Fast Cables IPO: Don't Miss the Wire

May 15, 2024 (MLN): A flurry of Initial Public Offerings (IPOs) is going on the local bourse, and to jump on the bandwagon, Fast Cables Limited also charged its wires, all set to be the third company of 2024 to capitalize on the bullish trending market.

What makes Fast Cables' IPO more attractive is its aim for expansion, for which the company is seeking over Rs3 billion. The company has already injected Rs594.41 million, installed the CCV Line, paid duties and installation cost of Rs199.58m, begun work on the Rs1bn Saudi Project and successfully delivered it.

Unlike SLGL and IPAK, the two earlier IPOs of this year, Fast Cables is poised to embark on significant expansion, making it more attractive for savvy investors.

Fast Cables Limited's Initial Public Offering (IPO) book-building phase will start from May 15, 2024, to May 16, 2024

The issue will be presented through the Book Building method at a Floor Price of Rs23.5 per share including a premium of Rs13.5/- per share with a maximum price band of up to 40% i.e., Rs32.9 per share.

The book building will commence with an initial floor price of Rs23.5 per share including a premium of Rs13.5/- per share, resulting in a price-to-earnings (PE) ratio of 6.28x, based on TTM PAT (EPS Rs3.4) as at December 31, 2023.

If the share price reaches its maximum of Rs32.9, the PE will rise to 9.67x while the Book value per share of the company as of June 2023 is Rs15.30/-

Fast Cables’ Business?

As the name suggests, this local manufacturer of top-quality electrical cables and conductors is currently holding its position in the Pakistani cable market with an annual production capacity as of June 30, 2023, of copper products stands at 8,400 metric tons while for aluminium products 13,800 metric tonnes.

It is also important to mention that the company is a pioneer of Catenary Continuous Vulcanization (CCV) Line Technology & Aluminium Alloy plant in Pakistan.

The CCV line's cutting-edge technology grants the product a remarkable lifespan of over 40 years, guaranteeing exceptional durability and unwavering reliability.

The Aluminium Alloy Plant boasts of an impressive production capability to introduce novel commodities to the local market, including Aerial Bundle Cables (ABC) for electricity distribution, Trapezoidal Wire Conductors, and All Aluminium Alloy Conductors (AAAC) for high voltage transmission, where the latter is highly favoured in distribution lines due to their lightweight composition and reduced electrical losses.

The company operates on a Business-to-Customer (B2C), Business-to-Business (B2B), and Business-to-Government (B2G) model. In the B2C model, the company distributes its products through authorized dealerships.

In the B2B model, it directly supplies cables to reputable companies, while in the B2G model, it supplies cables to government-owned entities such as WAPDA.

Business Capacity?

A common query pertains to how a company increases its capacity through expansion.

The proposed expansion will improve cost efficiencies, increase capacity to cater for the growing demand for cables and conductors and thereby generate additional profits that will help fund future business opportunities.

The current capacity as of June 30, 2023, and the post-expansion capacity of Fast Cables are shown in the figure below:

The company operates two manufacturing units. Unit - I is located at 7-Canal Bank Main Jallo Road, Harbans Pura, Lahore and Unit - II is located at Bahi kot, Dars Road, Tehsil-Raiwind, District Lahore.

The two units are spread over 268.05 kanals of land and have around 93.70 kanals of covered area comprising various buildings, sheds and larger stores of raw materials and finished goods.

The company owns 243.1 kanals of land while the rest of the 24.95 kanals of land is rented. Since its formation, the company has been regularly adding production buildings to cater for its expansion needs.

The company is in the process of acquiring 100 kanals of land in the vicinity of existing Unit-II factory to support its expansion program. A Memorandum of Understanding (MOU) is already done with Ali Raja Associates who will act as agent and assist FCL to buy land in the vicinity of Unit –II Bahi kot, Dars Road, Tehsil-Raiwind, District Lahore.

Risk Mitigation

Investment opportunities and risks are inherently intertwined and in the case of Fast Cables, the business is exposed to certain risks too.

The cash flow has been volatile from operations of FCL during the last five years. Volatile cash flow patterns can impact major strategic plans and decisions.

Speaking to Mettis Global, the management of the company stated that FCL has been aggressively working to reduce inventory days through procurement planning and delivery of finished products.

In addition, receivable days are being arrested through schemes and negotiations at the time of ordering in FY 2024.

Legal litigations: There are eight pending Legal proceedings of Fast Cables Limited as of June 30 2023, with financial implication of Rs165.11m. Upon inquiring about their status, the management said that these litigations are being followed as per due course and favourable outcomes are expected with no major material impact.

In addition to this, the business is also exposed to the regulatory duties that have been imposed by the government on the import of finished copper and aluminium wires/cables/conductors in the range of 17% to 25%. Reduction in regulatory duties can impact the future sales and profitability of the company.

Financial Highlights

During the period of FY 2018 and FY 2023, Fast Cables Limited sales grew at a compounded annual growth rate (CAGR) of 43% and gross profit grew at a CAGR of 51%, while the profit after tax of the company grew at a CAGR of 82% during the same period.

The company attributed this steady and consistent growth to its commitment to innovation, market development, a broad distribution network, capacity expansion, and the continuous expansion of its product portfolio.

Based on the review, the Lead Manager is of the view that the historical performance of the company, the trustworthiness of the brand, the demand for its products, and diversification of revenue stream by also taking customized orders for making special cables with specific requirements indicates the sustainability in business performance, which justifies the Floor Price of PKR 23.5/-

The positive outlook is also backed by the rising demand for electricity consumption each year along with the growing population.

It is important to mention that with each passing year number of houses, industries and other infrastructure is built adding more constraints to the existing supply of electricity.

During the FY22, 12 Generation Licenses were issued by NEPRA for a cumulative 201.42 MW capacity and 7,032 Licenses of a cumulative 243.43 MW were issued for net metering-based systems to the consumers in different DISCOs.

The main purpose is to induct new capacity to displace the costlier options and to cater growing need for electricity in Pakistan.

The induction of new power generation capacity through different technologies will lead to a higher demand for cables and conductors in future when these all projects are implemented and become operational.

Moreover, the rising adaptability of solar plants is a golden opportunity for Fast and to capitalize on this, the company has increased the solar cable capacity by 400% and will continue to expand aligned with demand growth in the sector, according to the management.

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