What you must know about Plaza Wires IPO?

Plaza Wires Ltd was incorporated in the year 2006 and the company manufactures wires, low tension (LT) aluminium cables and fast moving electrical goods (FMEG). Its product portfolio includes house wires, flexible industrial cables and industrial cables for submersible pumps and motors up to 1.1 KV-grade. It also makes LT power control cables, TV dish antenna co-axial cables, telephone & switchboard industrial cables, LAN networking cables, close circuit television cables and solar cables; via third party manufacturers. It has more than 20 after-sales service centres spread across Uttar Pradesh, Uttarakhand, Jammu and Kashmir, Punjab, Haryana, and Tamil Nadu. Plaza Wires Ltd also recently launched miniature circuit breakers and distribution boards (DB). The company has over 1249 authorized dealers and distributors, 3 branches and 4 warehouses.

The fresh issue funds raised will be used by Plaza Wires Ltd to fund the capital expenditure needed to a new manufacturing unit for house wires and cables and to expand its product portfolio. The issue will be lead managed by Pantomath Capital Advisors Private Ltd. KFIN Technologies Ltd will be the registrar to the issue.

Highlights of the IPO issue of Plaza Wires Ltd

Here are some of the key highlights to the public issue of Plaza Wires IPO.

• Plaza Wires Ltd has a face value of ₹10 per share while the price band for the book building IPO has been set in the band of ₹51 to ₹54 per share. The final price will be discovered within this band through the process of book building.
   
• The IPO of Plaza Wires Ltd will be entirely a fresh issue of shares with no offer for sale (OFS) component. The fresh issue portion comprises the issue of 1,32,00,158 shares (1.32 crore shares approximately), which at the upper price band of ₹54 per share will translate into fresh issue size of ₹71.28 crore.
   
• Since there is no offer for sale (OFS) component, the overall IPO size will also comprise of the issue of 1,32,00,158 shares (1.32 crore shares approximately), which at the upper price band of ₹54 per share will translate into a total IPO issue size of ₹71.28 crore.
   
• On listing, Plaza Wires Ltd will have an indicative market cap of around ₹237 crore at the IPO price upper price band of ₹54 per share. The P/E ratio of the stock will be 21.95X and the company will have an ROE of 14.15% and ROCE of 15.57%.

Promoter holdings and investor quota allocation quota

The company was promoted by Sanjay Gupta and Sonia Gupta. Currently the promoters hold 100.00% of the company, which will get diluted post the IPO to 69.83%. As per the terms of the offer, 75% of the net offer is reserved for the qualified institutional buyers (QIBs), while only 10% of the total issue size is reserved for the retail investors. The residual 15% is kept aside for the HNI / NII investors. The stock of Plaza Wires Ltd will be listed on the NSE and on the BSE. The table below captures the gist of the allocation to various categories.

Lot sizes for investing in the IPO of Plaza Wires Ltd

Lot size is the minimum number of shares that the investor has to put in as part of the IPO application. The lot size only applies for the IPO and once it is listed then it can be even traded in multiples of 1 shares since it is a mainboard issue. Investors in the IPO can only invest in minimum lot size and in multiples thereof. In the case of Plaza Wires Ltd, the minimum lot size is 277 shares with upper band indicative value of ₹14,958. The table below captures the minimum and maximum lots sizes applicable for different categories of investors in the IPO of Plaza Wires Ltd.

It may be noted here that for the B-HNI category and for the QIB (qualified institutional buyer) category, there are no upper limits applicable.

Key dates for Plaza Wires Ltd IPO and how to apply?

The issue opens for subscription on 29th September 2023 and closes for subscription on 04th October 2023 (both days inclusive). The basis of allotment will be finalized on 09th October 2023 and the refunds will be initiated on 10th October 2023. In addition, the demat credits are expected to happen on 11th October 2023 and the stock will list on 12th October 2023 on the NSE and the BSE. Plaza Wires Ltd is a relatively small-sized issue by comparison to mainboard IPO standards and it is good to see that the funds are being used for capex, which is normally value accretive for the stock. Let us now turn to the more practical issue of how to apply for the IPO of Plaza Wires Ltd.

Investors can apply either through their existing trading account or the ASBA application can be directly logged through the internet banking account. This can only be done through the authorized list of self-certified syndicate banks (SCSB). In an ASBA application, the requisite amount is only blocked at the time of application and the necessary amount is debited only on allotment. Investors can apply in the retail quote (up to ₹2 lakh per application) or in the HNI / NII quota (above ₹2 lakh). Minimum lot sizes will be known after pricing.

Financial highlights of Plaza Wires Ltd

The table below captures the key financials of Plaza Wires Ltd for the last 3 completed financial years.

Data Source: Company RHP filed with SEBI (All ₹ figures are in crores)

There are few key takeaways from the financials of Plaza Wires Ltd which can be enumerated as under

1. In the last 2 years, the revenues growth has been strong, although it has slightly tapered in the current year. While wires and cables are largely a commodity product, it is the FMEG business that normally commands a better price in terms of P/E ratio. However, FMEG is a very small portion of the total business revenues of Plaza Wires Ltd.
    
2. The latest year profit margins and the return on assets are relatively low, but that is the nature of the commoditized electrical goods business. However, the ROE is relatively comfortable and that promises the ability to sustain valuations in the future also.
    
3. The company has maintained an impressive rate of sweating assets as is evident from the asset turnover ratio. It has consistently averaged above 1.6X, which is a very good sign for a business that eventually has to rely on asset sweating to boost ROE.

While pricing of the IPO does matter here, what is more critical is the eventual PAT margins that will sustain. For now, the signals are good. Investors can look at the stock as a risky bet on a company that has shown steady performance but operates in the commodity space. A longer term perspective would be advisable.