IPO: EPACK Durable

EPACK Durable, a room air conditioner manufacturer, is coming out with its IPO (initial public offering) on January 19, 2024. Here's a breakdown of the company's strengths, weaknesses, and growth prospects to help investors make an informed decision. In a nutshell Quality: Its three-year average ROE and ROCE are 15 per cent and 14 per cent, respectively. It reported a negative cash flow from operations in FY22. Growth: Its revenue grew by 45 per cent annually over the last three years. Valuation: The stock is valued at a P/E and P/B of 68.9 and 2.5 times, respectively. Overview: Growth in the electronics manufacturing sector and rising demand for room air conditioners and small home appliances should drive growth. However, high competitive intensity, working capital requirement, and debt are concerning. About EPACK Durable EPACK Durable is India's second-largest room air conditioner original design manufacturer (in terms of volume). Simply put, it designs and manufactures air conditioners as per client requirements. It also manufactures small home appliances, such as cooktops, mixer grinders, etc. Strengths of EPACK Durable It is the second-largest room air conditioner manufacturer in terms of the number of units manufactured through the ODM route in FY23. Backward integration . It manufactures all the required components at the same location, reducing travel costs and improving operating margins. Weaknesses of EPACK Durable Revenue concentration. Its top 5 customers accounted for around 80 per cent of H1 FY24 revenue and about 83 per cent of FY23 revenue. Lack of long-term contracts. It does not have any long-term agreements with its clients. Combined with the high revenue concentration, it may pose considerable risks. High working capital requirement. It has a high cash conversion cycle (around 82 days in FY23) and may have to rely on debt for working capital requirements. Short-term debt grew 49 per cent annually between FY19-23. IPO details Total IPO size (Rs cr) 640 Offer for sale (Rs cr) 240.1 Fresh issue (Rs cr) 400 Price band (Rs) 218-230 Subscription dates Jan 19 to Jan 23, 2024 Purpose of issue Capital expenditure, repayment of loan, OFS Post IPO M-cap (Rs cr) 2203.4 Net worth (Rs cr) 878 Promoter holding (%) 48.1 Price/earnings ratio (P/E) 68.9 Price/book ratio (P/B) 2.5 Financial history Key financials 2Y CAGR (%) H1FY24 FY23 FY22 FY21 Revenue (Rs cr) 44.6 615 1539 924 736