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Published on 24/03/2021 3:15:54 PM | Source: Accord Fintech

V-Marc India coming with an IPO to raise around Rs 23 crore

Posted in IPO Analysis| #IPO

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V-Marc India

  • V-Marc India is coming out with a 100% book building; initial public offering (IPO) of 60,00,000 shares of Rs 10 each in a price band Rs 37-39 per equity share.

  • The issue will open on March 25, 2021 and will close on March 31, 2021.

  • The shares will be listed on NSE Emerge Platform.

  • The face value of the share is Rs 10 and is priced 3.70 times of its face value on the lower side and 3.90 times on the higher side.

  • Book running lead manager to the issue is Pantomath Capital Advisors.

  • Compliance Officer for the issue is Kanchan Gupta.

Profile of the company

The company is engaged in manufacturing and marketing of wires and cables under the brand name ‘V-Marc’. Its Promoter Vikas Garg commenced business in a partnership firm in 2006 as a manufacturer and distributor of PVC insulated wires and cables and has over the years, evolved, expanded and diversified to become an established manufacturer of wires and cables with a total income of Rs 17,164.44 lakh in Fiscal 2020. It manufactures and sells a diverse range of wires and cables and its key products are single & multistrand cables, CCTV cables, LAN cables, coaxial cables, telephone switchboard cables, power cables (LT and HT cables upto 33kv grade), flexible & control cables, core flat cables, solar cables, wires and aerial bunched cables.

The company’s products are also certified as compliant with various quality standards including Bureau of Indian Standards (BIS) and Certiva Limited (CE). The company sells its products through a diversified sales & distribution mix, majorly by 1) securing government tenders for supply to government projects 2) supply to EPC contractors for turnkey projects and 3) dealer & distribution network and direct sales to few private companies. The company has two manufacturing facilities which are located at Haridwar, Uttarakhand.

Proceed is being used for:

  • Funding capital expenditure of company’s proposed new manufacturing facility which is being set up to enable company to manufacture high voltage cables, produced by dry/nitrogen gas cure technology by way of installation of Catenary Continuous Vulcanization (CCV) line and expanding its existing installed capacities.

  • Funding the working capital requirements of the company.

  • General corporate purposes.

Industry overview

Manufacturing has emerged as one of the high growth sectors in India. Prime Minister of India, Mr Narendra Modi, launched the ‘Make in India’ program to place India on the world map as a manufacturing hub and give global recognition to the Indian economy. Government aims to create 100 million new jobs in the sector by 2022. The Gross Value Added (GVA) at basic current prices from the manufacturing sector in India grew at a CAGR of 5% during FY16 and FY20 as per the annual national income published by Government of India. The sector’s GVA at current prices was estimated at $ 397.14 billion in FY20PE. Business conditions in the Indian manufacturing sector continue to remain positive. The manufacturing component of IIP stood at 129.8 during FY20. Strong growth was recorded in the production of basic metals (10.8%), intermediate goods (8.8%), food products (2.7%) and tobacco products (2.9%). India’s Index of eight core industries stood at 131.9 in FY20.

Indian power sector is undergoing a significant change that has redefined the industry outlook. Sustained economic growth continues to drive electricity demand in India. The Government of India’s focus on attaining ‘Power for all’ has accelerated capacity addition in the country. At the same time, the competitive intensity is increasing at both the market and supply sides (fuel, logistics, finances, and manpower). By 2022, solar energy is estimated to contribute 114 GW, followed by 67 GW from wind power and 15 GW from biomass and hydropower. The target for renewable energy has been increased to 227 GW by 2022.Total installed capacity of power stations in India stood at 373.43 GW as of October 2020. Electricity production reached 1,252.61 billion units (BU) in FY20. Between April 2000 and September 2020, the industry attracted $ 15.23 billion in Foreign Direct Investment (FDI), accounting for 3% of total FDI inflow in India.

The wires and cables sector is a direct beneficiary of development of power generation and distribution Infrastructure, as the market comprises nearly 40% of the electrical industry in India. The industry is projected to grow a CAGR of about 11% to reach ` 1,000-1,100 Billion by FY 2023-24. India has also become a net exporter of cables and wires propelled by double-digit annual growth of 12% from 2009 to 2019. Wires and Cables Typically, wires consist of single conductor and cables are assembly of one or more conductors that are used for the transmission of electricity, data or signals. Major users of power cables are the power sector (central, state, and private electricity utilities) and sectors like petrochemicals, mining, steel, non-ferrous, shipbuilding, cement, railway, and defence. The performance and durability of cables depend on the quality of raw materials. Specialised applications require superior chemical, mechanical, thermal, and electrical performance from cables, resulting in usage of high-performance materials in cable construction.

Pros and strengths

Wide product portfolio with focus on quality: As on December 31, 2020, the company’s product portfolio consists of various types of wires & cables. It engages in continuous manufacturing of new varieties based on the orders of its customers to keep up with the trends and meet its customer requirements. It also proposes to set up a new facility to manufacture certain higher value products. Maintaining a wide range of products in its business provides it with an opportunity to cater to diverse needs of different customer segment and capture higher market share. Its products are also certified as compliant with various quality standards including Bureau of Indian Standards (BIS) and Certiva Limited (CE).

