ICRA assigns IPO grade 2 to Duplex Industries

ICRA has assigned an IPO grade 2, indicating below average fundamentals, to the proposed initial public offering (IPO) of Duplex Industries Limited (Duplex). ICRA assigns IPO grading on a scale of IPO Grade 5 to IPO Grade 1, with Grade 5 indicating strong fundamentals and Grade 1 indicating poor fundamentals.

Duplex proposes to come out with an Initial Public Offer of issue size of Rs. 125.00 crore† through the book building route. Post-IPO, the shares will be listed on the National Stock Exchange and Bombay Stock Exchange.

IPO proceeds will be used to set up a Greenfield cable manufacturing facility near existing wire drawing facility in Pune along with capacity expansion at Silvassa unit and funding working capital requirements.

The assigned grading takes into consideration strong revenue growth achieved by the company over the years, healthy profitability indicators and relatively de-risked business model protecting margins against copper price movements. The grading, also, favourably factors in long track record of operations in bare copper wire industry and strong alliances with key channel partners in exports segment. The grading, however, is constrained by high gearing on back of high working capital requirements, stretched liquidity profile with high export debtors and high client concentration with ~40% of sales coming from single export client. The copper wire and cable industry is characterized by few large players and large unorganized segment with minimal bargaining power and intense price based competition. The industry remains vulnerable to commodity market's cyclical trends and with large forex exposure of Duplex, company margins remain further exposed to currency movements. Proposed capex plans to forward integrate and capacity expansion funded through public equity issue is expected to strengthen overall business profile with diversified product basket and broader market to cater. The cable industry is already dealing with over capacity and hence capacity utilization at proposed facilities combined with cash flow management remains key concerns going forward.

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