Marco Cables & Conductors IPO Review

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Company Overview

Marco Cables and Conductors Ltd. (MCCL) is actively involved in the manufacturing and sale of wires, cable wires, and conductors within India. With a rich operational history spanning over 34 years in the Indian power cable industry, MCCL initially began its operations by producing wires with aluminum/copper conductors, XLPE/PVC cables, and Aerial Bunched Cables. Later, it expanded its product range to include AAAC (All Aluminium Alloy Conductor) and ACSR (Aluminium Conductor Steel Reinforced) Conductors, establishing a strong presence in the industry.

Over the past three decades, MCCL has consistently manufactured XLPE, PVC, and Aerial Bunched Cables. More recently, it has ventured into producing ACSR (Aluminium Conductor Steel Reinforced), AAAC (All Aluminium Alloy Conductor), and ABC (Aerial Bunched Cable) for distribution and transmission power lines. Throughout its journey, the company has honed its expertise and modernized its technology by incorporating various automated machinery and equipment into its facilities. This investment has not only increased production capacity but also enhanced product quality.

The majority of MCCL’s products are supplied to electricity boards in different Indian states, including Maharashtra, Gujarat, Tamil Nadu, Telangana, Haryana, Chhattisgarh, Madhya Pradesh, and others, as well as to turnkey contractors across India. Their product range covers various voltage and transmission lines, suitable for up to 1.1 KV. MCCL employs a diversified sales and distribution approach, primarily involving 1) securing government tenders for government projects, 2) supplying EPC contractors for turnkey projects, and 3) direct sales to select private companies. As of July 15, 2023, the company had 79 employees on its payroll, with additional contract laborers hired as needed.

Read More About Marco Cables IPO

Issue Details/Capital History

MCCL is launching its inaugural combination IPO, offering 5,202,000 equity shares at a fixed price of Rs. 36 per share, with the goal of raising Rs. 18.72 crore. The IPO comprises 2,601,000 fresh equity shares (valued at Rs. 9.36 crore) and 2,601,000 shares (Rs. 9.36 crore) through an Offer for Sale (OFS). The subscription period for the IPO is from September 21, 2023, to September 25, 2023. The minimum application is for 3,000 shares, with multiples thereafter. Following the allocation, these shares will be listed on NSE SME Emerge. The IPO constitutes 27.82% of the post-IPO paid-up capital of the company, and MCCL is allocating Rs. 0.80 crore for the IPO process. Proceeds from the fresh equity shares will be allocated as follows: Rs. 1.86 crore for the purchase of a solar power system and stranding machine, Rs. 5.00 crore for working capital, and Rs. 1.70 crore for general corporate purposes. Shreni Shares Pvt. Ltd. is the sole lead manager, and Bigshare Services Pvt. Ltd. is the registrar of the issue. Shreni Shares Ltd. also serves as the market maker for the company.

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MCCL initially issued its equity shares at par value, subsequently issuing further equity shares at a price of Rs. 111 per share (with a face value of Rs. 10 each) in March 2023. Additionally, the company issued bonus shares in a 4:1 ratio in April 2023. The average cost of acquisition of shares by the promoters and selling stakeholders is Rs. 1.73, Rs. 5.06, and Rs. 8.16 per share.

After the IPO, MCCL’s current paid-up equity capital of Rs. 16.10 crore will increase to Rs. 18.70 crore. Based on the IPO pricing, the company is seeking a market capitalization of Rs. 67.32 crore.

Financial Performance

Over the last three fiscal years, MCCL reported a turnover/net profit of Rs. 42.83 crore/Rs. 0.12 crore (FY21), Rs. 56.65 crore/Rs. 0.34 crore (FY22), and Rs. 56.94 crore/Rs. 2.81 crore (FY23). While its top-line revenue remained stable in FY22 and FY23, its bottom-line profit surged significantly in FY23, raising questions about its sustainability going forward.

For the past three fiscal years, MCCL has posted an average EPS of 0.97 and an average RoNW of 10.40%. The issue is priced at a P/BV of 3.64 based on its NAV of Rs. 9.89 as of March 31, 2023, and at a P/BV of 2.78 based on its post-IPO NAV of Rs. 12.93 per share.

Considering the remarkable earnings of FY23 after the IPO fully dilutes the paid-up equity capital, the asking price corresponds to a P/E ratio of 24. Thus, the issue may be viewed as fully priced, particularly considering the extraordinary earnings of FY23.

Dividend Policy

Since its inception, the company has not paid any dividends. It plans to adopt a prudent dividend policy based on its financial performance and future prospects.

Comparison with Listed Peers

According to the offer document, MCCL has identified V-Marc, Ultracab, and Relicab Cable as their listed peers, trading at P/E ratios of 25.31, 26.50, and 62.95 (as of September 18, 2023), respectively. However, it’s important to note that these comparisons may not be entirely accurate or comparable on an apples-to-apples basis.

Merchant Banker’s Track Record

This marks the 21st mandate from Shreni Shares in the last three fiscal years, including the ongoing one. Out of the last 10 listings, one opened at a discount, while the rest saw premiums ranging from 2.74% to 143.24% on the day of listing.

Conclusion / Investment Strategy

MCCL operates in a fiercely competitive and fragmented industry. Although it recorded stagnant top-line revenue for FY22 and FY23, it surprised with substantial bottom-line growth in FY23. Based on the exceptional earnings of FY23, the issue appears to be fully priced. Investors with good information or a higher risk tolerance may consider investing for the medium to long term.

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