Choice Equity Broking has come out with its report on Prince Pipes and Fittings. The research firm has recommended to "Subscribe'' the IPO in its research report as on December 18, 2019
Choice Equity Broking's IPO report on Prince Pipes and Fittings
(PPFL), a polymer pipes & fittings manufacturer, is planning to raise up to Rs. 5,000mn through an IPO, which opens on 18th Dec. and close on 20th Dec. 2019. The price band is Rs. 177 - 178 per share. •Pre-IPO placement: On 28th Nov. 2019, the company has undertaken a private placement by converting 0.6mn compulsorily convertible preference shares into 6mn equity share for a cash consideration of Rs. 1,061.8mn. Effective price per share is Rs. 178.•The issue is combination of fresh and OFS. PPFL will not receive any proceeds from OFS. From the fresh issue (including proceeds from pre-IPO placement) net proceeds, the company will utilize the funds for repaying or prepaying certain outstanding debt, finance the new expansion project and upgrade of certain equipment at the manufacturing facilities.
Valuation and Outlook
On valuation front, based on the higher price band, PPFL is demanding a P/E multiple of 23.5x (to its restated FY19 EPS of Rs. 7.6), which is at a marginal discount to peer average of 25.7x. Considering the margins and return profile, we feel that the demanded valuation is justified. With respect to the projected FY20E andFY21E earnings, it is demanding a significant discounted valuation to its peers. Thus, considering the revival in the end-user demand, wide product-mix, strong retail franchise and business contribution from the fittings, we assign a “SUBSCRIBE” rating for the issue.
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