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Rex Pipes and Cables Industries

• Rex Pipes and Cables Industries has come out with an initial public offering (IPO) of  24,00,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 26 per equity share.

• The issue has opened on July 28, 2021 and will close on August 2, 2021.

• The shares will be listed on NSE Emerge Platform.

• The share is priced 2.60 times higher to its face value of Rs 10.

• Book running lead manager to the issue is Navigant Corporate Advisors.

• Compliance Officer for the issue is Monika Bohara.

Profile of the company

The company is engaged in the trading and production/manufacturing product range encompassing uPVC pipes, HDPE pipe, Cables, fittings and abundance of accessories under the brand name ‘REX’. The brand ‘REX’ is the hall mark showcasing the entire Product range. It has just taken a little over two decades for The Rex group of Industries to emerge as one of India's leading manufacturers in the field of PVC Pipes & Fittings and PVC insulated electrical wires. The company produces excellent Three Core flat cables , Single Core Flexible Home wire , Poly Wrapped Winding wire along with UPVC, HDPE and sprinklers with unique skills, continuous technological upgrading machines, professional management testing and persistent dedication without compromising on quality leading the entire organization to National and International name and reputation.

The company has emerged into a national entity as a complete innovation for its own type of manufactured products. It offer a wide range of PVC pipes, HDPE pipe, Cables classified in a systematic manner to ensure easy and accurate selection, with the simultaneous advantage of providing the most cost-effective solutions for customers. It has established itself as an innovative leader and quality manufacturer by continuously upgrading its technology, modernizing manufacturing facilities and maintaining highest standards of quality and services.

Proceed is being used for:

• Part finance the requirement of incremental working capital.

• Meeting general corporate purposes.

• Meeting the expenses of the Issue.

Industry Overview

The Indian plastics industry made a promising beginning in 1957 with the production of polystyrene. Thereafter, significant progress has been made, and the industry has grown and diversified rapidly. The industry spans the country and hosts more than 2,000 exporters. It employs about 4 million people and comprises more than 30,000 processing units, 85-90% of which are small and medium-sized enterprises.

The Indian pipes business has been growing rapidly in the past decade, largely due to increasing demand for pipes in the irrigation sector and construction industry. Among the several varieties of pipes available in the market, the demand for plastic pipes such as PVC, CPVC in particular, is on a rise largely due to other types of pipes, like steel pipes and ductile iron pipes also have major demand. Currently, in India, approximately 73% of the PVC is consumed by the Pipes & Fittings industries with the other sectors comprising only 27%. Globally, Pipes & Fittings account for only 43% of the PVC consumption, showing that PVC applications in India other than Pipes & Fittings are still in the early stages and are primed for growth. This, along with the relatively low per capita PVC consumption in India, shows that future prospects for the Indian PVC processing industry are bright. Although, CPVC pipes and fittings contributed just 10% to the overall production capacity in FY15, it is the fastest growing segment of the PVC pipes and fittings industry in India.

The Indian agriculture piping industry is highly fragmented due to presence of large chunk of players, giving tough competition both on product offerings and pricing terms. Also, the main reason for low yield or margins in this segment is due to the less proportion of fittings in usage, compared to the plumbing segment. There are few organised players operating with significant presence through wide distribution network and a strong quality product portfolio. Plastics play a major role in managing water resources. The various applications of plastics in water management include plastic rain water collection tanks, pipes, profiles; waste water applications (waste water treatment plants) and plastic pipes for water transportation (PVC, HDPE, LLDPE, PP, FRP).

Pros and strengths

Diversified product portfolio: The company has a varied product base to cater to the requirements of its customers. Its Product Portfolio includes diversified variety of Bus Manufacturing and uPVC Pipes & Fittings which are used in different sectors. Its products range includes uPVC threaded Column Pipes, uPVC Plumbing Pipes with uPVC Plumbing Fittings, uPVC Pressure Pipes with uPVC Agri Fittings and uPVC Casing Pipes which are widely used in Agriculture and Construction Sector. The company is also a supplier of HDPE Pipes being manufactured by its company. 

