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Prince Pipes And Fittings Ltd

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INTRODUCTION

With over an experience of 30 years, Prince piping systems continues to be an industry leader of polymer pipes and fittings manufacturing sector, considering the number of distributors. Products marketing is done under two brand names : Prince Piping Systems and Trubore.

Company has significant presence in North, West and South India with 6 manufacturing plants. The total installed capacity of the six existing plants is 241,211 tonnes per annum as at October 31, 2019 offering a wide product range of 7,167 SKUs.

With future prospects to set up a new manufacturing plant in Sangareddy (Telangana), with a total estimated installed capacity of 51,943 tonnes per annum and to expand the installed capacity at the plant in Jobner (Rajasthan) from 6,221 tonnes per annum as at October 31, 2019 to 17,021 tonnes per annum by December 31, 2019 and to 20,909 tonnes per annum by the end of Fiscal 2020.
As at October 31, 2019, it sold Prince Piping Systems products to 1,151 distributors and Trubore products to 257 wholesalers and retailers in India.

Its revenue from operations for Fiscals 2017, 2018 and 2019 was ₹ 13,300.15 million, ₹ 13,205.45 million and ₹ 15,718.69 million, respectively, representing a CAGR of 8.71%. Its profit before tax for Fiscals 2017, 2018 and 2019 was ₹ 959.08 million, ₹ 951.67 million and ₹ 1,114.68 million, respectively, representing a CAGR of 7.81%. Its profit for the year for Fiscals 2017, 2018 and 2019 was ₹ 741.82 million, ₹ 727.66 million, ₹ 833.51 million, respectively, representing a CAGR of 6.00%.

STRATEGIES

Company will continue to focus on smartly mix the products offering hight margins with the products which are comparatively offer lesser margins to maintain a constant at all of its plants which extends to increase its sales of DWC pipes.

Company will concentrate on both existing and least penetrated market to cover the sector from all the dimensions possible. It will work to bring out more of the retailers who tend to maintain the stocks of the products, Company’s salespersons will go and encourage the retailers from the fresh market to do the same.

Company will put constructive efforts in increasing the multidimensional increase of the distribution network by increasing the number of distributors, and the frequency and quantity of its products purchased by retailers through its distributors.

Company plan to set up a new manufacturing plant in Sangareddy (Telangana), with a total estimated installed capacity of 51,943 tonnes per annum and to increase the Jobner plant’s installed capacity to 17,021 tonnes per annum by December 31, 2019 and to 20,909 tonnes per annum by the end of Fiscal 2020.

After the acquisition of Trubore brand in October 2012, now the company plan expand the presence of its Trubore brand initially in all other states in South India and then gradually expand in North, East and West India, thereby making its Trubore brand a pan-India brand in the next three or four years.

Company is determined to dedicate a significant part of its budget on the marketing and advertisement of its products on activities such as meetings with dealers, meetings with retailers, architects and consultants for informing them about its new products, meetings with plumbers to educate them about its products. Company also plan to increase the visibility of Prince Piping Systems’ products and brand by taking benefits from its celebrity brand ambassador for Prince Piping Systems .

STRENGTHS

STRONG BRAND VALUE
Company has a solid brand value with an experience of 30 years in the market. The brand building contributes to market share of approximately 5% in Fiscal 2019 and are amongst the top six organised players, which collectively have a total market share of 49% in Fiscal 2019.

THRIVES OVER NOVELTY AND IMPROVISATION
Company has an efficiently dedicated product development team responsible for all sort of operations of manufacturing the new products and imposing comprehensive improvements in the existing products.

CUTTING OUT MAJOR COSTS
Company is following a sure strategy of locating the plants as near as possible to the final consumers resulting into major cuts in the transportation costs. This kind of manufacturing network spreading over the nation gives it a competitive advantage.

DISTRIBUTION MODEL
Company focus on two distribution models in order to make the overall distribution more smooth selling its Prince Piping Systems products to distributors, who then resell the products to wholesalers, retailers, and plumbers while selling the Trubore products directly to wholesalers and retailers.

