What you must know about the Marco Cables & Conductors IPO?

Marco Cables & Conductors Ltd was incorporated in the year 1989 and is engaged in the business of manufacturing and selling wires, cable wires, and conductors in India. The product portfolio of Metro Cables & Conductors Ltd include LT Aerial Bunched Cables, LT PVC Cables, AAAC Conductors, LT XLPE Cables and ASCSR Conductors. The manufacturing unit of Marco Cables & Conductors Ltd is located at Nashik in Maharashtra. The company has a combined installed production capacity of 18,000 KM (length in kilometre) of cables and wires per year. The LT Aerial Bunched Cables are used for overhead power distribution. These bunched cable provide high levels of safety and reliability combined with low instance of power loss and less chances of power pilferage. It also substantially reduces installation, maintenance, and operating costs; and is ideal for hilly, coastal and forest terrains.

Among the other key products manufactured by Marco Cables & Conductors Ltd, the AAAC Conductors are made out of an alloy of aluminium, magnesium, and silicon. This provides high levels of electrical conductivity due to the presence of magnesium and silicon. In addition, the LT XLPE Cables are typically manufactured with XLPE Insulation. The galvanizing is of mild steel which increases the safety of the cables for general use. Finally, Marco Cables & Conductors also makes ACSR Conductors, which comprise of solid or stranded steel core surrounded by strands of aluminium. The ACSR Conductor has high tensile strength making it useful for laying across rivers, overhead ground wires, installations involving extra-long spans, etc. The business model is specialized, although the products are generally considered as commoditized products in the electrical goods space.

Key terms of the SME IPO of Marco Cables & Conductors IPO (SME)

Here are some of the highlights of the Marco Cables & Conductors IPO on the SME segment of the National Stock Exchange (NSE).

• The issue opens for subscription on 21st September 2023 and closes for subscription on 25th September 2023; both days inclusive.
   
• The company has a face value of ₹10 per share and it is a fixed price issue. The issue price for the fresh issue IPO has been fixed at ₹36 per share. Since it is not a book built issue, there is no question of any price discovery in this case.
   
• The IPO of Marco Cables & Conductors Ltd has a fresh issue component and also an offer for sale (OFS) portion. It must be remembered that the fresh issue portion is EPS dilutive and equity dilutive, but OFS is just a transfer of ownership and  hence it is not EPS or equity dilutive.
   
• As part of the fresh issue portion of the IPO, Marco Cables & Conductors Ltd will issue a total of 26,01,000 shares (26.01 lakh shares), which at the fixed IPO price of ₹36 per share aggregates to a total fund raising of ₹9.36 crore.
   
• As part of the offer for sale (OFS) portion of the IPO, there will be a total sale of an equivalent 26,01,000 shares (26.01 lakh shares), which at the fixed IPO price of ₹36 per share aggregates to a total OFS size of ₹9.36 crore. The entire OFS sale of 26.01 lakh shares will be done by the promoter of the company, Sumit Sugnomal Kukreja.
   
• As a result, the total issue size of Marco Cables & Conductors Ltd will entail the issue and sale of 52,02,000 shares (52.02 lakh shares), which at the fixed IPO price of ₹36 per share aggregates to a total fund raising of ₹18.73 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker portion allocation of 2,88,000 shares. The market maker for the issue is Shreni Shares Ltd and they will provide two-way quotes to ensure liquidity on the counter post listing and low basis costs.
   
• The company has been promoted by Sumit Sugnomal Kukreja, Sugnomal Mangandas Kukreja, and Komal Sumit Kukreja. The promoter holding in the company currently stands at 100.00%. However, post the fresh issue of shares and the OFS, the promoter equity holding share will get diluted to 72.18%.
   
• The fresh issue funds will be used by the company for meeting its capex towards purchase of solar power system and 1+12 Rigid Standing Machine. Part of the monies raised will also go towards working capital needs and general corporate expenses.
   
• While Shreni Shares Private Ltd will be the lead manager to the issue, Bigshare Services Private Ltd will be the registrar to the issue. The market maker for the issue is Shreni Shares Private Ltd.

IPO allocation and minimum lot size for investment

Out of the total shares on offer, the company has allocated 2,88,000 shares for the market maker, Shreni Shares Private Ltd for providing liquidity post listing and reducing basis risk. The net offer (net of market maker allocation) will be equally distributed between the retail investors and the non-retail investors. Here, the non-retail investors predominantly comprises of the HNI / NII category and to a lesser extent of the institutional category also.

The minimum lot size for the IPO investment will be 3,000 shares. Thus, retail investors can invest a minimum of ₹108,000 (3,000 x ₹36 per share) in the IPO. That is also the maximum that the retail investors can invest in the IPO. HNI / NII investors can invest a minimum of 2 lots comprising of 6,000 shares and having a minimum lot value of ₹216,000. There is no upper limit on what the QIBs as well as what the HNI / NII investors can apply for. The table below captures the break-up of lot sizes for different categories.

Key dates to be aware of in the Marco Cables & Conductors IPO (SME)

The SME IPO of Marco Cables & Conductors Ltd IPO opens on Thursday, September 21st, 2023 and closes on Monday, September 25th, 2023. The Marco Cables & Conductors Ltd IPO bid date is from September 21st, 2023 10.00 AM to September 25th, 2023 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is September 25th, 2023.

It must be noted that in ASBA applications, there is no refund concept. The total application amount is blocked under the ASBA (applications supported by blocked amounts) system. Once the allotment is finalized, only the amount is debited to the extent of the allotment made and the lien on the balance amount is automatically released in the bank account.

Financial highlights of Marco Cables & Conductors Ltd

The table below captures the key financials of Marco Cables & Conductors Ltd for the last 3 completed financial years.

Data Source: Company DRHP filed with SEBI

Here are some key takeaways from the financial numbers of Marco Cables & Conductors Ltd as captured below.

• The company has reported net margins of 4.94% in the current year, whereas in previous years the net margins were consistently under 1%. It remains to be seen at what level the net margins can be sustained, since the overall net margins in the commodity business are generally in single digits only.
   
• The return on equity is relatively more attractive at 18%, but again, that is only true of the latest year with the ROE being in single digits in the previous years. So here again ,it will boil down to what level of ROE is actually sustainable. The sustainable level of ROE is a key input in the P/E ratio.
   
• The P/E ratio based on the latest financial numbers are in the range of 20-21X. That is a relatively rich P/E for the commoditized business and that does raise a question on whether there would be something on the table for the investor.

The gist of the story is that there may not be much on the table for the investors on listing and they may have to wait for a longer time to see how the ROE and the net margins evolve. For now, the pricing makes the stock look fully valued.