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Prince Pipes and Fittings
End-to-end piping systems supplier
CM RATING35/100
Prince Pipes and Fittings is recognized as one of the leading polymer pipes and fittings manufacturers in India in terms of number of distributors. The company markets its products under two brand names: Prince Piping Systems and Trubore. The company has more than 30 years experience in the polymer pipes segment.

The company is positioned not just as a pipe manufacturer but also as an end-to-end piping systems supplier. The company currently manufacture polymer pipes using four different polymers: UPVC, CPVC, PPR and HDPE, and fittings using three different polymers: UPVC, CPVC and PPR. Its products are used for varied applications in plumbing, irrigation, and soil, waste and rain water (SWR) management.

The company has six strategically located manufacturing plants, which gives it a strong presence in north, west and south India. Its plants are located at: Athal (Union Territory of Dadra and Nagar Haveli); Dadra (Union Territory of Dadra and Nagar Haveli); Haridwar (Uttarakhand); Chennai (Tamil Nadu); Kolhapur (Maharashtra) and Jobner (Rajasthan). The total installed capacity of our six existing plants is 241,211 tonne per annum as on October 31, 2019.

The company has an ISO 9001:2008 certified manufacturing process for each of its plants, except for our Kolhapur and Rajasthan plants. It also have an ISO 14001:2015 certification for its Haridwar, Dadra and Chennai plants and an EMS certification ISO 50001:2011 (relating to energy efficiency) for its Chennai, Athal, Dadra, Kolhapur and Haridwar plants

The company plans to expand the installed capacity at its plant in Jobner (Rajasthan) from 6,221 tonne per annum as at October 31, 2019 to 17,021 tonne per annum by December 31, 2019 and to 20,909 tonne per annum by the end of Fiscal 2020. It further plans to set up a new manufacturing plant at Sangareddy in Telangana, with a total estimated installed capacity of 51,943 tonne per annum. The company plans to commence production at the Telangana plant in FY 2021

The company distributes its products from its six plants and 11 warehouses. The company sells its products to distributors, who then resell the products to wholesalers, retailers, and plumbers. As at October 31, 2019, the company sold its Prince Piping Systems products to 1,151 distributors in India. The company sells its Trubore products directly to wholesalers and retailers. As at October 31, 2019, it sold Trubore products to 257 wholesalers and retailers.

The company has technical collaboration with a reputed international player, Wavin Overseas B.V., headquartered at Zwolle in The Netherlands, for almost the last five years, which has helped it to improve the quality of its products and manufacturing efficiency. Wavin has a direct presence in over 25 countries with some 30 manufacturing sites, and is dedicated to supplying a range of plastic pipe systems for building and infrastructure projects, and licensing of know-how and intellectual property rights.

The organized segment in the pipes and fittings industry accounts for a 60-65% share of the country's plastic pipes industry. However, depending on the category, the share of organized players fluctuates accordingly. Supreme Industries enjoys the largest market share of about 11%, end FY 2019, followed by Finolex Industries (9%), and Ashirvad Pipes (9%). The share of Prince Pipes and Fittings increased to 5% in FY 2019 from 4.5% in FY 2016.

The Offer and the Objects

The offer comprises Rs 250 crore fresh issue and an equal amount of offer for sale with a price band of Rs 177 to Rs 178 per Equity Share. The offer for sale comprises of promoter Jayant Shamji Chheda ( Rs 20 crore), Tarla Jayant Chheda (Rs 140 crore), Parag Jayant Chheda (Rs 50 crore) and Vipul Jayant Chheda (Rs 50 crore). Fresh issue of Rs 250 crore at lower price of Rs 177 per share, works out to 1.412 crore shares and at higher price of Rs 178 per share works out to 1.404 crore shares.

The minimum bid lot is 84 equity shares and in multiples of 84 equity shares thereafter.

The company has undertaken a pre-IPO placement of 596,500 CCPS (Compulsorily convertible preference shares) for cash consideration aggregating to Rs 106.177 crore, which have been converted into 5,965,000 equity shares. The size of the fresh issue of up to Rs 356.177 crore has been reduced by Rs 106.177 crore pursuant to the pre-IPO placement and accordingly the fresh issue is up to Rs 250 crore. Issued, subscribed and paid-up share capital before the offer of Rs 95.981 crore (95,980,816 equity shares) includes the 59,65,000 equity shares issued by the company pursuant to conversion of 5,96,500 CCPS.

The proceeds from the offer for sale (net of any Offer related expenses to be borne by the promoter selling shareholders) shall be received by the promoter selling shareholders and the company shall not receive any proceeds from the offer for sale. The promoter selling shareholders intend to use the proceeds of the offer for sale towards repayment of the outstanding bonds issued by Express Infra Projects LLP.

