Prince Pipes IPO: Information Analysis

Company / Business Prince Pipes has been involved in manufacturing and selling polymer pipes for the last 30 years. The company has six manufacturing facilities, with a total installed capacity of 2.4 lakh tonnes per annum (TPA). It also utilises the service of five contract manufacturers which account for less than 10 per cent of its total production. The company markets its products under two brands names - Prince and Tubore - on the back of a network of 1027 distributors. In terms of expansion and growth, the company intends to increase the capacity of its Rajasthan plant to 17,021 TPA by December 2019 from the current 6,221 TPA. It is also planning a 51,943-TPA greenfield project in Telangana by using the proceeds from fresh issue. At present, it is coming out with a total IPO size of Rs 500 crore- Rs 250 fresh issue and Rs 250 crore offer for sale. It also raised Rs 106 crore in pre-IPO placement, at Rs 178 per share, from South Asia Growth Fund. While the promoters will use a substantial portion of proceeds from the offer to pay off the promoter-level debt, proceeds from the fresh issue and pre-IPO raise will be utilised for part debt repayment, greenfield expansion, upgrade existing plants and general corporate purpose. Strengths Superior Distribution network: The company has strengthened its distribution network from 766 distributors in March 2017 to 1,408 in October 2019. The network is spread across all parts of the country, with a major presence in North and South India. Comprehensive product portfolio: The company is present across a range of plastic polymer pipes, including the high margin CPVC pipes. With a product portfolio of 7,167 stock keeping units (SKUs), the company can service varied applications in the fields of plumbing, irrigation and water management. Technical collaboration: Prince Pipes has a technical collaboration with Wavin, a Netherland-based company. Wavin provides technical know-how in the product manufacturing. As a result of this collaboration, the company has seen a significant improvement in the production processes at two of its facilities. Weakness Low brand power: Although the company has been in the business for the last 30 years, its market share stands at around five per cent. The pipes and fitting industry is highly competitive, with the top player holding around 10 per cent of the market. Presence in the low margin business: Around 71 per cent of FY19 sales came from UPVC pipes. This product comes under a low-margin segment. Although around 20 per cent of sales came from high-margin CPVC pipes, it will be difficult to scale up in that business owing to the presence of established players like Astral, Finolex and others. Low pricing power: The fluctuation of raw material prices in accordance with crude oil prices, the presence of only a few suppliers and an intensive industry competition limit the pricing power of the co