Plaza Wires coming with IPO to raise Rs 71.28 crore

Plaza Wires

• Plaza Wires is coming out with a 100% book building; initial public offering (IPO) of 1,32,00,158 shares of Rs 10 each in a price band Rs 51-54 per equity share.
• Not less than 75% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 10% for the retail investors.
• The issue will open for subscription on September 29, 2023 and will close on October 4, 2023.
• The shares will be listed on BSE as well as NSE.
• The face value of the share is Rs 10 and is priced 5.10 times of its face value on the lower side and 5.40 times on the higher side.
• Book running lead managers to the issue is Pantomath Capital Advisors.
• Compliance Officer for the issue is Bhavika Kapil. 

Profile of the company

The company is an ISO 9001:2015 and 14001:2015 certified company engaged in the business of manufacturing and selling of wires, and selling and marketing of LT aluminium cables and fast moving electrical goods (FMEG) under its flagship brand ‘PLAZA CABLES’ and home brands such as ‘Action Wires’ and ‘PCG’. Its business was started with a vision to create a niche in the domestic wire and cable industry with an approach to provide quantitative and qualitative products at competitive prices to customer for various socio-economic backgrounds. In 2021, it launched a line of house wire under the brand ‘Action Wires’ for product at economical price range.

The company’s key products in the wires and cables segment are building wires also known as house wires, single & multicore round flexible industrial cables and industrial cables for submersible pumps & motors up to 1.1kv grade. For other wires and cable products such as LT power control cable, TV dish antenna co-axial cables, telephone & switch board industrial cable, computer & LAN networking cable, close circuit television cables and solar cables, PVC insulated tape and PVC conduit pipe & accessories, it enters into informal arrangements with third-party manufacturers who manufacture its products based on its requirements. It selects and evaluate these third-party manufacturers based on certain criteria including the quality of products produced, reputation and delivery standards. Its products are compliant with various quality standards including Bureau of Indian Standards (BIS) and QCL Certification. In 2016 and onwards, it entered into arrangements with third-party manufacturers and launched FMEG products such as electric fans, and water heaters. As part of after sales service for electric fans, it has tie ups with 20+ service centres in Uttar Pradesh, Uttarakhand, Jammu and Kashmir, Punjab, Haryana and Tamil Nadu. In 2021, it expanded its product portfolio by launching miniature circuit breakers and distribution board (DB) in the north and south India region.

Proceed is being used for:

• Funding the capital expenditure towards setting up of a new manufacturing unit for house wires, fire-resistant wires & cables, aluminum cables and solar cables to expand product portfolio.
• Funding the working capital requirements of the company.
• General corporate purposes.

Industry Overview

Indian Cable and wire (W&W) Industry is expected to grow to Rs 1,033 billion in FY23, boosted by increased infra spends by the government. Demand for building wires and power cables would be spurred by government schemes such as Pradhan Mantri Sahaj Bijli Har Ghar Yojana (Saubhagya scheme) and Power for All, focusing on electrification of rural households and T&D efficiencies, as well as an increase in cabling demand from commercial establishments and public utilities. Growth in Renewable energy capacities will drive demand for solar cables and elastomeric cables used in windmill applications. In Tier I cities, increase in demand and the lack of open spaces to setup towers, coupled with rising demand from infra projects like metro has swelled the demand for Extra High Voltage (EHV) underground cables.

The Indian cables and wires industry has been gradually moving from a largely unorganized sector comprising smaller regional players towards an organized sector comprising pan-India branded market players across all categories. Furthermore, an increase in technological and product complexities, growing marketing and branding activities by leading cable manufacturers, and the entry of newer players have all led to an increase in the proportion of the industry’s revenue generated by the organized sector. The shift from unorganized to organized is more significant in specific categories such as LV power cables and building wires. At an overall level, the organized players accounted for an 66% share of the cables and wires industry’s production in FY18. Industry expects the share of organized players to grow to 74% by FY23E on account of GST rollout, improved efficiency and cost structure (reducing the price gap between the organized and unorganized sectors) and the economies of the pan-India distribution network.

Pros and strengths

Product portfolio focused on various customer segments and markets: The company’s understanding of the domestic wire and cable industry complements its product development which has allowed it to develop a portfolio of a variety of products. Its product portfolio consists of various types of wires & cables, and of late, it diversifies and evolve in FMEG products. It engages in continuous marketing and selling of new varieties based on the orders of its customers to meet its customer requirements. It also proposes to set up a new facility to manufacture fire proof / survival wires, LT aluminium cables and solar cables in addition to its existing products. Wider range of products in its business provides it with an opportunity to cater to diverse needs of different customer segment. 

Strong distribution network: One of the company’s key strengths to enhance its customer reach and increase its retail presence is its dealer and distribution network. Its distribution network in India comprised over 1249 authorized dealers and distributors, 3 branch offices in Rajasthan, Uttarakhand and Uttar Pradesh, 1 branch office cum godown at Maharashtra, 4 warehouses in Uttar Pradesh, Assam, Kerala and Delhi and C&F agent in 1 state, viz. Punjab for financial year ended on March 31, 2023. It has repeat relationships with most of its key distributors & dealers. The market knowledge, financial resources and time required to develop such distribution network may present entry barrier for competition. It has billed 1249 dealers and distributors as of the year ended March 31, 2023. The company’s dealers & distributors network is aided by its in-house sales and marketing team which liaise with the market participants on a regular basis for customer inputs, market demands as well as positioning of its products vis-a-vis products of its competitors. 

