Prince Pipes raises Rs 150 crore from anchors

>> Outstanding dues
According to the IPO’s red herring prospectus (RHP), certain promoters and directors have outstanding litigations of over Rs 900 crore with respect to their exposure to real estate projects. However, analysts say that the claims may not be as high if the case goes against the promoters. The promoters may be required to pledge certain equity shares.

>> Fund requirements
Another risk is the fund requirements for the manufacturing plant mentioned are based on the quotations received from vendors as well as internal management estimates and has not been appraised by any bank or financial institutions and there could be cost overruns.

>> Contingent liabilities
Other major business-related risks include the contingent liabilities of Rs 72 crore up to June 30, 2019. This mainly includes the guarantee given by the company to the banks for the loans taken by the customers. This is a part of chain financing started by the promoters to improve the credit cycle.

>> High degree of competition
In addition, the plastic pipes industry too remains highly competitive. The organised industry is 60-65% and over six organised players compete against each other with each owning not more than 11%. Prince Pipes’ market share is 5%. Other major players include Supreme Industries, Finolex Industries, Astral Polytechnik and Ashirvad Pipes.

Prince Pipes provides different categories of polymer pipes to irrigation, plumbing and SWR (soil waste and rainwater) segments. They account for nearly 32%, 37% and 30% of the company’s revenue in that order.

The company’s revenue grew by 12.6% yearly between FY17 and FY19 to ₹1,571 crore. During the same period, operating profit before depreciation ( Ebitda) rose by 6.9% to ₹186 crore. The Ebitda margin shrank to 11.8% from 13%. Net profit for FY19 was ₹83.4 crore.

Post dilution, on trailing basis, the IPO demands price-earnings (P/E) multiple of 23.5. This appears fair when compared with the valuations of Supreme Industries, Finolex Industries,and Astral Polytecknik, which and are trading at 33, 20 and 73 times respectively.