EPACK Durability IPO Review – GMP, Details, Pricing & More

EPACK Durable IPO Review: India is currently enjoying a chilly winter, with a hot summer just a few months away. Due to the scorching summer heat and extreme heat waves, demand for electrical appliances such as coolers and air conditioners will rapidly increase.

If you believe that this very scenario will increase the demand for these consumer durable products and are willing to invest in some of the companies that manufacture them, we can find just the right company for you.

EPACK Durability IPO Review

The company is planning an initial public offering (IPO) of 500 billion won. 640.05 Cr will be released on January 19, 2024. The issue will close on January 23 and be listed on the exchange on January 29, 2024.

So, let’s take a closer look at what the company does? Who do you supply to? Let’s then check the numbers to see how revenue and profits have expanded. We’ll also compare your company to its peers to see if it stands out as a profitable opportunity. So wait till the end to find out what we think about the company.

About Us

The company, EPACK, is the second largest original design manufacturer (ODM) of air conditioners in India. The company supplies air conditioners to renowned companies such as Blue Star, Daikin, Carrier Midea and Voltas.

The company first started business as an OEM (Original Equipment Manufacturer) in 2003. Eventually, the company changed its strategy and became an original design manufacturer (ODM).

For those of you wondering what the difference is between OEM and ODM. An OEM is a manufacturer that carries out the entire process of designing, manufacturing, marketing and quality control of a product.

However, an ODM is only responsible for producing products for other companies based on that company’s designs and brands. This allows ODMs to focus solely on manufacturing and not have to worry about product design and marketing.

The company was primarily an air conditioner manufacturer in 2013 but ventured into manufacturing small appliances (SDAs) for companies like Bajaj Electricals, Usha Electricals and others.

The company has three manufacturing facilities in Dehradun, Uttarakhand and Rajasthan. Cumulatively, the facility can produce 1.1 million water purifiers, 1.2 million induction cooktops and 300,000 mixer grinders per year.

Now that we have a brief overview of the company, let’s understand the industry in more detail.

industry information

Over the last five years, the Indian consumer durables market has experienced tremendous growth. The current market value is approximately 500 billion won. 1.3 Lakh Cr and is expected to grow at a CAGR of 13.7% by FY28.

India’s indoor air conditioning (RAC) penetration is only about 8% in 2022, indicating that rising temperatures due to rising household incomes will lead to higher penetration.

The consumer durables industry is growing thanks to a surge in online sales and growing interest in health and wellness. The biggest tailwinds behind the strong growth are increasing financing options and availability of No-EMI loans.

PLI schemes for white goods have been a strong catalyst for AC manufacturers to strengthen their manufacturing capabilities. In FY21, the government shortlisted 42 white goods companies and committed to investing Rs. 3900 Cr. This was followed by an investment worth 500 billion won. 900 Cr from 6 companies.

EPACK Sustainable IPO Review – Finance

The company reported revenue of Rs. 1540 Cr in FY23, a growth of 66.09% over FY22 and a CAGR of 44.3% over FY21. The company’s net profit grew at an even stronger rate of 84% from Rs. 17.4 Cr in FY22 to Rs. 32 Cr in FY23.

The company’s net profit has grown at an impressive CAGR of 102% since FY21. However, performance in the first half of FY24 is not expected to be as good as FY23. Sales growth was less than half of FY23 and net profit was only Rs. 2.6 Cr in H1FY24 compared to Rs. 32 Cr in FY23.

The company has reported positive operating cash flow in two of the last three years. The company’s operating cash flow surged 7.4 times from FY23 to H1FY24 due to sharp decline in inventory and accounts receivable.

With a net profit margin of 2.1% in FY23, the company operates a low-margin, high-volume business. Nevertheless, ROE and ROCE remain at 14.68% and 9.2%, respectively.

The company’s debt-to-equity ratio is a bit concerning at 1.58x. However, this ratio continues to decline from 3.47 times in FY21.

main players

When comparing EPACK to other publicly traded companies in the industry, it is the second smallest company by revenue, right behind Elin Electronics Ltd. The largest company is Dixon Technologies with a revenue of Rs. 12,192 Cr.

These listed companies trade at a median of 66.8 times FY23 earnings and maintain a median return on book value of 15.3%. At the high end of the price range of Rs. 230, EPACK would trade at a high price-to-earnings multiple of 49x.

Company Strengths

1. Long term relationship: EPACK has long-standing relationships with famous brands such as Daikin and Voltas, with an average age of 8.7 years.
2. Large players: Our company is the second largest indoor air conditioner ODM manufacturing company. It is an industry with continuous growth and demand.
3. Advanced vertical integration: Over the years, the company has built the capabilities to own most of the supply chain required to produce RAC and SDA across three manufacturing units.
4. Powerful product development: The company has many years of experience in air conditioner design and manufacturing and is a pioneer in producing products such as: 5mm heat exchanger and R32 refrigerant In India.

company’s weaknesses

1. Revenue Concentration: EPACK’s top five customers contributed 82.66% of FY23 revenue.
2. No long-term contracts: The company said it has relationships with several major customers but no long-term customers. A black swan event like COVID-19 could potentially wipe out orders for the company.
3. Ongoing redevelopment requirements: Companies must continually understand ever-changing customer preferences, or else their business could be seriously impacted.
4. compete: The company faces stiff competition from several competitors in the RAC, mixer grinder, induction cooktop and water dispenser segments. Innovative products or better prices can have a big impact on a company’s bottom line.

EPACK Durability IPO Review – GMP

Shares of EPACK Durable Ltd were trading at a 0% premium in the gray market on January 16, 2024. The stock in Gray Market was trading at Rs 230. This gives a premium of Rs 0 per share over the ceiling price of Rs 230.

Key IPO Information

promoter: Bajrang Bothra, Laxmi Pat Bothra, Sanjay Singhania and Ajay DD Sighania

Book Operations Lead Manager: Axis Capital Ltd, DAM Capital Advisors Ltd and ICICI Securities Ltd.

Proposal registered by: KFin technology company

purpose of the problem

1. Rs 230 Cr will be utilized by the company for further capital expansion to be undertaken by FY26.
2. Rs 80 Cr will be used for repayment of borrowings.
3. The remaining amount will be utilized for general corporate purposes.

conclusion

EPACK Durables has found a very strong niche for itself in manufacturing white products that are very essential to overcome India’s soaring temperatures. Another advantage of the company is that it only handles manufacturing and not marketing.

Together, these conditions build a strong foundation and strong returns, making investing in the company very attractive. However, recent performance in the second quarter was quite sluggish.

We’ve already looked at how the company stacks up against its peers in the Key Companies section. So what do you think about PE valuation? Do you think that is a fair valuation or do you think the promoters are too optimistic about the company?

Written by Nasir Hussein

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