95 | 46.66 | 46.66 | 579.94 | 66.28 | 8.79 |
| PG Electroplast Limited | Consolidated | 10 | 2,271.65 | 21,599.48 | 35.78 | 33.77 | 174.09 | 67.27 | 21.88 |
| Dixon Technologies (India) Ltd | Consolidated | 2 | 5,964.90 | 121,920.10 | 42.92 | 42.62 | 215.69 | 139.96 | 22.88 |
| Elin Electronics Ltd | Consolidated | 5 | 152.75 | 10,754.28 | 6.29 | 6.29 | 99.30 | 24.28 | 6.73 |
Source: RHP of the company
Strengths
- A leading manufacturer of air conditioners and small appliances.
- Recognized for innovation in developing new products.
- Manages the entire production process in-house for enhanced quality and cost efficiency.
- Engages in comprehensive operations, from manufacturing to sales, in the air conditioner and small appliance sector.
Weaknesses
- Relies significantly on a small number of key customers for the majority of its earnings.
- The air conditioner business is influenced by seasonal variations and market cycles, leading to financial fluctuations.
- Adheres to rigorous technical and quality standards set by customers; any failure could result in a loss of business.
GMP
EPACK Durable Ltd’s shares were traded at par in the grey market on January 16th, 2024, with a price of Rs. 230. This implies a premium of Rs. 0 per share over the capped price of Rs. 230.
Key IPO Information
| Particulars | Details |
| IPO Size | Rs. 640.05 Cr |
| Fresh Issue | Rs. 400 Cr |
| Offer for sale (OFS) | Rs. 240.05 |
| Opening date | 19 January 2024 |
| Closing date | 23 January 2024 |
| Face value | Rs. 10 |
| Price band | Rs. 218 – 230 |
| Lot size | 65 Shares |
| Minimum Lot Size | 1 Lot (65 Shares) |
| Maximum Lot Size | 13 Lots (845 Shares) |
| Minimum Investment | Rs. 14950 |
| Listing date | 29 January 2024 |
Promoters: Bajrang Bothra, Laxmi Pat Bothra, Sanjay Singhania, and Ajay DD Sighania
Book Running Lead Manager: Axis Capital Ltd, DAM Capital Advisors Ltd and ICICI Securities Ltd.
Registrar to the Offer: KFin Technologies Ltd
Conclusion
EPACK Durables has established a robust niche for itself, producing a vital white good to combat India’s rising temperatures. An additional advantage for the company is its sole responsibility for manufacturing, without the burden of marketing.
Collectively, these factors create a sturdy foundation and attractive earnings potential, making investment in the company appealing. However, the recent performance over the last two quarters has been somewhat discouraging.
