IPO Analysis: Plaza Wire Ltd.

IPO Analysis of Plaza Wire Ltd.

Plaza Wire is an ISO 9001:2015 and 14001:2015 certified company engaged in the business of manufacturing and selling of wires, and selling and marketing of LT aluminium cables and fastmoving electrical goods (“FMEG”) under flagship brand “PLAZA CABLES” and home brands such as “Action Wires” and “PCG”. Business was started with a vision to create a niche in the domestic wire and cable industry with an approach to provide quantitative and qualitative products at competitive prices to customer for various backgrounds. In 2021, Company launched a line of house wire under the brand “Action Wires” for product at economical price range. According to the Resurgent India Research Report, Company is one of the growing manufacturers in the wires and cables industry in northern region in India, and provide extensive range of wires and cables. Their product mix comprises different type of wires and cables, and FMEG such as electric fans, water heaters, switches and switchgears, PVC insulated electrical tape and PVC conduit pipe & accessories. According to Resurgent India Limited, the wires and cables industry in India, in value terms, has grown at a compound annual growth rate (“CAGR”) of approximately 13.68% in the last five years to reach ₹788.00 billion in Fiscal 2021. Resurgent India Limited expects the wires and cables industry in India to expand at a CAGR of approximately 14.50% in value terms to reach approximately ₹1550.00 billion by Fiscal 2026. 

Companies Key products in the wires and cables segment are building wires also known as house wires, single & multicore round flexible industrial cables and industrial cables for submersible pumps & motors up to 1.1kv grade. For other wires and cable products such as LT power control cable, TV dish antenna co-axial cables, telephone & switch board industrial cable, computer & LAN networking cable, close circuit television cables and solar cables, PVC insulated tape and PVC conduit pipe & accessories, company enter into informal arrangements with third-party manufacturers who manufacture our products based on our requirements. They select and evaluate these third-party manufacturers based on certain criteria including the quality of products produced, reputation and delivery standards. Companies products are compliant with various quality standards including Bureau of IndianStandards (“BIS”) and QCL Certification. In 2016 and onwards, They have entered into arrangements with third-party manufacturers and launched FMEG products such as electric fans, and water heaters. As part of after sales service for electric fans, They have tie ups with 20+ service centres in Uttar Pradesh, Uttarakhand, Jammu and Kashmir, Punjab ,Haryana And Tamil Nadu. In 2021, Company expanded product portfolio by launching miniature circuit breakers and distribution board (DB) in the north and south India region. They sell their products through a variety of distribution channels depending on the geography and industry norms and trends. Our Business model includes 1) Our dealer & distribution network to sell and promote our products, including sales through C&F agents. We select our dealers & distributors based on their sales network, market reputation and financial strength including sales and 2) Securing government tenders for supply to government projects and 3) Direct sales to infrastructure projects.

Company Existing Manufacturing Unit is located at Baddi, Himachal Pradesh. They have installed production capacity of 12,00,000 coils per annum. Over the years, they have made investments, from time to time, in manufacturing infrastructure to support product portfolio requirements and reach. They propose to set-up the Proposed Manufacturing Unit with an additional installed capacity of 8,37,000 coils per annum and 8700 km per annum. With Proposed Manufacturing Unit, They aim to expand manufacturing capabilities and increase installed capacities to manufacture new products such as fire proof/ survival wires, LT aluminium cable and solar cable in addition to our existing products such as PVC insulated housing wires and cables. Their current unit and registered office is accredited with ISO 9001:2015 (Quality Management System) and ISO 14001:2015 (Environment Management System) certifications.

They are a growing manufacturer of wires and cables and will continue to broad-base their brand in wires and cables business and FMEG business. Company have been recognized as amongst the “10 Most Promising Electrical Cable Manufacturers” by the Industrial Outlook Magazine. They were awarded the Time2Leap award in the product category of “Quality Products - Electrical Cables” by Summentor Pro.

Industry Research:

Advanced economies are projected to grow by 5.2% in CY2021 after a negative growth of 4.5% in CY2020. It is expected to moderate to a growth of 4.5% in CY2022. Amongst the advanced economies, United States is projected to grow by 6% in CY21 and moderate to a growth of 5.2% in CY2022. Meanwhile, the projections for Japan has been downgraded due to strict restrictions in first half of CY2021 and is expected to see stronger recovery in the CY2022. Emerging market and developing economies are estimated to grow by 6.4% in CY2021 after contracting by -2.1% in CY2020. It is projected growth to moderate at 5.1% in CY2022. Outside of China and India, emerging and developing Asia is downgraded slightly as the pandemic has picked up. Growth forecasts in other regions have been revised up slightly for 2021. The revisions in part reflect improved assessments for some commodity exporters outweighing drags from pandemic developments (Latin America and the Caribbean, Middle East and Central Asia, sub-Saharan Africa). Elsewhere, stronger-than-anticipated domestic demand in key regional economies further lifts the 2021 forecast (emerging and developing Europe). IMF highlighted in its report that the economic recovery is highly dependent on vaccine access across regions, hence economies will witness diverging recovery rates which may not remain steady as long as people are exposed to the virus and its emerging variants. Close to 58% of the population is vaccinated in the advanced economies while around 36% of the population is vaccinated in the emerging market and developing economies and only a tiny proportion of population is vaccinated in low-income group. Hence, the economic growth projections are dependent on several factors such as access to vaccine, pace of its rollout, its ability to fight emerging variants of the virus and the fiscal and monetary support provided by the governments.