STRONG MANAGEMENT TEAM
Company have a strong management team led by Jayant Shamji Chheda, its Chairman and Managing Director and one of its Promoters, who has more than three decades’ experience in the pipes segment. He was awarded the Lifetime Achievement Award at the Vinyl India Conference in 2014 for his extensive contribution to the piping industry and the society. Parag Jayant Chheda, one of its executive Directors and one of its Promoters, has more than two decades’ experience in the pipes and fittings segment. He was the recipient of the Inspiring Business Leader Award at the Economic Times Summit in the ‘Business and Industry’ category. Vipul Jayant Chheda, one of its executive Directors and one of its Promoters, has more than two decades’ experience in the pipes and fittings segment. Shyam Kishanchand Sharda, the Chief Financial Officer, is a Chartered Accountant and has approximately two decades’ experience in accounting, finance, and taxation.

TECHNOLOGY SUPPORT FROM AN INTERNATIONAL COMPANY
Since January 2015, Wavin Overseas B.V. (“Wavin”), a company headquartered in Zwolle in The Netherlands, is giving its technology services to the company in order to improve quality of products and maximise the manufacturing efficiency. As per theagreement that expires on January 1, 2020, Wavin provides it with, among other things, (a) advice relating to management systems, such as quality control systems, costing systems and e-business, (b) product know-how, such as products design and jointing techniques; and (c) production technology, such as choice, formulations and quality requirements for raw materials, preparation technology and equipment, extrusion technology and equipment, injection moulding technology and equipment, and fabricated fittings technology and equipment.

INITIAL PUBLIC OFFERING

BID/OFFER OPENS ON Dec 18,2019
ISSUE TYPE Book Built Issue
BID/OFFER CLOSES ON   Dec 20,2019
ISSUE SIZE Rs 500Crore
FRESH ISSUE Rs 250Crore
OFFER FOR SALE Rs 250Crore
ISSUE PRICE Rs 177 to Rs178 Per Equity Share
FACE VALUE Rs 10 Per Equity Share
MARKET LOT 84 Shares
LISTING AT BSE, NSE

SHAREHOLDING PATTERN

The following table sets forth details of the top 10 Shareholders as on the date of this Red Herring Prospectus:

Shareholder Number of Equity Shares held Percentage of pre-Offer Equity Share capital
Vipul Jayant Chheda 25,800,000 26.88
Parag Jayant Chheda 25,796,800 26.88
Tarla Jayant Chheda 25,251,000 26.31
Jayant Shamji Chheda 7,680,000 8.00
South Asia Growth Fund II Holdings LLC 5,926,820 6.18
VS Family Trust (through its trustee, Jayant Shamji Chheda) 1,200,000 1.25
Vaishali Hitesh Shah 500,000 0.52
Kalpana Ramesh Damani 480,000 0.50
Kishore Jagshi Chheda 360,000 0.38
Vishanji Shamji Dedhia 300,000 0.31
Total 93,294,620 97.20

Utilization of the proceeds of the Fresh Issue

The objects for which Company intends to utilise the Net Proceeds and the proceeds from the Pre-IPO
Placement, are as follows:
1. repayment or prepayment of certain outstanding loans of our Company;
2. Financing the project cost towards establishment of a new manufacturing facility, either set up directly or indirectly (through a wholly-owned subsidiary that our Company may set up in the future);
3. upgradation of equipment at our manufacturing facilities; and
4. general corporate purposes, subject to the applicable laws.

INDUSTRIAL ANALYSIS

GDP growth versus plastic pipes industry growth

OVERVIEW OF THE INDIAN PLASTIC PIPES INDUSTRY

Being a cost-effective way to transport water, pipes form an integral part of infrastructure to transport, distribute and dispose life sustaining resource. They are used for a variety of end applications such as irrigation, household plumbing, sewerage and industrial applications. In the past, metal pipes – especially galvanised iron (GI) pipes – were used for most purposes. However, with an increase in availability of raw materials, superior properties and low costs compared with GI, plastic pipes have emerged as the material of choice for these applications. CRISIL Research estimates the overall sales of the plastic pipe industry at ~₹ 290-300 billion for Fiscal 2019.
Plastic pipes are made of different types of polymers. The four key types are unplasticised polyvinyl chloride (UPVC), which represents 65% of industry demand, chlorinated polyvinyl chloride (CPVC) – 15%, HDPE – 15% and polypropylene (PPR) – 4%. Composite pipes, which have a mix of metal and plastic layers, are also used for similar applications.

