What you must know about RR Kabel IPO

RR Kabel Ltd Incorporated in the year 1995, so the company already has a pedigree of more than 25 years. RR Kabel Ltd can be classified predominantly as an FMEC (fast moving electrical goods) company. The company, essentially, provides consumer electrical products for use in residential, commercial, industrial, and infrastructure applications. In terms of its product verticals, RR Kabel Ltd operates in 2 broad verticals. The first vertical is the wires and cables business which includes home wires, industrial wires, and special cables. These are directly supplied to OEM users. The second, and more predominant business vertical of RR Kabel Ltd is the FMEG vertical or the fast moving electrical goods segment. This FMEG segment broadly comprises of fans, lighting products, switches, and other electrical appliances.

Currently, RR Kabel Ltd manufactures and markets wires and cable products under the brand name RR Kabel while the FMEG products are sold under the brand name of Luminous Fans and Lights to distinguish the FMEG segment from the cables segment. In 2020, RR Kabel Ltd had acquired Arraystorm Lighting which specializes in light emitting diode (LED) lights and related hardware business. This automatically gave RR Kabel Ltd the access to the fast growing LED lights franchise. This will help RR Kabel Ltd to expand its offerings to cover offices, industrial and warehouse spaces etc.

It was only in 2022 that RR Kabel Ltd acquired the home electrical business (HEB) of Luminous Power Technologies, which is the brand under which the company currently sells its fans and lights as part of the FMEG portfolio. This deal gave RR Kabel Ltd access to 61 registered trademarks, and a fairly rich portfolio of lights and premium fans. Currently, the company has 2 manufacturing units located at Waghodia, Gujarat and at Silvassa. These units primarily manufacture wires, cables, and switches. In addition, its 3 integrated manufacturing facilities at Roorkee, Uttarakhand; Bengaluru, Karnataka; and Gagret, Himachal Pradesh implement the manufacturing operations in respect of FMEG products.

RR Kabel has a strong franchise in the domestic market and also in the global market. It still derives 71% of its revenues from the wires and cables segment with only the balance from the FMEG segment. However, more than 97% of the sales of the FMEG products comes from the B2C channel, making it highly scalable. The issue of RR Kabel Ltd will be lead managed by Axis Capital, Citigroup Global Markets, HSBC Securities and JM Financial. They will act as the book running lead managers (BRLM) to the issue. Link Intime India Private Ltd will be the registrar to the issue.

Highlights of the RR Kabel IPO issue

Here are some of the key highlights to the public issue of RR Kabel IPO.

• RR Kabel IPO will use the book building route. RR Kabel Ltd has a face value of ₹5 per share while the price band for the book building IPO has been set in the band of ₹983 to ₹1,035. The final price will be discovered within this band via book building.
   
• RR Kabel IPO will be a combination of a fresh issue and an offer for sale (OFS). The fresh issue portion comprises the issue of 17,39,130 shares (17.39 lakh shares approximately), which at the upper price band of ₹1,035 per share will translate into fresh issue size of ₹180 crore.
   
• The offer for sale (OFS) portion of the IPO comprises the issue of 1,72,36,808 shares (172.37 lakh shares approximately), which at the upper price band of ₹1,035 per share will translate into an offer for sale (OFS) size of ₹1,784.01 crore.
   
• Out of the 172.37 lakh shares sold in the OFS, TPG Asia will sell 129.02 lakh shares and Ram Ratna Wires will sell 13.64 lakh shares. Both are non-promoter shareholders. The balance 29.71 lakh shares will be offered in the OFS by the 4 promoter shareholders.
   
• Therefore, the overall IPO portion will comprise of the issue of 1,89,75,938 shares (189.76 lakh shares approximately), which at the upper price band of ₹1,035 per share will translate into a total IPO issue size of ₹1,964.01 crore.

While the fresh issue will be capital and EPS dilutive, the offer for sale portion will only result in transfer of ownership. There will 6 holders offering shares under the OFS portion, including of which 4 belong to the promoter group and 2 are non-promoter investors shareholders. The proceeds of the fresh issue portion will be used to repay / prepay outstanding loans availed by RR Kabel Ltd and partially for general corporate purposes.

Promoter holdings and investor quota allocation quota

The company was promoted by Tribhuvanprasad Rameshwarlal Kabra, Shreegopal Rameshwarlal Kabra, Mahendrakumar Rameshwarlal Kabra, Kirtidevi Shreegopal Kabra, Tribhuvanprasad Kabra HUF, Kabra Shreegopal Rameshwarlal HUF and Mahendra Kumar Kabra HUF are the promoters of the company. . Currently the promoters hold 66.42% of the company, which will get diluted post the IPO to 62.77%. As per the terms of the offer, 50% of the net offer is reserved for the qualified institutional buyers (QIBs), while 35% 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 RR Kabel 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 RR Kabel IPO

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 RR Kabel Ltd, the minimum lot size is 14 shares with upper band indicative value of ₹14,490. The table below captures the minimum and maximum lots sizes applicable for different categories of investors in the RR Kabel IPO.

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 RR Kabel IPO and how to apply?

The issue opens for subscription on 13th September 2023 and closes for subscription on 15th September 2023 (both days inclusive). The basis of allotment will be finalized on 21st September 2023 and the refunds will be initiated on 22nd September 2023. In addition, the demat credits are expected to happen on 25th September 2023 and the stock will list on 26th September 2023 on the NSE and the BSE. RR Kabel Ltd offers a very unique combination. It has an established and tested business model; it is into an industry that is considered the future of business management and it is focused on the consumer part of the business which is technologically scalable and also can show maximum growth. Let us now turn to the more practical issue of how to apply for the IPO of RR Kabel 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 RR Kabel Ltd

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

Data Source: Company RHP filed with SEBI

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

1. In the last 2 years, the revenues growth has been robust although the growth has bene rather erratic, but that is more due to the inclusion of FMEG products to its portfolio and the costs involved. The focus on FMEG is likely to increase and that will support valuations in the coming years.
    
2. The latest year profit margins are in the range of 3% to 5%, which his largely due to the pressure of the retail business. Return on equity is sub-15% and that is likely to cap valuations of the stock for now. Unless the ROE improves to above 20% on a sustained basis, maintaining these valuations may be tough.
    
3. The company has maintained an impressive rate of sweating assets as is evident from the asset turnover ratio. It has consistently averaged above 2X, which is a very good sign for a low margin business like FMEG and electrical OEM goods.

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. The EPS has been stable at around ₹17 per share and the upper band price of ₹1,035 discounts the earnings at a P/E ratio of around 60 times. While the FMEG industry does attractive high valuations of 50 plus, for RR Kabel, the challenge will be in pushing the ROE to above 20%. If that can be managed, then the valuation risks can be overcome and investors can expect something on the table in the stock.