Prince Pipes and Fittings promoter group entity, Express Infra Projects LLP, has issued bonds aggregating up to Rs 200 crore, of which Rs 191.5 crore was outstanding as at October 31, 2019. For securing these bonds, Promoters, Jayant Shamji Chheda, Tarla Jayant Chheda, Parag Jayant Chheda, Vipul Jayant Chheda and Heena Parag Chheda, and one of promoter group entities, Jayant Shamji Chheda HUF, had pledged certain equity shares (in their capacity as first holders or second holders of such equity shares) aggregating 35% of the equity share capital of company on a fully diluted basis, with IDBI Trusteeship Services, acting as a trustee on behalf of the bondholders. Further, Parag Jayant Chheda and Vipul Jayant Chheda (along with such shareholders holding equity shares jointly with them as second joint Shareholders) had provided a non-disposal undertaking in relation to additional equity shares aggregating 16% of the equity share capital of the company on a fully diluted basis. As the promoters intend to repay the outstanding bonds through proceeds from offer from sale, the pledges have been revoked ahead of the IPO. However if the promoters fail to repay, pledges will get restored

Net proceeds from the fresh issue will be used for repayment or prepayment of certain outstanding loans of company, financing the project cost towards establishment of a new manufacturing facility, upgradation of equipment at manufacturing facilities and for general corporate purposes.

The company has proposed to establish a new manufacturing facility in Telangana, either directly or indirectly through a wholly owned subsidiary that it may set up in the future. For setting up this facility, it has purchased land admeasuring approximately 45 acres 11 guntas, situated at Sadashivpet Mandal, district Sangareddy, Telangana, for a total consideration of Rs 12.101 crore, including registration cost, stamp duty and other expenses. Total estimated expenses related to the proposed manufacturing facility in Telangana, excluding land cost is Rs 184 crore.

The company intends to utilize an amount aggregating up to Rs 48.17 crore from the net proceeds and the proceeds from the pre-IPO placement towards repayment and/or pre-payment, in full or in part, of certain outstanding term loans availed by company.

Strengths

Being a cost-effective way to transport water, pipes form an integral part of infrastructure to transport, distribute and dispose life sustaining resource. They are used for a variety of end applications such as irrigation, household plumbing, sewerage and industrial applications. In the past, metal pipes - especially galvanised iron (GI) pipes - were used for most purposes. However, with an increase in availability of raw materials, superior properties and low costs compared with GI, plastic pipes have emerged as the material of choice for these applications.

The industry's growth pace is projected to accelerate over the next five FYs (i.e., from April 1, 2019, to March 31, 2024) at a CAGR of 12-14% to Rs 50000-55000 crore in FY 2024 led by very low per-capita plastic consumption of about 11 kg, compared with the global average of 30 kg. Another factor driving long-term demand is the replacement of older pipes with plastic pipes. Significant demand for plastic pipes also comes from applications in residential and commercial housing projects and rural areas

Prince Pipes and Fittings' number of distributors as of September 30, 2019, was 1,408 compared to 984 distributors of Supreme Industries, 850 Finolex Industries, 750 Astral Polytechnik and 1,100 of Ashirvad Pipes.

While most players have established positions in the western region, Supreme Industries and Prince Pipes and Fittings have spread their manufacturing base in other regions. For FY 2019, Prince Pipes and Fittings sales in north, south, west and east India represented 38.57%, 26.93%, 23.54% and 10.96% of its revenues from operations, respectively. Continuous efforts by organized players to increase channel partners and widen distribution networks are key in providing a competitive edge and in catering to the needs of the underpenetrated market.

Prince Pipes and Fittings has also been focusing on increasing its fittings presence, due to high demand in this segment. The fittings segment typically earns higher margins due to the specialized nature and precision required versus the pipes segment.

Weaknesses

The company faces significant competition from organized and unorganized pipe manufacturers. In addition to competition from players in the polymer pipes industry, it also faces competition from substitutes for many of its products. Increases in consumers' preferences for any of these substitutes could lead to a reduction in the demand for products

PE, PP and PVC are the key raw materials used, prices of which are dependent on crude oil prices. Crude oil prices are volatile and any increases in the price of crude oil would lead to increases in the prices of the raw materials required to manufacture our products. Also depreciation in the rate of exchange of the Rupee and the U.S. dollar would lead to increases in the prices of the raw materials.

The company earns its revenues in rupees, while the costs of the imported raw material and plant and machinery are denominated in foreign currencies, primarily in US dollars. Any depreciation in the rupee compared with these foreign currencies, to the extent exposure is unhedged, would adversely affect financial condition and results of operations.

