Eurobond IPO — Here’s All You Need to Know

Eurobond Panel Products Ltd. (hereinafter referred to as Eurobond) opens for subscription tomorrow (link to prospectus).

The company is involved in the manufacturing and supplying of Aluminium Composite Panels (ACPs) which are used in the construction of buildings and houses.

Let’s delve into the details and help you decide if you should invest in the IPO.

IPO Facts

• Issue Size: ₹45.50cr ($6m) — all via fresh issue
• Issue Price: ₹70 ($0.9) per equity share
• Issue Type: Fixed Price Issue
• Face Value: ₹10 ($0.1)
• Market Lot: 2,000
• Retail Allocation: 50%
• IPO Closing Date: December 16th 2021
• IPO Listing Date: December 24th 2021

The pre-issue shareholding of the promoter and promoter group in the company is 82.50% and they will continue to own majority control of the company post-issue. The proceeds from the IPO are to be used to meet the incremental working capital needs, debt payments and general corporate purposes, a cliche of sorts for most businesses in the sector.

Company Profile

Originally incorporated as “Archer Trading House” in December 2013, the company changed its name to its present form the following year. Engaged in the manufacturing of ACPs, it has a manufacturing unit in Umbergaon, Gujarat and is headquartered in Mumbai.

ACPs are essentially the panels which are used as the external covering of commercial buildings and corporate houses. Why these structures, in particular? Because they are highly durable and demand easy maintenance in almost any kind of climate.

Eurobond manufactures ACPs in different colours, designs and textures to cater to the requirements as demanded. It operates through both the Business-to-Business (B2B) and Business-to-Customer (B2C) models with the help of a network of dealers, suppliers and distributors all around the country.

In over a decade, Eurobond has made its presence known as a market leader in the manufacturing and supply of ACPs in India and in some parts of the world. Its manufacturing facility appears to have absorbed a fair bit of capex in putting together world-class machinery and state-of-the-art equipment so as to enable an innovative and cutting-edge product portfolio.

Growth in different product lines and expansion of market remains the key focus of Eurobond’s business. It has a band of loyal (and somewhat sticky) customers that includes Government organisations, hospitals, airports etc. It also has a decent presence in overseas markets (USA, South Africa, Uganda, Nigeria, Tanzania, Sri Lanka and Nepal) due to export of products.

Company Financials

With an installed capacity of 20,000 sq. Metres of ACP on a daily basis, Eurobond has managed to cater to its diverse clientele and ensure prompt delivery of ace quality products in India and abroad.

Having said that, the supply chain of raw materials has a heightened impact on the company’s business. With the supply and pricing factors beyond its control and the top ten suppliers consistently accounting for the lion’s share of Eurobond’s purchases, any volatility could upend its revenues and profit scales.

The company has its sole manufacturing facility in Umbergaon which isn’t ideal in terms of risk minimisation, especially when it comes to disruption in production activities or the management of inventory.

With plans to expand also comes the worry of meeting working capital needs. Currently, Eurobond’s strategy is to continue growth by expanding sales orders. But any inability to maintain cash flows, credit facilities or other sources of funds could stand in the way of maintaining the capital flows.

Meanwhile, the company’s FY22 earnings annualised and attributed to fully-diluted post-issue equity gives an asking price at a P/E of 22.80 compared to a P/E of 46.35 in FY21. There are also marked super earnings in the first quarter of FY22 (IPO year) which is slightly erratic but helps paint a favourable valuation picture.

Industry Overview

The ACP business in India has an annual volume worth ₹1,800cr ($238.2m) and the market is projected to grow at a 6% CAGR in the near future. Considering the explosion of urbanisation and related infrastructural growth in emerging markets like India, large-scale investments in the country (and other emerging countries, especially in the Asia-Pacific) will act as a massive opportunity for the ACP manufacturers and marketers.

The unique selling point of ACP as a product lies in its durability, rigidity, lightweightness and an impressive strength-to-weight ratio. Commensurate technical developments are also expected to be a key driver in the manufacturing and market growth of ACP sheets and panels.

This is also the reason why Eurobond investing in research and development (R&D) makes it a promising strategy and indicates an impressive top-line forecast of business needs. The key to capturing the ACP market lies in focusing on high value and first-to-market opportunities. This will not only promote sales but also act as an industry driver of growth.

However, the chief challenge to growth in the market lies in upward costs and pricing of raw materials. Compared to other construction materials, the raw materials in ACP manufacturing are expensive and the production itself is time-consuming. The initial capital investment is high which is channeled towards setting up high-powered instruments to be used in heavy industrial processes like smelting, refining, metal recovery etc.

Besides, given the spate of fire incidents globally which found ACPs at the centre of all criticism, builders have been persuaded to shift to alternate and shepherd materials in construction activities. However, the versatility of ACPs makes it unconvincing to affect this change, cementing the business and boosting the growth landscape for manufacturers like Eurobond consistently.

Although Eurobond doesn’t have any listed industry peers yet, there are a few other entities which command a sizable portion of the market given their brand presence and affordable pricing strategies (e.g. Alstone, Alutech Panels, Viva, Alstrong, Alucobond).

In any case, the company remains a pioneer in the industry owing to its best-range portfolio of products and economical price range. It also does credit to high efficiency and quality standards (ISO 9001:2015 certified) by virtue of which it maintains its strong overseas clientele who are amenable to higher quality control checks.

IPO Highlights

With the industrial push in India at an all-time high, partly helped by initiatives like Make in India, a benign National Manufacturing Policy and the gradually-easing investment windows, the country is primed for a massive infrastructural makeover this decade. Growth of companies like Eurobond is expected to gain imminent headwinds from this push. ACP sheets and panel production lies at the core of construction activities and is certain to have a huge impact on the overall market.

Given the eco-friendly character of these products (pg 92, DRHP), ACPs also meet the green buildings’ requirements of sustainability along with their high technical and safety standards.

Although not a big-ticket issue, Eurobond has a promising outlook in terms of business growth. With a credible brand image, widespread sales and distribution network, experienced management and growing investments in R&D as well as focused innovations, the company presents a decent investment outlook.

(Originally published December 13th 2021 in transfin.in)