Strategically located manufacturing facilities: Due to the size of pipes, an important factor in their cost is transportation costs. Therefore, it is a competitive advantage to manufacture pipes as close as possible to the ultimate consumers. It has checks and testing systems in place, from the procurement of raw material to the manufactured product, for ensuring the quality of its products.

Quality assurance: The company conduct stringent quality tests at every stage of manufacturing process and the desired chemical compositions are maintained right through the process. After manufacturing, the products are also carefully inspected and evaluated on various parameters.

Risks and concerns

Historical revenues significantly depends on few customers: The company’s top 10 customers have contributed over 43.96% of its revenues for the period ended January 31, 2021. Any decline in its quality standards, growing competition and any change in the demand by these customers may adversely affect its ability to retain them. It cannot assure that it shall generate the same quantum of business, or any business at all, from these customers, and loss of business from one or more of them may adversely affect its revenues and profitability.

Business depends on operations in Rajasthan region of India: While the company’s operations are spread out in Rajasthan region of the country, all of its offices outlets are located in the Rajasthan. 83.12% of the total revenue of the company for the ten months ended January 31, 2021 has been generated from the state of Rajasthan only. In the event that demand for its services in general reduces or stops by any reason including political discord or instability or change in policies of State, then its financial condition and operating results may be materially and adversely affected. Geographical and functional expansion of its business domain requires establishment of adequate network. As it seek to diversify its regional focus, it may face the risk that its competitors may be better known in other markets, enjoy better relationships with customers. Its lack of exposure in geographical boundaries outside its operating region could impact its future revenues.

Depends on third party transportation providers: The company uses third party transportation providers for delivery of its goods. Though its business has not experienced any disruptions due to transportation strikes in the past, any future transportation strikes may have an adverse effect on its business. In addition goods may be lost or damaged in transit for various reasons including occurrence of accidents or natural disasters. There may also be delay in delivery of products, which may also affect its business and results of operation negatively. An increase in the freight costs or unavailability of freight for transportation of its raw materials or finished goods may have an adverse effect on its business and results of operations.

Outlook

Incorporated in 2002, Rex Pipes and Cables Industries is engaged in the trading and manufacturing of PVC pipes, HDPE pipes, cables, and fittings under the 'Rex' brand name. It offers a wide range of products including three core flat cables, PVC & HDPE pipes, single-core flexible home wire, HDPE and sprinklers, and cables that are used by different industries i.e. agriculture, power, construction, and engineering. It has ultra-modern state of art manufacturing facilities in Sikar. The company further undertakes manufacturing and fabrication of bus bodies under the brand 'Rex Coaches' with a total capacity of 600 buses per year. It offers distinctive types of products for the passenger transport industry i.e. city buses, school buses, intercity coaches, executive buses, commercial road container trucks, and others. On the concern side, the company’s business operations require it to obtain and renew from time to time, certain approvals, licenses, registration and permits, some of which may expire and for which it may have to make an application for obtaining the approval or its renewal. The industry in which the company operates is highly competitive. Factors affecting its competitive success include, amongst other things, price, demand for its products, and availability of raw materials, brand recognition and reliability.

The company is coming out with a maiden IPO of 24,00,000 equity shares of Rs 10 each at a fixed price of Rs 26 per share to mobilize around Rs 6.24 crore. On performance front, operating income of the company for the year ending March 31, 2020 is Rs. 3,201.98 lakh as compared to Rs. 3,723.83 lakh for the year ending March 31, 2019, showing decrease of 14.01%, and such decrease is due to decrease in volume of operations. Its profit after tax decreased by 40.69% from Rs 130.66 lakh in financial year 2018-19 to Rs. 77.50 lakh in financial year 2019-20. This increment was in line with decrease in operational income. The company plans to increase sales of its products by increasing the number of retailers who stock its products. It plans to expand the sale of its products into cities where its products are not currently sold as well as consolidating its position in areas where it already has a strong presence. It intends to focus on upgradation of its machineries and equipments used in its business and will continue to do so to improve its productivity.