Price Pipes IPO Opens; Should You Subscribe?

The initial public offering (IPO) for Prince Pipes and Fittings opened on 18 December and would be the last main board IPO for 2019. The Rs 500 crore issue includes a fresh issue worth Rs 250 crore and the remainder is an offer-for-sale from promoters.

Promoters Jayant Shamji Chheda, Tarla Jayant Chheda, Parag Jayant Chheda and Vipul Jayant Chheda will be unloading shares worth Rs 20 crore, Rs 140 crore, Rs 50 crore and Rs 40 crore, respectively through the OFS.

Funds from the issue and the pre-IPO placement will be utilised for repayment of certain outstanding loans (Rs 50 crore), financing the project cost towards establishment of a new manufacturing facility either set up directly or indirectly (Rs 180 crore), upgradation of equipment at manufacturing facilities (Rs 80 crore) and general corporate purposes.

IPO Details

• Dates: 18 to 20 December
• Issue Size: 28,248,586 shares
• Issue price: Rs 177- Rs 178 per share
• Lot size: 84 shares
• To be listed on: NSE, BSE
• Listing date: 31 December 2019

Should you subscribe?

Multiple brokerages have recommended a "subscribe" rating on Prince Pipes IPO.

Motilal Oswal said investors can subscribe to the IPO for listing gains.

"The issue is priced at 23.5x FY19 EPS (fully diluted). While there are concerns on Promoter's pledge and related party transactions, valuations seems reasonable vis-à-vis peers, given its financials and return ratios," the brokerage said.

"Assuming revenue growth of 13 percent CAGR through FY19-21E, the company is valued at 14x of FY21E earnings, which appears to be justified considering its business model, steady growth and healthy return ratios. Hence, we recommend subscribe to the issue," Reliance Securities said.

BP Equities on the other hand recommended to avoid the issue as valuations are not attractive.

"The management in the analyst meet said that the Q2 performance along with the outlook ahead was good, however, we feel that Prince Pipes and fittings is expensively priced at 20.6x P/E (weighted average EPS taken) and 3.4x Price to book. We feel that there are much better players already listed such as Finolex Industries which trades at 19.6x P/E and 1.8x price to book having better return ratios and comfortable debt levels. Therefore, taking into account its debt position and the increased competitiveness of the market it operates in , the stock does not look attractive," it said.