RR Kabel may list with 10-15% premium on Sept 20, despite OFS caution from analysts

RR Kabel may list with 10-15% premium on Sept 20, despite OFS caution from analysts

Analysts are anticipating the listing of RR Kabel, a consumer electrical products manufacturer, on September 20 with a premium of 10-15 percent over the issue price of Rs 1,035. This optimistic projection is primarily driven by the company’s impressive response to its public issue and the positive sentiment pervading the equity market. It’s worth noting that a robust response to an initial public offering (IPO) often indicates strong demand for the company’s shares, a factor that can boost the stock’s premium upon listing.

However, there are factors that could potentially limit the extent of this premium. RR Kabel’s financial performance may not be as robust as that of some other listings, which might impact the premium it commands in the market. Investors typically scrutinize a company’s financial health and growth prospects before making investment decisions. Additionally, the offering comprises a significant 90 percent Offer for Sale (OFS) portion. This means that a substantial portion of the shares being sold in the IPO are from existing shareholders, and this could influence investor sentiment and pricing dynamics.

Nevertheless, the prevailing bullish trends in the market, coupled with the successful T+3 listing of Ratnaveer Precision Engineering the previous week, are contributing to the positive outlook for RR Kabel. It’s noteworthy that RR Kabel is set to be the first company to debut in the T+2 timeline, ahead of the new T+3 timeline mandated by the Securities and Exchange Board of India (SEBI). This timeline shift could also impact investor behavior and trading patterns during the stock’s initial listing.

The RR Kabel IPO witnessed a remarkable level of investor interest and oversubscription, totaling 18.69 times during the subscription period from September 13 to September 15. This overwhelming response was primarily fueled by significant support from various investor segments. Qualified Institutional Investors (QIBs) played a pivotal role in this success, subscribing at an astonishing rate of 52.26 times their allocated quota, underscoring the strong institutional appetite for RR Kabel’s shares.

High Net-Worth Individuals (HNIs) were also active participants, demonstrating their enthusiasm with a subscription rate of 13.23 times their reserved portions. Retail investors, although slightly lower in comparison, still contributed to the robust subscription rate by bidding 2.13 times their allotted quota. Furthermore, the grey market, an unofficial trading platform for IPO shares until listing, echoed this optimism by offering RR Kabel IPO shares at a 10 percent premium over the issue price, reflecting positive sentiment among market participants and analysts.

Analysts have varying expectations regarding the premium at which RR Kabel’s shares will open when it lists on the stock exchanges. Dhruv Mudaraddi, a research analyst at StoxBox, anticipates a significant premium of around 15 percent over the issue price of Rs 1,035 per share.

He bases this projection on the strong subscription rate of approximately 19 times during the IPO, indicating robust demand for the company’s shares. Mudaraddi’s optimism is underpinned by RR Kabel’s well-established position in the wires and cables industry in India, its size and scale, a favorable business-to-consumer (B2C) mix, potential for margin improvement, and healthy cash flow growth.

On the other hand, Astha Jain, a Senior Research Analyst at Hem Securities, holds a slightly more conservative view. She expects the listing premium to be in the range of 10-11 percent. While Jain acknowledges the positive demand for RR Kabel’s IPO, her projection suggests a slightly more modest premium compared to Mudaraddi’s estimate. Nevertheless, both analysts recognize the company’s strengths and potential for growth in the industry, which could contribute to a positive market debut for RR Kabel’s shares. The actual listing performance will be closely watched by investors and market participants to see which projection aligns more closely with the market sentiment at the time of listing.

The TPG-backed company, supported by the global private equity firm TPG, reported a net profit of Rs 189.9 crore for the fiscal year ending in March FY23. However, this figure represented an 11.2 percent decrease from the previous fiscal year. The company’s operating margin was negatively impacted by higher input costs, and profitability suffered due to elevated finance costs, increased other expenses, and rising employee costs.

Despite these challenges on the profitability front, the company achieved strong revenue from operations, reaching Rs 5,599 crore for the last fiscal year (FY23). This marked an impressive growth of 27.66 percent compared to the previous fiscal year. On an operating basis, the EBITDA (earnings before interest, tax, depreciation, and amortization) showed growth of 6.3 percent year-on-year, amounting to Rs 322.3 crore. However, the EBITDA margin experienced a slight contraction, narrowing by 116 basis points to 5.75 percent during the same period.

In contrast, the company’s performance during the quarter ending in June FY24 exhibited a significant improvement. Profit surged by 310 percent compared to the same period the previous year, reaching Rs 74.3 crore. Additionally, revenue recorded a robust increase of 29.2 percent, reaching Rs 1,597.3 crore compared to the year-ago period. These positive figures in the most recent quarter suggest a potential turnaround in the company’s financial performance and may indicate a positive trajectory for the upcoming fiscal year.

Prashanth Tapse, a research analyst and Senior VP Research at Mehta Equities, has offered insights into the RR Kabel IPO and its likely listing performance. Despite concerns over the IPO being overpriced and the company’s subdued financials, RR Kabel managed to attract decent subscription demand, particularly from the Qualified Institutional Buyer (QIB) segment. Tapse believes that, given this subscription demand and the positive sentiment in the secondary market, a modest premium of 8-10 percent at the time of listing is justified. This premium reflects market optimism and takes into account the immediate near-term growth triggers, leaving limited room for a substantial premium for new investors.

Tapse also cautioned investors by highlighting that the RR Kabel IPO had a relatively high Offer for Sale (OFS) component, accounting for 90 percent of the fund-raise. This likely contributed to lower demand in the retail category.

RR Kabel, based in Gujarat, successfully raised Rs 1,964.01 crore through its maiden public issue. The IPO comprised fresh shares worth Rs 180 crore and an OFS of Rs 1,784.01 crore from six shareholders, including promoter Mahendrakumar Rameshwarlal Kabra and investor TPG Asia VII SF Pte Ltd. The price band for the offering was set at Rs 983-1,035 per share.

Tapse’s analysis offers valuable insights into the factors influencing RR Kabel’s IPO subscription and potential listing performance, helping investors make informed decisions in a dynamic market environment.