Diversified and marquee customer base across varied geographies: The company sells its products through a diversified sales & distribution mix, majorly by 1) securing government tenders for supply to government projects 2) supply to EPC contractors for turnkey projects and 3) dealer & distribution network spread over 12 states and direct sales to few private companies. It has a diverse customer base comprising government companies, PSUs, retailers, distributors, dealers and contractors in a range of industries including power, real estate, telecom and railways. Its qualitative products at competitive prices has allowed it to enhance its relationships with existing clients and to secure orders from new customers. Further it has a widespread presence with its customers being located across geographies enabling it to supply products in around 21 states during financial year ended March 31, 2020.

Distribution network: The company supply its products directly to its authorized dealers and distributors who in turn sell its products to various retail outlets in India. Further, it supplies its products to its direct customers including private companies, EPC contractors and government companies through direct sales. One of its key strengths to enhance its consumer reach and increase its retail presence is its dealer and distribution network. As on December 31, 2020 it has a dealer network of more than 650+ dealers with a presence of over 12 states. It has maintained long term relationships with most of its key dealers. Its dealer relationships are led primarily by its ability to provide a wide range of products, meet stringent quality and technical specifications and providing better pricing and delivery terms than that of its competitors.

Risks and concerns

Generate major portion of sales from its operations in certain geographical regions: For the nine months period ended December 31, 2020 and for the year ended March 31, 2020 the company’s revenue from its customers situated in Uttarakhand, Uttar Pradesh and Madhya Pradesh contributed 72.53% and 71.70% of its total revenue from operations as per its Restated Financial Statements. Such geographical concentration of its business in these regions heightens its exposure to adverse developments related to competition, as well as economic and demographic changes in these regions which may adversely affect its business prospects, financial conditions and results of operations. It may not be able to leverage its experience in such regions to expand its operations in other parts of India and overseas markets, should it decide to further expand its operations. Factors such as competition, culture, regulatory regimes, business practices and customs, industry needs, transportation, in other markets where it may expand its operations may differ from those in such regions, and its experience in these regions may not be applicable to other markets.

Derive significant portion of revenue from certain customers: The company is dependent on a limited number of customers for a significant portion of its revenues. Revenues generated from sales to top 10 customers represented 71.46% and 59.59% of its revenue from operations during the nine months period ended December 31, 2020 and Fiscal 2020. While it has developed strong and long-term relationships with certain of its customers and continue to add new customers in the normal course of business, there can be no assurance that its significant customers in the past or its newly acquired customers will continue to place similar orders with it in the future. The loss of one or more of these significant customers or a significant decrease in business from any such key customer, whether due to circumstances specific to such customer or adverse market conditions affecting the industry in which its customer operates or the economic environment generally, such as the COVID-19 pandemic, may materially and adversely affect its business, results of operations and financial condition.

Face competition: The company compete in wires & cables industry on the basis of the range of its products, quality of its products, price, securing government tenders and distribution network. The industry in which it operates is highly competitive. The industry and markets for its products are characterized by factors such as technological change, the development of new end products and their rapid obsolescence, evolving industry standards and significant price erosion over the life of a product. Factors affecting its competitive success include, amongst other things, price, demand for its products, availability of raw materials, brand recognition and reliability. Its competitors vary in size, and may have greater financial, production, marketing, personnel and other resources than it and certain of its competitors have a longer history of established businesses and reputations in the Indian wires & cables industry as compared with it.

Outlook

Incorporated in 2014, V-Marc India is engaged in the business of manufacturing and marketing wires and cables under the brand name of ‘V-Marc’. The company manufactures and sells a diversified range of wires and cables i.e. single & multistrand cables, LAN cables, coaxial cables, CCTV cables, telephone switchboard cables, power cables, core flat cables, solar cables, wires, and aerial bunched cables, etc. The company sells its products through multiple channels; government tenders to supply products for government projects; supply to EPC contractors for turnkey projects; and dealer and distribution network to directly sell to private companies. It supplies its products across industries i.e. power, real estate, railways, and telecom sector. The company’s success is the result of sustained efforts over the years in key aspects of its business, such as product portfolio, process improvements, ability to secure government tenders, relationship with its dealers and increased scale of operations. On the concern side, the company rely on third parties logistic service providers, with whom it has no formal arrangement, to provide rail, trucking and other transportation facilities for the transfer of raw materials to its manufacturing facilities and the supply of finished products to its customers.  Its business depends on its ability to obtain funds at competitive rates. The cost and availability of capital, amongst other factors, is also dependent on its current and future results of operations and financial condition, its ability to effectively manage risks, its brand and its credit ratings.

The issue has been offered in a price band of Rs 37-39 per equity share. The aggregate size of the offer is around Rs 22.20 crore to Rs 23.40 crore based on lower and upper price band respectively. On performance front, the company’s total revenue decreased by 16.38% to Rs 17,164.44 lakh for the financial year 2019-20 from Rs 20,525.61 lakh for the financial year 2018-19. The company’s profit after tax decreased by 4.98% to Rs 464.60 lakh for the financial year 2019-20 from Rs 488.95 lakh for the financial year 2018-19. The company proposes to set up a new state-of-the-art manufacturing facility which shall expand its technological capabilities and enable it to manufacture high voltage cables, produced by dry/nitrogen gas cure technology by way of installation of Catenary Continuous Vulcanization (CCV) line. It aims to focus on increasing its penetration in its existing markets and thereby increase its domestic presence by expanding its dealers’ network. It also intends to establish its brand recognition in overseas markets by participating in international trade exhibitions.