Pakistan Stock Exchange (PSX) is set to witness another IPO in 2024, with book building scheduled for May 15-16, 2024.
Fast Cables is offering 128mn shares with floor price of Rs23.5/share (Rs3.008bn/US$11mn) and cap of Rs32.9/share (Rs4.211bn/US$15mn). The market capitalisation of the company post IPO would be Rs11.8bn-16.5bn (US$42-59mn)
The Issue is being made through a 100% book-building process whereby the bidders shall place bids for 100% of the Issue Size. However, the successful bidders shall be allocated only 75% shares and the remaining 25% shall be offered to the retail investors. In case the retail portion remains unsubscribed, the unsubscribed shares will be allotted to the successful bidders on a pro-rata basis.
The principal purpose of IPO is to fund the upcoming expansion. The proceeds will be utilised in several key areas including (1) acquisition of new land, (2) construction of a state-of-the-art building, (3) installation of new plant and machinery, (4) the repayment of debt associated with the machinery and (5) building components.
Any funds raised above the floor price will be used to address the Company’s working capital needs.
The total project cost amounts to Rs3,592.6mn, and the company plans to raise Rs3,008mn through an IPO and Rs584.6mn through internal cash generation to fund the total project cost.
The company has already injected Rs574mn into the project, while the remaining amount, i.e., Rs11mn, is the only one to be injected.
After expansion, the aluminium capacity will increase from 13,800 tons to 17,400 tons, and the copper capacity will increase from 8,400 tons to 12,000 tons. The new capacity is expected to come online by the end of FY25.
Valuation & Key Risks
Fast Cables is offering 128mn shares at a floor price of Rs23.5 per share, with a PE ratio of 6.3x (Pre-IPO) and 7.9x (post-IPO) based on last twelve months’ profits (Jan-2023 to Dec-2023). Similarly, the P/B ratio is at 1.4x (Pre-IPO) and 1.7x (Post-IPO) based on the Dec-2023 accounts.
Pakistan Cables (PCAL), a direct listed competitor of Fast Cables, is trading at a PE ratio of 11.3x based on the last twelve months’ profits (from Jan-2023 to Dec-2023). Similarly, PCAL is trading at a P/B ratio of 0.75x based on the Dec-2023 accounts.
Key risks includes (1) delays in expansion plans, (2) lower than expected sales due to slowdown in economy, (3) significant rupee devaluation, (4) higher than expected inflation, and (5) smuggling.
Courtesy – Topline Research