Management and dedicated employee base: Mr. Sanjay Gupta, the company’s Chairman & Managing Director and Promoter, has been instrumental in managing its expanding operations, implementing strategic marketing and business initiatives, and focusing on financial performance. Its Board of Directors also includes individuals who carry industry experience with business exposure in customer, sales and marketing and finance matters. Its management team has experience in key areas such as production, sales and marketing, and finance. In particular, they have led the process through which it has created value through operational growth, building brand recognition and loyalty and identified new business opportunities by launching new products and diversifying the customer base.

Risks and concerns

Requires significant amounts of working capital: The company’s business requires significant working capital, such as to finance the purchase of raw materials, consumables, stores & spares and payments for operating expenses before it receives payment from its customers. In addition, the actual amount of its future capital requirements may differ from estimates as a result of, among other factors, cost overruns, unanticipated expenses, regulatory changes, economic conditions, additional market developments and new opportunities in the wires industry. Its inability to maintain sufficient cash flow, maintain credit facility and other sources of fund, in a timely manner, or at all, to meet the increasing requirement of working capital may have significant adverse effect on its financial condition and result of its operations.

Face competition from large players: The company competes in wires & cables industry on the basis of the range of its products, quality of its products, price, and dealers & distribution network. The industry in which it operates is highly competitive. Its competitors vary in size, and may have greater financial, production, marketing, personnel and other resources than it and certain of its competitors have a longer history of established businesses and reputations in the Indian wires & cables industry as compared with it. These conditions may continue indefinitely. Changes in the identity, ownership structure, and strategic goals of its competitors and the emergence of new competitors in its target markets may impact its financial performance. New competitors may include foreign-based companies and domestic producers who could enter its markets. Its failure to compete effectively, including any delay in responding to changes in the industry and market, together with increased spending on advertising, may affect the competitiveness of its products, which may result in a decline in its revenues and profitability. 

Rely on certain third-party manufacturers for manufacturing some of products: The company enters into arrangements with third-party manufacturers who manufacture wires and cable products such as LT power control cable, TV dish antenna co-axial cables, telephone & switch board industrial cable, computer & LAN networking cable, close circuit television cables and solar cables, PVC insulated tape and PVC conduit pipe & accessories and FMEG products such as electric fans, water heaters and switch and switchgears based on its requirements. However, it does not enter into any formal agreements with such third-party manufacturers. It selects and evaluate these third-party manufacturers based on certain criteria including the quality of products produced, reputation and delivery standards. If there are any delays or disruptions in the manufacturing facility of third-party manufacturers, its ability to deliver certain products may be affected. Any of its third-party manufacturers’ failure to adhere to agreed timelines, technical specifications, quality, whether due to their inability to comply with, or obtain, regulatory approvals, or otherwise, may result in delays and disruptions to its supplies, increased costs, delayed payments for its products and damage to its reputation leading to an adverse effect on its results of operations.

Outlook

Plaza Wires is engaged in the business of manufacturing and selling wires, and selling and marketing LT aluminium cables and fast moving electrical goods (FMEG) under its flagship brand ‘PLAZA CABLES’ and home brands such as ‘Action Wires’ and ‘PCG’. Plaza Wires was originally incorporated as Navratna Wires. Its key products in the wires and cables segment include house wires, single & multicore round flexible industrial cables and industrial cables for submersible pumps & motors up to 1.1kv grade. The company also provides other wires and cable products such as LT power control cables, TV dish antenna co-axial cables, telephone & switchboard industrial cables, computer & LAN networking cables, close circuit television cables and solar cables, PVC insulated tape, and PVC conduit pipe & accessories, through third-party manufacturers. As part of after-sales service for electric fans, the company has tied up with more than 20 service centers in Uttar Pradesh, Uttarakhand, Jammu and Kashmir, Punjab, Haryana and Tamil Nadu. In 2021, Plaza Wires expanded its product portfolio by launching miniature circuit breakers and distribution boards (DB) in the north and south Indian regions. On the concern side, the company does not has an in-house transportation facility and it rely on third party transportation and other logistic facilities at every stage of its business activity including for procurement of products from its suppliers and for transportation from its distribution centres to various stores. However, it does not enter into any formal agreements with the third parties for its logistics and transportation needs.

The issue has been offered in a price band of Rs 51-54 per equity share. The aggregate size of the offer is around Rs 67.32 crore to Rs 71.28 crore based on lower and upper price band respectively. On the performance front, the company’s total income increased by 3.20% to Rs 1,825.95 million for the financial year 2022-23 from Rs 1,769.37 million for the financial year 2021-22. The company’s profit after tax increased by 26.14% to Rs 75.10 million for the financial year 2022-23 from Rs 59.54 million for the financial year 2021-22. Meanwhile, to cater to the growing demand from its existing customers and to meet requirements of new customers, it intends to, and it in the process of, expanding its manufacturing capacities for existing products and also intends to add manufacturing capacities for new product line such as fire proof / survival wires, LT aluminium cables and solar cables that it is in the process of developing and commercializing. It also intends to expand its market share by targeting key growth sectors such as mining, oil and gas, shipping, power, infrastructure, construction, automotive, telecommunication and agriculture.