Operating under its flagship brand “PLAZA CABLES” and home brands such as “Action Wires” (economical range) and “PCG”, Plaza Wires Ltd. (PWL) is involved in the business of manufacturing and selling wires along with selling and marketing of LT aluminum cables and fast moving electrical goods (“FMEG”). The company’s product mix includes products of different types of wires and cables, and FMEG such as electric fans, water heaters, switches, and switch gears, PVC insulated electrical tape, and PVC conduit pipe & accessories. In its prime business segment i.e. wires and cables (94.06% revenue mix in FY23), the company offers house wires, single & multicore round flexible industrial cables, and industrial cables for submersible pumps & motors up to 1.1kv grade. The company forays into arrangements with third-party manufacturers for its other wires and cable products such as LT power control cables, TV dish antenna co-axial cables, telephone & switchboard industrial cables, computer & LAN networking cables, close circuit television cables and solar cables, PVC insulated tape, and PVC conduit pipe & accessories. Presently, the company enjoys a network of 1,249 authorized dealers and distributors spread across pan India and C&F agents in Punjab. The company supplies its products, mainly in the states of Delhi, Uttar Pradesh, Haryana, Kerala, and Rajasthan. To cater to its customer requirements, the company is equipped with a manufacturing unit located at Baddi, Himachal Pradesh, which is set with a production capacity of 12,00,000 coils per annum.
Objects of the issue:
The net proceeds from the fresh issue will be used towards the following purposes:
- Funding the capital expenditure towards setting up a new manufacturing unit for house wires, fire-resistant wires & cables, aluminum cables, and solar cables to expand the product portfolio.
- Funding the working capital requirements of the company.
- General corporate purposes.
Investment Rationale:
Expanding its manufacturing capabilities to target a wider customer pool
In the process of diversifying its customer base, PWL is expanding its manufacturing capacities for its existing products along with introducing additional capacities for its new product lines such as fireproof / survival wires, LT aluminum cables, and solar cables. To accomplish this, the business has purchased an additional land parcel in Himachal Pradesh, India with a composite sale value of Rs. 2,65,00,000 and has proposed to add an installed capacity of 8,37,000 coils per annum and 8,700 km per annum to its existing capacity of 12,00,000 coils per annum. Along with this, PWL is also taking measures to increase its dealer network visibility in the southern parts such as Karnataka, Telangana, Puducherry, and other states in Central and Eastern India. Additionally, it aims to deepen its penetration levels in its existing location on the northern side.
Industry tailwinds in the wires and cables industry to augment business growth
The Indian wires and cables market is valued at about Rs. 1,033 billion in FY23 and is expected to grow at a robust pace going forward. The various government initiatives is likely to boost demand, with power and infrastructure aiding demand for wires and cables, growth in fire survival cables supported by metro, airport, and commercial real estate projects, and Smart Cities Missions supporting demand for underground cables. As discussed above, the company plans to increase its production capabilities in other categories to cater to the increasing demand. Additionally, the business aims to expand its market share in key growth sectors such as mining, oil and gas, shipping, power, infrastructure, construction, automotive, telecommunication, and agriculture to slice on a larger pie of opportunities.
Valuation and Outlook:
The Indian wires and cables industry is poised to benefit from the strong growth trajectory in the residential projects post the central government’s aim of building 20 million affordable houses in urban areas across the country by 2022, under the ambitious Pradhan Mantri Awas Yojana (PMAY) scheme of the Union Ministry of Housing and Urban Affairs. On the upper price band, the issue is valued at a P/E of 22x based on FY2023 earnings which prices in most of the positives of the company. Moreover, it is important to note that Plaza Wires Ltd. operates in an industry which has high raw material volatility (which is in an uptrend over the years). Additionally, the business operates in a highly competitive industry with multiple big players which can challenge the pricing power of the company. Thus, considering the above factors, we recommend an “Avoid” rating for the issue.