In line with CARE Ratings estimate (of 9.1%), the CSO expects India’s GDP to grow by 9.2% in FY22 as indicated in their first advance estimate for the year. This high reading of growth can primarily be credited to the low base (of -7.3%) in FY21. The domestic economy in the current fiscal year is set to emerge from the devastations bought forth by the pandemic with economic output expected to surpass the pre-pandemic levels. The improvement however would be marginal with aggregate economic output in FY22 expected to expand by only 1.3% over FY20.

Industrial output growth eased to a nine-month low of 1.4% in November’21 compared with 4% growth in the previous month. The disappointing growth print is despite some support from a negative base of last year in the same month. Negative growth in the capital and consumer goods segment, which is representative of revival in demand, has restricted the overall growth in industrial output. There has been a broad-based slowdown in growth momentum across sectors. Also, the nine-month low core sector output growth of 3.1% YoY in November 2021 indicates towards the poor show of major sectors during the month. Sequential momentum in industrial activity contracted by 4.7% during the month. All sectors except mining and consumer non-durables, performed poorly compared with the previous month.

Global wires and Cables market was worth $236.1 billion in 2019, it was third largest segment within the electrical equipment market accounting for 18.2%. Global wires and Cables market is expected to reach worth $236.1 billion in 2024 growing at CAGR of 8.00%. The chart and table below shows the year-on-year growth of the polarized global wire and cables market from 2022 – 2025.

The C&W industry is expected to grow to ₹1,033bn in FY23, boosted by increased infra spends by the government. Demand for building wires and power cables would be spurred by government schemes such as Pradhan Mantri Sahaj Bijli Har Ghar Yojana (Saubhagya scheme) and Power for All, focusing on electrification of rural households and T&D efficiencies, as well as an increase in cabling demand from commercial establishments and public utilities. Growth in Renewable energy capacities will drive demand for solar cables and elastomeric cables used in windmill applications. In Tier I cities, increase in demand and the lack of open spaces to setup towers, coupled with rising demand from infra projects like metro has swelled the demand for Extra High Voltage (EHV) underground cables.

The Indian cables and wires industry has been gradually moving from a largely unorganized sector comprising smaller regional players towards an organized sector comprising pan-India branded market players across all categories. Furthermore, an increase in technological and product complexities, growing marketing and branding activities by leading cable manufacturers, and the entry of newer players have all led to an increase in the proportion of the industry’s revenue generated by the organized sector. The shift from unorganized to organized is more significant in specific categories such as LV power cables and building wires. At an overall level, the organized players accounted for an ~66% share of the cables and wires industry’s production in FY18. Industry expects the share of organized players to grow to ~74% by FY23E on account of GST rollout, improved efficiency and cost structure (reducing the price gap between the organized and unorganized sectors) and the economies of the pan-India distribution network.

Not only in India but across the globe Industrial and domestic users are the mainstay of the cable and wire market. The industrial users mainly comprise of power, telecommunication, cement, steel, railways and Housing sectors. Most of their demand is addressed by the organized sector. However, if we talk about the household demand then it is still being met largely by un-organized sector. Though there has been a shift in the preferences and the domestic consumers too are becoming quality conscious and there is a steady shift towards high end cables thereby benefiting the organized sector.

The cable industry can be broadly segmented into extra high voltage power cables greater than 66KV, medium voltage power cables up to 33KV and Low voltage power cables up to 1 KV, instrumentation and control cables, light duty cables, fibre optic cables, copper telephone cables, elastomer rubber cables and specialty cables, each of these is an industry itself.

Investment Rationale:

1. Product portfolio focused on various customer segments and markets:

Company's understanding of the domestic wire and cable industry complements our product development which has allowed them to develop a portfolio of a variety of products. Their product portfolio consists of various types of wires & cables, and of late, they diversify and evolve in FMEG products. Company is engage in continuous marketing and selling of new varieties based on the orders of customers to meet customer requirements. They also propose to set up a new facility to manufacture fire proof / survival wires, LT aluminium cables and solar cables in addition to existing products. Wider range of products in business provides them with an opportunity to cater to diverse needs of different customer segment.

