EPACK Durable IPO: Is It Worth Subscribing?

EPACK Durable: 2019-Incorporated ODM for Room Air Conditioners and AC Components

1. IPO Timeline: EPACK Durable’s Initial Public Offering (IPO) is scheduled to run from January 19 to January 23.
2. Price Band: The IPO price band has been set at Rs 218-230 per share, indicating the range within which investors can bid for the shares.
3. Issue Details: The overall issue size stands at Rs 640 crore. Prior to the IPO, the company has already raised Rs 192 crore through anchor investors, showcasing initial investor interest.

EPACK Durable is set to launch its Rs 600 crore-initial public offering (IPO) with a bidding window opening on Friday, January 19, and closing on Tuesday, January 23. The company has established the issue price at Rs 218-230 per share, giving potential investors a price range to bid for the shares.

EPACK Durable IPO comprises a Rs 400 crore fresh share sale and an offer-for-sale of up to 1,04,37,047 equity shares, totaling Rs 240 crore.

Additionally, EPACK Durable has suggested a lot size of 65 equity shares, indicating the minimum number of shares that can be applied for in a single bid. Investors can participate in the IPO during this specified timeframe by submitting their bids within the given price range and lot size.

Established in 2019, EPACK Durable serves as an original design manufacturer (ODM) specializing in room air conditioners (RAC). In addition to RACs, the company manufactures essential components like sheet metal parts, injection-molded parts, cross-flow fans, and PCBA components for RAC production.

The ongoing Initial Public Offering (IPO) consists of a Rs 400 crore fresh share sale and an offer-for-sale (OFS) of up to 1,04,37,047 equity shares by various stakeholders, totaling Rs 240 crore. The raised funds will be directed towards capital expenditure, loan repayment/prepayment, and general corporate purposes.

Prominent promoters, including Bajrang Bothra, Laxmi Pat Bothra, and others, alongside investors like India Advantage Fund and Dynamic India Fund, will participate in the Offer for Sale (OFS) during EPACK Durable’s IPO. Before the IPO, the company raised Rs 192.02 crore through an allotment of 83,48,504 shares at Rs 230 apiece to anchor investors.

EPACK Durable, known for its original design manufacturing in room air conditioners, has diversified into the small domestic appliance market, expanding its product range to include induction hobs, blenders, and water dispensers. The company operates four production facilities, with three located in Dehradun and one in Bhiwadi, Rajasthan.

EPACK Durable reported a net profit of Rs 2.65 crore and total revenue of Rs 616.32 crore for the period ending on September 30, 2023. The financial year ending March 31, 2023, saw a net profit of Rs 31.97 crore and total revenue of Rs 1,540.25 crore.

The IPO has allocated 50% of shares for Qualified Institutional Bidders (QIBs), 15% for Non-Institutional Investors (NIIs), and the remaining 35% for retail investors.

Axis Capital, Dam Capital Advisors, and ICICI Securities are the book running lead managers, with Kfin Technologies serving as the registrar. EPACK Durable shares are scheduled to be listed on both BSE and NSE on Monday, January 29.

• Market Share and Manufacturing: EPACK Durables held a significant 24% market share in domestically manufactured units by Original Design Manufacturer (ODM) in FY23.
• Vertical Integration and Automation: The company’s plants are described as vertically integrated and automated, which is expected to contribute to improved profit margins in the future.
• Use of IPO Proceeds: Arihant Capital Markets notes that the IPO proceeds of Rs 230 crore will be utilized for capacity expansion, leading to incremental business growth.
• Business Strategy: The company aims to increase its wallet share from existing customers through cross-selling and expanding its customer base. Additionally, new product launches in the appliances portfolio are expected to mitigate business fluctuations due to seasonality.
• Arihant’s Recommendation: Arihant Capital Markets recommends subscribing to the IPO for the long term, expressing confidence in EPACK Durable’s market position, operational strategies, and growth prospects.

• Market Position and Growth: EPACK Durable is acknowledged as the second-largest Original Design Manufacturer (ODM) in Room Air Conditioners (RACs) and has exhibited the highest volume growth among its peers from FY20-23.
• Concerns on Industry Dynamics: InCred Equities expresses concerns over the trend of key AC brands increasing their insourcing capacity. This shift is perceived as a negative factor for outsourcing companies like EPACK Durable.
• Customer Base: EPACK Durable’s customers include four of the top six RAC brands in the Indian market, highlighting its significant presence in the industry.
• Financial Performance: InCred Equities notes that EPACK Durable reported dismal financials compared to its peers, despite assuming strong growth in the second half of FY24 and a Profit After Tax (PAT) of Rs 32 crore.
• Valuation and Recommendation: InCred Equities deems the stock’s valuation as expensive compared to PG Electroplast and recommends avoiding the IPO, citing concerns over industry dynamics and financial performance

• Strengths: Swastika Investmart acknowledges EPACK Durable’s strong points, including long-standing relationships with top customers, advanced vertically integrated manufacturing, and robust product development capabilities.
• Operational Efficiency: The consistent financial performance of EPACK Durable is seen as indicative of operational efficiency and growth potential.
• Risk Factors: Swastika Investmart points out key risks, such as the company’s dependence on a limited number of major customers. Additionally, the competitive nature of the Room Air Conditioner (RAC) industry and its susceptibility to seasonal fluctuations are considered notable risk factors.
• Valuation: The IPO is deemed fully priced at a Price-to-Earnings (P/E) valuation of 56.4 times.
• Recommendation: Swastika Investmart suggests subscribing to the IPO with caution, taking into consideration both the strengths and risks associated with EPACK Durable.

• Valuation Considerations: Choice Broking notes that EPACK Durable is demanding a Price-to-Earnings (P/E) multiple of 64.2 times, which is considered a premium compared to the peer average of 60 times. The IPO is deemed fully priced.
• Market Outlook: While anticipating a slowdown in the demand for Room Air Conditioners (RACs) in FY24, Choice Broking highlights that medium-term growth drivers remain intact for the domestic air conditioning market.
• Positioning and Manufacturing Capacities: EPACK Durable, with its expanded manufacturing capacities, is seen as well-positioned to capture the medium-term growth in the RAC market.
• Operational Efficiency Concerns: The company claims to be a 100% Original Design Manufacturer (ODM) player with highly integrated operations. However, Choice Broking notes that the benefits of this setup are not getting adequately reflected in profitability margins and return ratios.
• Recommendation: Choice Broking suggests subscribing to the IPO but with caution, considering the premium valuation and concerns about the company’s operational efficiency despite its positioning in the market.

• Strengths and Positioning: StoxBox by BP Equities highlights EPACK Durable’s favorable positioning for the future, citing long-standing relationships with marquee customers, a diverse product portfolio, backward integrated manufacturing facilities, and strong management experience in component and Room Air Conditioner (RAC) manufacturing.
• Valuation: On the upper price band, the issue is valued at a Price-to-Earnings (P/E) ratio of 49.6 times based on FY2023 earnings. StoxBox considers this valuation as fair and notes that it is lower than comparable peers.
• Recommendation: StoxBox by BP Equities recommends subscribing to the IPO, particularly for medium to long-term investors, based on the company’s strengths, positioning, and what they consider a reasonable valuation.

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