DOMESTIC DEMAND – REVIEW AND OUTLOOK

The Indian plastic pipes and fittings industry rose at a healthy 10-12% CAGR between Fiscals 2014 and 2019 to about ₹ 290-300 billion. Industry growth was driven by rising demand from the construction and irrigation sectors.

Domestic market size for plastic pipes

The industry’s growth pace is projected to accelerate over the next five Fiscal years (i.e., from April 1, 2019, to March 31, 2024). CRISIL Research forecasts the plastic pipes and fittings industry to post a CAGR of 12-14% to ₹ 500-550 billion in Fiscal 2024.

The factors that are expected to contribute to demand growth are:

Low per-capita consumption of plastic

India has very low per-capita plastic consumption of about 11 kg, compared with the global average of 30 kg. Traditional materials dominate the application areas of plastic. However, over the past three to four Fiscal years, low crude oil prices and superior properties of plastic have increased the usage of plastic in India. Hence, we expect per-capita consumption to inch up towards the global average. Over the next five Fiscal years (i.e., from April 1, 2019, to March 31, 2024), CRISIL Research expects demand for polymers to grow at a healthy 7-9% CAGR.

Per-capita plastic consumption – India versus others (2017)

Plastic pipes – Shift in demand segmentation, by type

Investments in the end-user segments

Plastic pipes are primarily used in irrigation and WSS projects. Key growth drivers are: Increased spending by state governments and municipal corporations to improve accessibility of water for an ever-increasing population; and Heightened thrust, in the form of several central government-led schemes, to augment irrigation, urban infrastructure and real estate.
Examples include:
● Irrigation – PMKSY
● Urban infrastructure – WSS schemes such as Jawaharlal, Nehru National Urban Renewal Mission (JNNURM), AMRUT, Swachh Bharat Mission, Smart Cities Mission
● Real estate – Housing for All scheme
Other than government schemes, demand will also be supported by an increase in private sector investments, primarily in the real estate sector.

Shift in demand segmentation by end-users

Irrigation sector

The irrigation sector is the key end-user segment for plastic pipes, accounting for a 45-50% share of the industry. The central government will play an active role in monitoring the progress of PMKSY projects, and has taken several steps to crystallise investments for irrigation, including:
● Forming SLSCs (State Level Sanctioning Committees) for 26 states
● Releasing ₹ 654 million to states for DIP preparation. As many as 675 DIPs have been submitted from 692 districts. Based on the DIPs, each state is expected to submit a state irrigation plan (SIP).
● Prioritising ~99 ongoing irrigation projects under PMKSY (AIBP) and Command Area Development & Water Management) for completion in phases by December 2019. Consequently, CRISIL Research believes investments in irrigation will rise sharply to ₹ 5,993 billion till Fiscal 2024 from ₹ 3,866 billion over the past five years (April 1, 2014 to March 31, 2019).

Investments in Irrigation

CRISIL Research believes construction investments in irrigation will rise by 8-9% CAGR by Fiscal 2024 compared with 9-10% CAGR over the past five Fiscal years, i.e., from April 1, 2014, to March 31, 2019. Of the total investment in irrigation, construction expenditure is estimated at 75%. This translates into a construction expenditure of ₹ 4,882 billion up to Fiscal 2024, compared with ₹ 2,931 billion over the past five years, i.e., from April 1, 2014, to March 31, 2019. Urban infrastructure
CRISIL Research expects construction expenditure in urban infrastructure to be approximately ₹ 3.4 trillion between Fiscal 2019 and Fiscal 2024, which is 1.7 times the expenditure of the previous five Fiscal years (i.e., from 1 April, 2014 to March 31, 2019). CRISIL Research expects WSS projects to account for approximately 52% of the total urban infrastructure investment over the next five Fiscal years (i.e., from April 1, 2019 to March 31, 2024).