Currently, they have product mix comprising (i) Wires and Cables, (ii) FMEG products such as electric fans, water heaters, Switch and switch gears, PVC insulated tape and PVC conduit pipe & accessories. Key wires and cables products include building wires also known as house wires, flexible cables and flexible/single multi core cables and submersible cables, flexible & control cables, LT power control cable, TV dish antenna coaxial cables, telephone & switch board industrial cable, computer & LAN networking cable, close circuit television cables and solar cables.

2. Strong distribution network:

One of their key strengths to enhance customer reach and increase retail presence is dealer and distribution network. Their distribution network in India comprised over 1108 authorized dealers and distributors, 4 branch offices in Uttarakhand, Rajasthan, Kerala and Uttar Pradesh, 3 warehouses in Uttar Pradesh, Assam and Delhi and C&F agents in Punjab, Kerala and Maharashtra for the nine months period ended December 31, 2021. They have repeat relationships with most of our key distributors & dealers. The market knowledge, financial resources and time required to develop such distribution network may present entry barrier for competition. Their dealers & distributors network is aided by an in-house sales and marketing team which liaise with the market participants on a regular basis for customer inputs, market demands as well as positioning of products vis-à-vis products of competitors. Their sales and marketing team has 75 dedicated employees and is responsible for increasing pan-India reach of  products. In addition, Company conduct dealer and retailer meets on regular basis where we showcase product range and give demonstrations of products.

3. Setting up the Proposed Manufacturing Unit to widen our product portfolio and increase our capacity:

To cater to the growing demand from existing customers and to meet requirements of new customers, they intend to, and are in the process of, expanding manufacturing capacities for existing products and also intend to add manufacturing capacities for new product line such as fire proof / survival wires, LT aluminium cables and solar cables that we are in the process of developing and commercializing. To achieve these expanded capacities, company purchased, on September 15, 2021, land and building at Revenue Village, Damowala, Tehsil-Baddi, District-Solan, Himachal Pradesh, India, admeasuring to 7902.30 sq.mt. from various parties. This new facility is proposed to have additional installed capacity of 8,37,000 coils per annum and 8700 km per annum.

4. Enhancing position in Wires and Cables Industry:

In value terms, Resurgent India Limited expects the Indian wires and cables market to grow at a CAGR of approximately 15% to reach an estimated ₹1,033 billion by Fiscal 2023, due largely to government initiatives in power and infrastructure such as increased infrastructure expenditure by the Government which will boost demand for wires and cables, growth in fire survival cables supported by metro, airport and commercial real estate projects and Smart Cities Missions investment in underground cables, an increase in industrial investment, a rise in consumer spending and an increase in exports of wires and cables from India. Company intend to enhance, maintain and strengthen brand position in the wires and cables market by growing share of business with existing customers, adding new customer, geographical expansion and manufacturing new and customized products.

Company intend to expand market share by targeting key growth sectors such as mining, oil and gas, shipping, power, infrastructure, construction, automotive, telecommunication and agriculture. We seek to expand our customer base and utilize  new proposed additional capacity to develop new products for these sectors. Affordable housing scheme, growing nuclearization of families and investments in commercial and residential infrastructure are driving factors for a growing demand for building wires.They will continue efforts to increase revenue from existing customers and new customers by expanding range of products and developing new products aligned with their needs.

5. Expanding dealer network in existing markets and enter new geographical markets:

Company aim to focus on deepen penetration in existing markets and thereby increase domestic presence by expanding distributers and dealers network. As a business strategy, thay intend to expand dealers network in Tier-2 cities and Tier-3 cities as there are untapped opportunities in these cities for them to capitalise to grow business operations. Further they are yet to fully penetrate domestic markets in the southern India such as Karnataka, Telangana, Puducherry and other states in Central and Eastern India including states of Odissa, Jharkhand, Arunachal Pradesh, Mizoram, Sikkim and Nagaland. In the states and union territories, where they have a dealer network and presence like in Delhi, Uttar Pradesh, Haryana, Kerala, Rajasthan, Uttarakhand, Himachal Pradesh and Punjab, Rajasthan, Assam and Jammu & Kashmir, company aim to deepen penetration by engaging more dealers and distributor partners. company will therefore continue to grow dealers and distributors network in line with the growth of business operations.

6. Strengthening brand value:

Company intend to make consistent efforts to popularise our brands “Plaza Cables”, “Action Wires” and “PCG” and enhance brand visibility by undertaking various marketing initiatives and gradually increasing advertising and publicity expenses in line with the growth in business operations. They have made restricted spends in the past on advertisement activities and focused on generating revenue through channel partners. However, going forward, They plan to make a broader effort by partaking in ‘Below the line’ and ‘Above the Line’ activities such as conducting electrician meets more frequently, putting up hoardings in strategic locations, displaying product in exhibitions and in-shop branding at high visibility locations of channel partners. Going forward company also plan more frequent one-to-one interactions with authorized distributors, authorized dealers and end-customers by holding dealer-distributor meets at regular intervals.

