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Salient features of the IPO:

• EPACK Durable Ltd. (EPACK), the 2 nd largest domestic original design manufacturer (ODM) of room air conditioners (RAC) is coming up with an IPO to raise around Rs. 640cr, which opens on 19th Jan. and closes on 23rd Jan. 2024. The price band is Rs. 218 - 230 per share.

• The IPO is a combination of fresh and OFS portion. From the OFS portion, the company will not receive any funds. From the fresh issue net proceeds, EPACK will be utilizing Rs. 230cr for funding the capacity expansion at the existing facility & setting-up new facilities and another Rs. 80cr will be used for the pre-paying/re-payment of debt. Rest of the net proceeds will be used for general corporate purposes.

• Couple of promoter & promoter group (P&PG) entities are participating in the OFS and offloading around 0.518cr shares (considering the higher price band). Post-IPO, P&PG will have 48.09% stake in the company, compared to 65.36% earlier. Couple of investor selling shareholders i.e. India Advantage Fund and Dynamic India Fund (both managed by ICICI Venture Funds) are partially offloading their stake in the company via. OFS route. Post issue these funds will have 10.33% and 0.66% stake (considering the higher price band), respectively, compared to 18.52% and 1.61% (pre-IPO). Consequently, public shareholding will increase from 34.64% to 51.91%.

Key competitive strengths:

• Long-standing relationships with established customers, with potential to expand the customer base

• Among the key manufacturers in the fast-growing RAC and SDA (small domestic appliance) market

• Advanced vertically integrated manufacturing operations with product portfolio aimed at capturing the full spectrum of the RAC and SDA value chain

• Robust product development and design optimization capabilities

• Experienced promoters supported by senior management team with proven track record of performance

Risk and concerns:

• General slowdown in the global economic activities

• Unfavorable government policies & regulations

• Revenue concentration risk

• Difficulty in adding new RAC brands and SDAs for ODM operations

• Subdued capacity utilization

• Difficulty in maintaining the profitability

• Competition

Below are the key highlights of the company:

• In volume terms, the Indian RAC market has grown by 8.8% CAGR between FY18-23, while 11.2% CAGR in value terms. Further, the market is forecasted to grow by 12.1% and 15.1% CAGR, in volume and value terms, respectively, over FY23-28E. Key growth drivers would be the improving purchasing power of the population, growth in the residential real estate market, easy financing options, more prevalence of heat waves etc.

• The RAC market is fairly organized and top-6 brands cornered around 65% of the market in FY23. Big brands largely manufacture RACs inhouse, but since couple of years, ODM/OEMs (original equipment manufacturer) have gained prominence in the manufacturing of the RACs for the brands. In FY23, around 35% of the RAC manufacturing was outsourced by the big brands to these ODM/OEM manufacturers.

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