EPACK Durable IPO Review: India is currently enjoying its chilly winters while steamy summers remain just a few months away. The scorching heat of the summer accompanied by severe heat waves will spruce up demand for electrical products like coolers & Air Conditioners.

If you believe that this very scenario is bound to push demand for these consumer-durable products and are willing to bet on some Companies that manufacture these, then we might have just the right Company for you. 

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EPACK Durable IPO Review

This Company is coming up with its IPO issue of Rs. 640.05 Cr which will open on 19th January 2024. The issue will close on 23rd January and be listed on the exchange on 29th January 2024.

So let us understand in greater depth, what the Company does? who does it supply to? We will then check out its numbers to see how it has been scaling its revenue & profits. We will also compare the Company against its peers to see if it will stand out as a lucrative opportunity. So wait until the end to see what we think about the Company.

About the Company

The Company, EPACK is India’s second-largest air conditioner Original Design Manufacturer (ODM). The Company supplies its air conditioners to big names like Blue Star, Daikin, Carrier Midea, and Voltas.

The Company initially began operations as an Original Equipment Manufacturer (OEM) back in 2003. Eventually, the Company turned around its strategy to become an Original Design Manufacturer (ODM).  

For those wondering what is the difference between an OEM & ODM. An OEM is a manufacturer that undertakes the entire process of designing, manufacturing, marketing & quality control of the product. 

However, an ODM takes the responsibility only to manufacture the product for another Company based on the design and branding of the said Company. This allows the ODM to focus solely on manufacturing and not worry about designing & marketing the products. 

Although the Company was predominantly an Air Conditioner manufacturer in 2013, it ventured into manufacturing Small Domestic Appliances (SDA) for Companies like Bajaj Electricals, Usha Electricals, and others.  

The Company has 3 manufacturing facilities in Dehradun, Uttarakhand and Rajasthan. Cumulatively, these facilities can manufacture 1.1 Lakh Water Dispensers, 12 Lakh induction cooktops, and 3 Lakh mixer grinders annually. 

Now that we have learned about the Company in brief, let us try to understand more about its industry.

About The Industry

In the past five years, the Indian Consumer durable market has experienced immense growth. The market is currently valued at around Rs. 1.3 Lakh Cr and is expected to grow at a pace of 13.7% CAGR until FY28.

The penetration of Room Air Conditioners (RACs) in India was just around 8% as of 2022, signaling the scope for greater penetration due to rising temperatures complimented by rising household incomes.

The Consumer Durable industry is growing at on the back of a Surge in Online sales, and growing interest in health & wellness. The biggest tailwind behind the strong growth is increasing financing options and availability of No-EMI loans.

The PLI scheme for White Goods has been a strong catalyst in spurring up the manufacturing capacities of AC manufacturers. The Government in FY21 shortlisted 42 white good Companies and committed to an investment of Rs. 3900 Cr. This was followed by investments worth Rs. 900 Cr in 6 more Companies.

EPACK Durable IPO Review – Financials

The Company reported a revenue of Rs. 1540 Cr in FY23, which grew by 66.09% from FY22 and at 44.3% CAGR from FY21. Net Profits of the Company increased at an even stronger rate of 84%, from Rs. 17.4 Cr in FY22 to Rs. 32 Cr in FY23.

Net Profits of the Company have grown at a phenomenal rate of 102% CAGR since FY21. However, the results from the first half of FY24 do not look as strong as FY23. Revenue growth was less than half of what it was in FY23, while Net Profits were a mere Rs. 2.6 Cr in H1FY24, as compared to Rs. 32 Cr in FY23. 

The Company has reported positive operating cash flows in two of the past three financial years. The operating Cash flow of the Company skyrocketed by 7.4 times from FY23 to H1FY24, due to a steep reduction in inventories & Trade receivables. 

With Net Profit Margins of 2.1% in FY23, the Company operates on a low Margin high volume business. Nevertheless, it maintains an ROE & ROCE of 14.68% and 9.2% respectively. 

The Debt-equity ratio of the Company remains a slight concern coming around 1.58x. However, this ratio has been consistently dropping from a high of 3.47x in FY21.

Key Players 

When EPACK is compared with other listed peers in the industry, it is the 2nd smallest Company by revenue, just behind Elin Electronics Ltd. The largest Company is Dixon Technologies which generated a revenue of Rs. 12,192 Cr.

These listed companies trade at a median valuation of 66.8x its FY23 earnings while maintaining a median Return on Net Worth of 15.3%. At the higher end of the price band of Rs. 230, EPACK will trade at a high Price-to-earnings of 49x.  

EPACK Durable IPO Review - Table
Source: RHP of the Company

Strengths of the Company

  1. Long-Standing Relationships: EPACK enjoys long-standing relationships with big-name brands like Daikin, Voltas, and others with an average age of 8.7 Years.
  2. Large Player: The Company is the 2nd largest player in the ODM manufacturing of Room Air Conditioners. An industry with constant growth and demand.
  3. Advanced Vertical Integration: Over the years, the Company has built up capacities across its 3 manufacturing units to own a majority of the supply chain required to produce RAC & SDAs.
  4. Robust Product Development: The Company has years of experience in designing and manufacturing Air Conditioners and is a pioneer in producing products like 5 mm heat exchangers and R32 Refrigerant in India.  

Weaknesses of Company

  1. Revenue Concentration: EPACK’s Top 5 customers contributed 82.66% of its FY23 revenue. 
  2. No Long-Term Agreement: Although the Company has relationships with multiple marquee clients, it has said No Long Term clients. A black swan event such as Covid could potentially wipe out orders for the Company. 
  3. Requirement for Constant Redevelopment: The Company has to constantly understand ever-changing customer preferences and failure to do so might severely affect their business.
  4. Competition: The Company faces strong competition from multiple competitors in the RAC, Mixer Grinder, Induction Cooktops, and water Dispenser space. Innovative products or better pricing can significantly impact the Company’s earnings.

EPACK Durable IPO Review – GMP 

The shares of EPACK Durable Ltd traded at a 0% premium in the grey market on January 16th, 2024. The shares in Grey Market traded at Rs 230. This gives it a premium of Rs 0 per share over the cap price of Rs 230.

Key IPO Information

ParticularsDetails
IPO SizeRs. 640.05 Cr
Fresh IssueRs. 400 Cr
Offer for Sale (OFS) Rs. 240.05
Opening date19 January 2024
Closing date23 January 2024
Face ValueRs. 10
Price BandRs. 218 - 230
Lot Size65 Shares
Minimum Lot Size1 Lot (65 Shares)
Maximum Lot Size13 Lots (845 Shares)
Min. InvestmentRs. 14950
Listing Date29 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

The Objective of the Issue

  1. Rs. 230 Cr would be utilized by the Company for further capital expansion, which will be carried out until FY26.
  2. Rs. 80 Cr will be used towards repayment of borrowings.
  3. The remaining amount will be utilized for general corporate purposes.

Conclusion

EPACK Durables has found a really strong niche for itself, manufacturing a very essential white good to beat India’s soaring temperatures. An added benefit for the Company is that it is only responsible for manufacturing and not for marketing.

These conditions together build a strong foundation & strong earnings making investing in the Company quite attractive. However, the recent two-quarter performance has been quite dampening.

We have already seen how the Company fares against its peers in the Key Players section. So what do you think of its PE valuation, do you think it’s a justified valuation or are the promoters being too optimistic about the Company?

Written by Nasir Hussain

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