7. Using technology to further optimising sales & marketing operations:

The wire and cable industry is rapidly evolving, and company have mobile application technology driven loyalty program for  “Electricians & Retailers". This mobile application for the electrician and retailers would enable the registered electrician and retailers to stay updated with all the products of brand, with digital catalogue. Through the application, the registered user will be updated of launch of new products, reward history, incentive/gift status etc. This application provides rewards and offers to the registered electricians & retailers among other benefits. These technological initiatives implemented by them will continue to assist in increasing efficiency and productivity. Company assess that this will allow them to further increase sales fill rate, reduce sales loss and thereby improving customer satisfaction and grow sales.

 Key Management Personnel:

Mr. Sanjay Gupta, is the Managing Director and one of the Promoters of our Company. Board of Directors of our Company since March 12, 2008 and was appointed as the Managing Director and Chairman of our Company since March 10, 2022.He holds a Bachelor of Commerce from the University of Delhi. He possesses approximately 25 years of experience in electrical industry. He has been instrumental in planning and formulating the overall business and commercial strategy and developing business relations of our Company. He oversees the entire planning of the manufacturing, sales and finance departments of our Company.

Mrs. Sonia Gupta, is a Whole-time Director one of the Promoters of our Company. She has been on the Board of Director of our Company since March 21, 2008. She holds a degree in Bachelor of Arts (Honours) from University of Delhi. She has approximately 25 years of work experience in the electrical industry. She has been instrumental in planning and formulating the overall business and commercial strategy and managing the financial planning of the Company.

Mr. Aditya Gupta, is a Whole-time Director of our Company. He has been associated with our Company since March 31, 2019. He holds a degree in Bachelor of Arts from Wesleyan University. He has approximately 6 (six) years of work experience in the electrical and solar industry. He manages the sales planning of the Company along with planning and implementing the business strategies.

Mr. Abhishek Gupta, is a Whole-time Director of our Company. He has been associated with our Company since June 03, 2013. He holds a degree in Bachelor of Arts from Lafayette College, Commonwealth of Pennsylvania. He has approximately 8 years of work experience in the electrical and solar industry. He manages the business strategy and sales planning of the Company and also co-ordination of various business activities of the Company.

Ms. Monam Kapoor is an Independent Director of our Company. She holds a degree in Bachelor of Computer Application from Sharda Group of Institutions. She holds a Post Graduate Diploma in Business Management in Operations Management from Symbiosis Centre for Distance Learning. She has approximately 8 months of work experience.

Ms. Chetna is an Independent Director of our Company. She holds a degree in Bachelor of Commerce from Delhi University. She has completed a Master’s in Business Administration (Financial Management) from Indira Gandhi National Open University. She also holds a Bachelor’s of Law from Maharaj Vinayak Global University in the year 2018. She holds a Bachelor’s degree in Computer Application from Punjab Technical University. Sheis a member of the Institute of Company Secretaries of India since May 17, 2018. She is currently employed as a Company Secretary of World Sport Group (India) Private Limited. She has approximately 3.5 years of work experience.

Ms. Swati Jain is an Independent Director of our Company. She holds a Master’s degree in Commerce from CCS University. She is a member of the Institute of Company Secretaries of India since November 7, 2016. She is currently working in Verifone India Private Limited. She has approximately 2.10 years of work experience.

Mr. Ish Sadana is an Independent Director of our Company. He holds a degree in Bachelor of Commerce from Delhi University. He is a member of the Institute of Company Secretaries of India since April 22,2019. He also holds a Bachelor’s degree in law from Meerut University. He has approximately 10 years of work experience.

Finanicals:

Balancesheet

Profit & Loss

Cash Flow

Key Risks:

1. Financial Market Risks

Market risk is the risk of loss related to adverse changes in market prices, including interest rate risk. We are exposed to interest rate risk, inflation and credit risk in the normal course of our business.

2. Interest Rate Risk

 Financial results are subject to changes in interest rates, which may affect their debt service obligations and access to funds.

3. Liquidity risk

Liquidity risk is the risk that company will encounter difficulties in meeting the obligations associated with financial liabilities that are settled by delivering cash or another financial asset. Their approach to managing liquidity is to ensure, to the extent possible, that they will have sufficient liquidity to meet liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to reputation.

4. Credit Risk

Company is exposed to credit risk on monies owed to them by their customers. If customers do not pay promptly, or at all, company may have to make provisions for or write-off such amounts.

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