hares of Prince Pipes and Fittings Ltd made a tepid debut on the stock markets on Monday.
The stock, which listed at ₹160 on BSE, ended at ₹166.60, down 6.4% from its issue price of ₹178.
This was one of the weakest listings of the year, after Xelpmoc Design and Tech Ltd, which had fallen 10.91%, and Sterling and Wilson Solar Ltd (down 7.01%) on their stock market debut.
The initial public offering (IPO) of Prince Pipes and Fitting Ltd, which makes polymer pipes and fittings, was open for subscription between 18 and 20 December, with a price band of ₹177-178 per equity share.
The Mumbai-based company aimed to raise ₹500 crore via the initial public offer, of which fresh issue was worth ₹250 crore.
For the remaining portion, the promoters sold their stakes partially.
The company will use ₹184 crore of the net proceeds towards setting up a new plant at Sangareddy in Telangana and start production by fiscal 2021. It expects the installed capacity to reach 51,943 tonnes per annum. The remaining funds will be used for repayment of certain outstanding loans worth ₹48 crore and upgrading equipment at its manufacturing facilities ( ₹82 crore).
Marketed under Prince Piping Systems and Trubore brands, the pipes manufacturer runs six plants across India with a total installed capacity of 0.24 million tonnes per annum as on 31 October.
The company plans to increase its capacity from 241,000 currently to 300,000 by FY21 focussing on its high-margin business. Prince Pipes has 1,408 distributors across India.
During FY13-19, its revenue and net profit witnessed 12% and 13% compounded annual growth rate (CAGR), respectively, while the average Ebitda and net margin stood at 11% and 4%, respectively. It has healthy return ratios with an average return on equity (RoE) of 22% and return on capital employed (RoCE) of 20% during the same period.
“Assuming revenue growth of 13% CAGR through FY19-21E, the company is valued at 14 times of FY21 earnings, which appears to be justified considering its business model, steady growth and healthy return ratios," said Reliance Securities in a report on 17 December.
Promoters have a pledge on 35% of shares, followed by 16% shares as non-disposal undertaking for securing loans worth ₹200 crore under the promoter entity, Express Infra Projects Llp. Both were released on the condition of fully repaying the amounts from the offer-for-sale (OFS) proceeds within two days of the credit of proceeds.
“The issue is priced at 23.5 times FY19 EPS (fully diluted). While there are concerns on promoter’s pledge and related party transactions, valuations seems reasonable vis-à-vis peers, given its financials and return ratios," said Motilal Oswal Financial Services Ltd in a note on 17 December.