EPACK Durable IPO: 10 things to know before subscribing

EPACK Durable Limited, a leading original design manufacturer (ODM) of room air conditioners (RAC) and small domestic appliances (SDA), is launching its initial public offering (IPO) on January 19, 2024.

The company aims to raise Rs 640.05 crore through a book-built issue, comprising a fresh issue of 1.74 crore shares and an offer for sale of 1.04 crore shares by the promoters and existing shareholders. The price band for the issue has been fixed at  Rs 218-230 per share,  and the issue will close on January 23, 2024.  Check Epack Durable share price Here.

Here are 10 things to know before subscribing to the EPACK Durable IPO:

About the company:

EPACK Durable Limited was incorporated in 2019 and is headquartered in Gurugram, Haryana. The company's product portfolio includes split air conditioners, window air conditioners, water dispensers, induction hobs, and blenders. The company also manufactures components such as sheet metal parts, injection moulded parts, cross-flow fans, and PCBA components that are used in the production of RAC and SDA.

The company has 5 manufacturing facilities, 4 in Dehradun and 1 in Bhiwadi, with an annual production capacity of 0.90 mn (million) indoor units, 0.66 mn outdoor units, 0.36 mn outdoor unit kits, and 0.42 mn window air conditioners for RAC; and 0.11 mn water dispensers, 1.2 mn induction hobs, and 0.30 mn mixers for SDA.

The company's major customers include Voltas, LG, Samsung, Haier, Godrej, and Croma. The company also exports its products to countries such as Bangladesh, Nepal, Sri Lanka, and the Middle East.

Financial performance: 

The company has shown strong growth in its revenue and profit in the past two years, For the six months ended September 2023, the company reported revenue of Rs 615 crore, while net profit stood at Rs 2.6 crore. In FY23, the company’s revenue from operations rose 66% year-on-year (y-o-y) to Rs 1,539 crore and profit jumped 88% to Rs 32 crore.

Particulars (in crores)	FY23	FY22	FY21
Revenue	1,538.83	924.16	736.25
Sales Growth(%)	66.51%	25.52%	-
PAT	31.97	17.43	7.80
Net Worth	478.31	313.62	121.87
PAT Margins(%)	2.08%	1.89%	1.06%
Return on Assets	2.18%	1.62%	1.50%
Total Equity	313.62	121.87	68.91
Total Assets	1,464.16	1,076.68	520.37
Asset Turnover Ratio	1.05	0.86	1.41
Return on Equity	10.19%	14.30%	11.32%
Earnings Per Share	4.64	3.47	1.62

Competitive Strengths: 

The company claims to have the following competitive strengths: 

(a) strong and long-standing relationships with marquee customers such as Voltas, LG, Samsung, Havells, and Crompton;

(b) diversified product portfolio across RAC and SDA segments; cost-efficient and quality-focused manufacturing capabilities; 

(c) experienced management team and skilled workforce; and 

(d) robust financial performance and operational efficiency

• EPACK Durable has improved its operational efficiency by increasing its EBITDA margin 10.19% in 2023. 

  
  

• Asset turnover ratio: The respective ratio has increased from 0.87 in 2022 to 1.04 in 2023. A higher ratio indicates better asset utilization and performance.

  
  

• Cash conversion cycle: The CCC has reduced from 77.12 days in FY22 to  62.69 days in  2023. A lower cycle indicates faster cash generation and liquidity. This is primarily attributable to decreased days in inventory cycle, which means the company is now able to generate faster sales from its inventory.   
  

​From these figures, we can see that EPACK Durable has improved its operational efficiency by increasing its asset turnover ratio and decreasing its cash conversion cycle from 2022 to 2023. ​

Industry outlook: 

The RAC industry in India is expected to grow at a CAGR of 12.5% from Rs 21,200 crore in FY20 to Rs 38,300 crore in FY25, driven by factors such as rising disposable income, increasing urbanization, low penetration, changing climatic conditions, and growing preference for energy-efficient products. The SDA industry in India is expected to grow at a CAGR of 9.3% from Rs 14,600 crore in FY20 to Rs 22,900 crore in FY25, driven by factors such as rising demand for convenience, increasing health awareness, growing e-commerce penetration, and favorable government policies. 

Peer comparison: 

The company does not have any listed peers in India that are directly comparable in terms of business model, product portfolio, and scale of operations. However, some of the listed companies that operate in the RAC and SDA segments are Voltas, Blue Star, Johnson Controls-Hitachi Air Conditioning India, Whirlpool of India, Bajaj Electricals, and TTK Prestige.

Risk and challenges

Some of the risks and challenges that the company faces are: 

(a) dependence on a limited number of customers for a significant portion of its revenue; As per recent DRHP, Top 10 customers contributed ~93% of the total revenue in FY23. 

(b) intense competition from other ODMs and OEMs in the RAC and SDA segments;

(c) Fluctuations in the prices and availability of raw materials and components; will have negative impact on the margins

(d) Regulatory changes and environmental compliances affecting its business operations.

(e) Restrictive gross margins: The company’s gross margins remain in the range of 12%-15% between FY21-FY23, which seems to be on the lower side as compared to peers. 

Issue Details

The IPO comprises a fresh issue of 1.74 crore shares, amounting to Rs 400 crore, and an offer for sale of 1.31 crore shares by the promoters and existing shareholders, amounting to Rs 240.05 crore. The total issue size is Rs 640.05 crore. The price band for the issue has been fixed at Rs 218-230 per share. The face value of each share is Rs 10.

IPO Valuation

At the upper end of the price band of Rs 230 per share, the company is valued at Rs 2,240.05 crore. According to the prospectus, the company is issuing 9.74 crore shares, of which 1.74 crore are fresh shares and 8 crore are offer for sale by existing shareholders. This implies that the total number of shares outstanding after the IPO will be 9.74 crore.  This analysis and data is based on the financials as of 31st March, 2023.

We have considered Rs. 230 as the IPO price of Epack, and based on that we have curated the below analysis. Based on this, we can see that the company has lower P/E and P/BV ratios than its peers. This means that the company will be available at a slight discount to its peers, or in other words, it is fairly valued. The EBIT, PAT Margins are aligned with the industry. 

Companies	P/E	EV/EBIT	EV/EBITDA	EBITDA Margin	PAT Margin
Epack Durable	49.6x	-	-	4.7%	2.1%
Dixon Technologies	113.9x	75.9	59.6	4.21%	2.09%
Amber Enterprises	87.7x	37.6	26.0	6.03%	2.36%
PG Electroplast Ltd.	54.4	29.7	24.3	8.15%	3.59%

IPO GMP

The GMP is the difference between the IPO price and the unofficial market price of the shares before the listing. However, the GMP is not an official indicator of the listing price and may change depending on the market conditions and demand and supply factors.

The grey market premium (GMP) for the EPACK Durable IPO is around Rs 40-45 per share, as of January 17, 2024, which indicates a positive sentiment among the investors. 

Explore the research report of Epack Durables for more insights related to investments.