RR Kabel IPO off to slow start on Day 1; Should you subscribe?

The company plans to raise up to Rs 1,964 crore from its maiden share sale in the price band of Rs 983 - Rs 1,035. Offer closes on Friday.

RR Kabel IPO opened for subscription on Wednesday. The company plans to mop-up Rs 1,964 crore from the public float by offering 18.98 million shares, which includes fresh issue of 1.74 million shares, in the price band of Rs 983 - Rs 1,035. The offer closes on Friday, September 15, 2023, and the stock is expected to be listed on September 26, 2023.

Anchor investors picked up 5.66 million shares for a consideration of Rs 585.62 crore on Tuesday.

RR Kabel is a prominent player in the fast-moving electrical goods segment with a history of over 20 years. It also specializes in wires and cables. The company competes against the likes of Havells India, Polycab, KEI Industries, Finolex Cables and Crompton Greaves Consumer Electricals.

The company in its RHP (Red Hearing Prospectus) said "We are the fastest growing consumer electrical company among our peers in India, growing at a compound annual growth rate (CAGR) of 43.4 per cent between FY21 and FY23."

The Kabra family are the promoters - Tribhuvanprasad Rameshwarlal Kabra, Shreegopal Rameshwarlal Kabra, Mahendrakumar Rameshwarlal Kabra, Kirtidevi Shreegopal Kabra, Tribhuvanprasad Kabra HUF (Hindu Undivided Family), Kabra Shreegopal Rameshwarlal HUF and Mahendrakumar Kabra HUF collectively held 66.42 per cent stake, which will be reduced to 62.77 per cent post IPO.

The primary objective of the IPO is to repay debt, and use the funds for general corporate purposes.

As of 13:00 PM; the IPO was subscribed 11 per cent, with retail investors bidding for up to 18 per cent of their allotted quota.

Here's a quick view from brokerages on the IPO:

Motilal Oswal

Rating: Subscribe

The brokerage firm says RR Kabel is the 5th largest player in Indian C&W (cables & Wires) industry with 7 per cent market share in the branded market. The company generated 74 per cent of its FY23 revenue from the C&W segment. It has a strong pan-India network with 3,400+ distributors and 3,600+ dealers along with 271,264 electricians.

Motilal Oswal has a 'SUBSCRIBE' rating on the stock given its strong positioning in C&W industry with good brand recall and extensive distribution network. 

"The issue is valued at 39x annualized Q1FY24 P/E which is in line with peers. We believe RR Kabel could benefit from the industry tailwinds given its size and higher presence in B2C segment," said the brokerage house in its IPO note.

Anand Rathi

Rating: Not Rated

RR Kabel has integrated manufacturing units and strong financials, with a strong business model and bright prospects. Like its peers, RR Kabel had a strong start to FY24, its revenue rose 29% year-on-year with a 380bp EBITDA margin expansion. 

At the upper end of the IPO price band, the stock trades at 61x FY23 EPS of Rs 17.1, the brokerage firm said.  

Among the key risks, Anand Rathi sees inability to shift to the 'RR Signature' brand could hobble the company’s growth prospects, an important monitorable. Inability to lever volumes consistently could curtail margins in FY24 and FY25. 

LKP Securities

Rating: Subscribe

The brokerage firm in its IPO note highlighted that RR Kabel has declared healthy dividends in the last three financial years - 100 per cent (FY22), 180 per cent (FY23) and 90 per cent (FY24) so far. Based on the company's financial performance and future prospects, LKP expects it to follow a prudent dividend policy going forward.

The brokerage firm has a 'SUBSCRIBE' rating, even as it said "While we had hoped that RR KABEL would have kept the pricing of their comparable peers at the time of their Initial Public Offers in mind while pricing their issue, hopes need not necessarily become a reality" in its IPO note.

  

Ventura

Rating: Subscribe

Ventura said in terms of product quality and innovation, RR Kabel holds an impressive portfolio of 35 international product certifications. It also maintains a dedicated research and development (R&D) team, comprising 72 professional focused on driving forward product innovation. As of June 2023, the company is actively engaged in the development of 55 new products. 

On its investment rationale, Ventura expects India's C&W market to grow at a rate of 13 per cent CAGR unit FY27, with an increasing presence of organized players creating ample room for expansion. The combination C&W and FMEG products is expected to improve the product mix and subsequently boost profit margins.