Healthy growth in government investments towards WSS

WSS and plumbing are the second largest end-user segment for plastic pipes, accounting for 35-40% share of the plastic pipes market. In the past five Fiscal years (i.e., from April 1, 2014, to March 31, 2019), government expenditure on the sector rose at 22% CAGR to about ₹ 624 billion in Fiscal 2019. CRISIL Research expects overall WSS investments to be ₹ 2,924 billion over the next five years, i.e., from April 1, 2019, to March 31, 2024, compared to ₹ 1,753 billion over the past five Fiscal years i.e., from April 1, 2014, to March 31, 2019.

Growth in investments in end-user segments, and plastic pipes and fittings industry

(CAGR) FY14 to FY19(%)  FY19 to FY24(%)
Irrigation 9-10% 8-9%
WSS 10-11% 9-10%
Plastic Pipes an Fittings 10-12% 12-14%


CRISIL Research expects investments in irrigation and WSS to rise at 8-9% and 9-10% CAGR, respectively, between Fiscals 2019 and 2024. Within real estate, the plumbing component is estimated at 5-10% of the building construction cost. Of the total expenditure on plumbing, 2-3% is spent on pipes. This is forecast to translate into 12-14% CAGR for the plastic pipes and fittings industry over the next five Fiscals.

COMPETITIVE LANDSCAPE

The organised segment in the pipes and fittings industry accounts for a 60-65% share of the country’s plastic pipes industry. Supreme Industries enjoys the largest market share of about 11%, as of Fiscal 2019, followed by Finolex Industries (9%), and Ashirvad Pipes (9%). The share of Prince Pipes and Fittings increased to 5% in Fiscal 2019 from 4.5% in Fiscal 2016.

FINANCIAL OVERVIEW

(Value in Rs Million)

Year Total Revenue Total Expenses  Profit for the Period Total Assets Total Non Current Liabilities
31 March 2016 10,816.18 10,446.19 295.35 6,533.00 1,195.55
31 March 2017 13,324.95 12,365.87 741.82 7,605.05 1,374.85
31 March 2018 13,265.71 12,314.07 727.66 9,798.77 1,885.91
31 March 2019 15,789.95 14,675.27 833.51 10,404.13 1,475.58
31 June 2019 3,801.92 3,462.67 266.64 10,144.57 1,381.59

Total Revenue

Total Expenses

Profit for the Period

Total Assets

Total Non Current Liabilities

STASTICAL OVERVIEW

Year Basic EPS(Rs) RoNW(%) NAV(Rs)
31 March 2017 7.85 31.47 52.37
31 March 2018 8.08 23.52 34.36
31 March 2019 9.26 21.18 43.71

Basic EPS(RS)

RoNW(%)

NAV(Rs)

COMPARISION WITH LISTED PEERS

Name of the Company Total Income (Rs Million) Basic EPS(Rs) P/E (Based on Basic EPS) RoNW(%) NAV per equity Share(Rs)
Prince Pipes and Fittings Limited 15,789.95 9.26   21.18% 43.71
Peer Group          
Astral Poly Technik Limited 25,227.33 16.27 65.37 15.45% 106.64
Finolex Industries Limited 31,317.34 29.59 19.13 14.26% 207.60
Supreme Industries Limited 56,197.70 35.32 32.17 20.83% 169.57
Industry Composite     38.89 16.84% 161.27

Notes:
Peer Group Companies financial details set out in the above table are based on their respective consolidated audited results as at and for the year ended March 31, 2019.
P/E Ratio has been computed using the closing market prices of the peer companies on BSE sourced from BSE’s website as on November 21, 2019, as divided by the basic and diluted EPS respectively.

Total Income (Rs Million)

Basic EPS(Rs)

P/E (Based on Basic EPS)

RoNW(%)

NAV per equity Share(Rs)

References

  • PRINCE PIPES AND FITTINGS LIMITED RHP
  • www.princepipes.com

 

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