EPACK Durable IPO opens today: 10 key risks from RHP to consider before subscribing to the IPO

EPACK Durable IPO, which is worth ₹640.05 crore, comprises a fresh issue of ₹400 crore, and an offer-for-sale (OFS) of 1.04 crore equity shares by the promoters and other investors. 

In the OFS, 51.75 lakh shares valued at ₹119 crore, belonging to the promoter group, will be sold by promoters Bajrang Bothra, Laxmi Pat Bothra, Sanjay Singhania, and Ajay DD Singhania, as well as Pinky Ajay Singhania, Preity Singhania, Nikhil Bothra, Nitin Bothra, and Rajjat Kumar Bothra.

The company plans to use the net proceeds from the new issue to finance the following goals: financing capital expenditures for the establishment or expansion of manufacturing facilities; repaying and/or prepaying some outstanding company loans, either in full or in part; and general corporate purposes.

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According to the F&S Report, the company is the second largest room air conditioner original design manufacturer (ODM) in India in terms of the number of units (indoor + outdoor) manufactured in fiscal 2023 through the ODM route, as stated in the company’s red herring prospectus (RHP).

The company’s listed peers are Amber Enterprises India Ltd (with a P/E of 66.28), PG Electroplast Limited (with a P/E of 67.27), Dixon Technologies (India) Ltd (with a P/E of 139.96), and Elin Electronics Ltd (with a P/E of 24.28), as per RHP.

Here are some of the key risks listed by the company in its RHP:

• Since a sizable portion of the company’s revenue comes from a small number of key clients, the business, operating results, financial situation, and cash flows could all suffer from the loss of one or more of these clients.
• The clients don’t sign long-term contracts with the company and are free to modify or terminate their sourcing needs at any time. The company’s cash flows, operating results, and financial situation might all be negatively impacted by such cancellations or modifications.
• The three production facilities of the firm are essential to the business, and they face specific risks associated with the manufacturing process. The business, financial situation, and operational outcomes of the corporation may suffer from any halt or slowdown in its production activities.
• The firm is in a competitive industry, and its inability to successfully compete might have a negative impact on its operations, financial situation, cash flows, and overall business performance.
• The company needs a lot of fuel, water, and power, so any interruption to these resources might raise the cost of production and have a negative impact on business operations.
• Compliance expenses may rise for the firm due to labour, environmental, health, and safety requirements. The firm’s operations, financial situation, and business outcomes might all suffer if it doesn’t get, keep, or renew the licences, permits, and permissions needed to run the business and doesn’t follow the law.
• A memorandum of understanding between the firm and East India Technologies Private Limited provides for the segregation of business activities, which might have a negative impact on the operations and business.
• The company’s profitability, gross margin, and capacity to raise prices might all be negatively impacted by pricing pressure from consumers.
• Restrictions on the import of raw materials, such as those pertaining to imports from China, might have a negative effect on operations and corporate performance.
• The business, operating performance, cash flows, and financial condition might all be impacted by any reduction in or termination of the tax benefits the firm receives or by changes to other beneficial government policies.

Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decision.

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Published: 19 Jan 2024, 03:54 PM IST