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

The stock of consumer electrical products manufacturer RR Kabel is likely to list with a 10-15 percent premium over the issue price of Rs 1,035 on September 20, analysts projected, based on the impressive response to its public issue and the positive sentiment in the equity market.

Subdued financials and 90 percent OFS portion in the offer may, however, limit the upside for the stock, they mentioned.

Backed by the prevalent bullish trends in the market since the successful T+3 listing of Ratnaveer Precision Engineering last week, RR Kabel is set to be the first to debut in the T+2 timeline against Sebi’s new T+3 timeline, which is made applicable in two phases – voluntary for all public issues opening from September 1 and compulsory from December 1.

The RR Kabel IPO was subscribed 18.69 times during September 13-15, with major support from qualified institutional investors who bought 52.26 times the allotted quota. High net-worth individuals and retail investors had bid 13.23 times and 2.13 times their reserved portions.

The grey market, an unofficial platform where IPO shares can be bought and sold till the listing, also showed similar premium. Its IPO shares were available at a 10 percent premium in the grey market, over the issue price, some analysts said, refusing to be quoted.

“With the RR Kabel IPO receiving a subscription of about 19x, we expect shares to open at a premium of around 15 percent to the issue price of Rs 1,035 per share when it lists on the bourses,” Dhruv Mudaraddi, research analyst at StoxBox, said.

He believes that as a seasoned player, RR Kabel is well-positioned to capture a significant share of growth in the wires and cables industry in India, thanks to its size and scale, B2C mix, scope to improve margins, and healthy cash flow growth.

Astha Jain, Senior Research Analyst at Hem Securities expects the listing premium at 10-11 percent.

The global private equity firm TPG-backed company recorded a net profit of Rs 189.9 crore for the year ended March FY23, down 11.2 percent from the previous year, with its operating margin hit by higher input costs. Higher finance costs, other expenses and employee costs also impacted profitability.

Revenue from operations remained robust at Rs 5,599 crore for the last financial year (FY23), rising 27.66 percent over the previous year. On the operating front, EBITDA (earnings before interest, tax, depreciation and amortisation) grew 6.3 percent on-year to Rs 322.3 crore. However, its EBITDA margin narrowed 116 bps to 5.75 percent during the same period.

Profit during the quarter ended June FY24 spiked 310 percent on-year to Rs 74.3 crore, and revenue increased by 29.2 percent to Rs 1,597.3 crore from the year-ago period.

“Despite an overpriced IPO and subdued financials, RR Kabel managed to sail through with decent subscription demand, especially from the QIB segment. Hence, a decent premium listing of 8-10 percent is justified due to secondary market optimism and discounting all immediate near-term growth triggers, leaving little room for hefty listing for new investor,” Prashanth Tapse, research analyst, senior VP research at Mehta Equities, said.

He cautioned investors, pointing that the RR Kabel IPO had a higher offer-for-sale (OFS) issue of 90 percent of the fund-raise, which led to lower demand under the retail category.

The Gujarat-based wires and cables manufacturer raised Rs 1,964.01 crore from the maiden public issue that had 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 offer was set at Rs 983-1,035 per share.

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