While all eyes are on Robi’s mega stock market listing, another solid homegrown company Energypac is gearing up for its debut to raise Tk 150 crore.
Energypac’s initial public offering subscription, which began on December 7, wraps up today.
The company has a bright outlook due to being a diversified end-to-end engineering solution provider in a fast-growing Bangladesh.
It is engaged in supplying gas and diesel generators and provides rent, solar panel, accessories & turnkey solutions; procures independent power plant and operates and maintains them; transmits and distributes power; runs CNG refuelling station and conversion kits; imports and markets commercial vehicles, machinery and materials, spare parts, installation and service in Bangladesh and overseas; manufactures pre-engineered buildings and has entered the liquefied petroleum business.
The bulk of the IPO proceeds would go towards ramping up the three-year-old LPG business G-Gas, which has a promising future ahead due to fast depletion of natural gas.
For instance, Energypac’s sales almost tripled in 2018 due to the start of LPG business in 2017, said recent research by Brac-EPL.
LPG has emerged as an alternative to natural gas and is likely to be popular as an alternative automobile fuel due to its cost-effectiveness and environment-friendliness.
The current LPG industry size is 0.9 million tonnes, and it is expected to reach 2 million tonnes by 2025, implying a compound annual growth rate of 15.3 per cent.
Bashundhara LP Gas is the market leader in the industry with a total storage capacity of 3,000 tonnes and a daily refill capacity of 50,000 cylinders.
While Energypac has the same storage capacity as Bashundhara, its daily refill capacity of about 3,500 cylinders pales in comparison to the number one player.
Another storage facility is under construction, whose capacity would be 2,000 tonnes.
The company would use Tk 26.2 crore of the IPO proceeds to procure LPG carrier and accessories, Tk 52.3 crore for importing LPG cylinders and another Tk 17.6 crore for purchasing material for LPG cylinders.
The rest of the IPO proceeds would be used for loan repayment and footing IPO expenses.
Energypac and its subsidiaries are highly leveraged, said the Brac-EPL report. The company had 2.5 times more debt than its equity investment in the nine months of 2019.
It initially borrowed fund at an average rate of 12.5 per cent. The implementation of the single-digit interest rate in 2020 is likely to be advantageous for the company.
No wonder then it would use 33 per cent of the IPO proceeds to clear its bank loans.
Going forward, 2020 is likely to be an underwhelming year for Energypac for the global coronavirus pandemic.
In Bangladesh, the first confirmed cases of coronavirus were announced on March 8, and two weeks later, the government put the country on a two-and-a-half-month-long shut to slow the spread of the lethal pathogen, bringing all economic activities to a screeching halt.
While the economy slowly opened up from July, construction activities are not roaring at pre-pandemic levels – yet.
Particularly hit would be pickup sales, which contribute to upwards of 12 per cent of Energypac’s revenue, according to Brac-EPL.
“In the first half of 2020, pickup sales in the industry declined by 26.8 per cent, and we expect this industry to recover slightly in the second half of the year,” it said.
Moreover, more than 70 per cent of commercial vehicle sales incur on an accrual basis and local pickup drivers may not be able to pay their monthly equal monthly instalments on time due to the countrywide economic slump.
“Certainly, it will increase Energypac’s bad loan provision, working capital requirement and interest expense,” it added.
Contacted, Humanyun Rashid, managing director and chief executive officer of Energypac, which was established in 1995, seem unruffled.
“Energypac has become one of the country's leading electromechanical power engineering companies. There is a list of qualitative factors behind Energypac's success, which deserves the company's enlistment in the stock market,” he said.
The cut-off price of Energypac Power shares has been fixed at Tk 35 each through electronic bidding by eligible institutional investors held from September 21 to September 24.
Of the total shares, 20,146,766 shares are reserved for eligible investors at their own bidding price.
The remaining 20,146,800 shares have opened to the IPO participants, including general investors and non-resident Bangladeshis, at a 10 per cent discount on the cut-off price, meaning the general investors will get the IPO shares at Tk 31 each.
LankaBangla Investments is acting as the issue manager of Energypac’s IPO.