Three promoters, Jayant Shamji Chheda, Parag Jayant Chheda and Vipul Jayant Chheda, have given personal guarantees in relation to (a) a working capital and term loan for the company from a consortium of banks led by the Standard Chartered Bank, the amount of guarantees provided was Rs 607.470 crore as on October 31, 2019 and (b) a facility for forward booking of foreign exchange for the company from Standard Chartered Bank, the amount of guarantees provided was Rs 5.5 crore as on October 31, 2019. In the event the company defaults on these debt obligations, the guarantees may be invoked by lenders. In the event these Promoters do not have other assets to satisfy their obligations under the guarantees, they may be required to sell some or all of their equity shares, which could thereby adversely affect these promoters' ability to manage the affairs of our company.

Two of the promoters, Jayant Shamji Chheda, who is also Chairman and Managing Director, and Heena Parag Chheda, are also partners in Aditya Developers as against which Montana Developers Private Limited have issued legal proceedings involving damages up to Rs 904.6 crore and criminal punishments. The claim and complaint, if settled against them, could have an adverse effect on the reputation and financial condition of Jayant Shamji Chheda and Heena Parag Chheda and have an impact on their ability to manage Prince Pipes.

The use of the word Prince in the corporate, trading or brand names of third parties, especially in related businesses, as well as continued use of its old logo by one of the competitors (managed by relatives of promoters), may adversely affect the company's goodwill.

Valuation

For FY 2019, net sales were up 20% to Rs 1571.87 crore. The OPM stood at 11.8% compared with 12.4% for FY 2018, resulting in OP growth of 14% to Rs 185.91 crore. Other income stood at Rs 7.13 crore, up by 18%. Interest cost stood at Rs 36.4 crore, up by 1%, while depreciation stood at Rs 45.16 crore up by 19%. Thus, PBT stood at Rs 111.47 crore, up by 17%. After providing total tax of Rs 28.12 crore up by 26%, PAT for FY 2019 stood at Rs 83.35 crore, up by 15%.

At the higher price band of Rs 178, the offer is made at around 23.4 times its FY 2019 EPS of Rs 7.6 on a post-issue equity share capital of Rs 110.03 crore of face value of Rs 10 each. Nearest comparable listed player is Finolex Industries. For FY 2019, consolidated net sales stood at Rs 3091.32 crore (42% sales from PVC and 58% from PVC pipes and fittings) and PAT stood at Rs 367.25 crore. This gives an EPS of Rs 29.6 for FY 2019. At the current market price of Rs 549, Finolex Industries trades at 18.5 times its FY 2019 consolidated earnings.

Prince Pipes and Fittings: Issue highlights

Offer for sale (in Rs crore)250
Fresh issue (in Rs crore)250
Price Band177-178
For Fresh Issue Offer size (in no of shares )
-On lower price band (in crore)1.412
-On higher price band (in crore)1.404
For offer for sale size (in no of shares )
-On lower price band (in crore)1.412
-On higher price band (in crore)1.404
Pre issued capital95.98
Post issue capital (Rs crore)
-On lower price band (in crore)110.11
-On higher price band (in crore)110.03
Pre issue promoter shareholding (%)
Post issue Promoter shareholding90.06
-On lower price band (%)65.68
-On higher price band (%)65.80
Bid Size (in No. of shares)84
Issue open date18-12-2019
Issue close date20-12-2018
ListingBSE, NSE
Rating35/100

Prince Pipes and Fittings: Financials

Particulars1603 (12)1703 (12)1803 (12)1903 (12)1906 (03)
Total Income1007.371246.501315.041571.87379.77
OPM9.913.012.411.813.9
Operating Profits99.62162.63163.34185.9152.71
Other Income0.562.486.037.130.43
PBIDT100.18165.11169.36193.0353.14
Interest33.5036.3736.1136.407.39
PBDT66.68128.74133.26156.6345.75
Depreciation29.6832.8338.0945.1611.82
PBT Before EO37.0095.90895.17111.4733.93
EO0.000.000.000.000.00
PBT after EO37.0095.9195.17111.4733.93
Provision for Tax7.4621.7322.4028.127.26
Profit after Tax 29.5374.1872.7783.3526.67
PPA0.000.000.000.000.00
PAT after PPA29.5374.1872.7783.3526.67
EPS (Rs)*2.76.76.67.6#
*EPS is on post issue equity capital of Rs 110.03 crore of face value of Rs 10 each
# EPS not annualized due to seasonality of business
Figures in Rs crore
Source: Capitaline Corporate Database

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