RR Kabel IPO gets 29.82% Anchor Allocated

About the RR Kabel IPO

The anchor issue of RR Kabel Ltd saw a relatively strong response on 12th September 2023 with 29.82% of the IPO size getting absorbed by the anchors. Out of the 1,89,75,939 shares (159.76 lakh shares approximately) on offer, the anchors picked up 56,58,201 shares (56.58 lakh shares approximately) accounting for 29.82% of the total IPO size. The anchor placement reporting was made to the BSE late on Tuesday, September 12th, 2023; a day ahead of the IPO opening. The IPO of RR Kabel Ltd opens on 13th September 2023 in the price band of ₹983 to ₹1,035 and will close for subscription on 15th September 2023 (both days inclusive).

The entire anchor allocation was made at the upper price band of ₹1,035. This includes the face value of ₹5 per share plus a premium of ₹1,030 per share, taking the anchor allocation price to ₹1,035 per share. Let us focus on the anchor allotment portion ahead of the RR Kabel IPO, which saw the anchor bidding opening and also closing on 12th September 2023. Before that, here is how the overall allocation will look.

The overall allocation to QIBs includes the anchor portion, so the anchor shares allotted will be deducted from the QIB quota for the purpose of the public issue.

Finer points of anchor allocation process

Before we go into the details of the actual anchor allotment, a quick word on the process of anchor placement. The anchor placement ahead of an IPO/FPO is different from a pre-IPO placement in that the anchor allocation has a lock-in period of just one month, although under the new rules, part of the anchor portion will be locked in for 3 months. It is just to give confidence to investors that the issue is backed by large established institutions.

However, the anchor investors cannot be allotted shares at a discount to the IPO price. This is explicitly stated in the SEBI revised regulations as under, “As per the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirement) Regulations, 2018, as amended, in case the Offer Price discovered through book building process is higher than the Anchor Investor Allocation Price, then the Anchor investors will be required to pay the difference by the pay-in as specified in the revised CAN.

An anchor investor in an IPO is normally a qualified institutional buyer (QIB) like a foreign portfolio investor or mutual fund or insurance company or a sovereign fund which invests before the IPO is made available to the public as per SEBI regulations. Anchor portion is part of the public issue, so the IPO portion to the public (QIB portion) is reduced to that extent. As initial investors, these anchors make the IPO process more attractive for investors, and instil confidence in them. Anchor investors also largely aid in price discovery of the IPO

Anchor placement story of RR Kabel Ltd

On 12th September 2023, RR Kabel Ltd completed the bidding for its anchor allocation. There was a strong and robust response as the anchor investors participated through the process of book building. A total of 56,58,201 shares were allotted to a total of 54 anchor investors. The allocation was done at the upper IPO price band of ₹1,035 (including premium of ₹1,030 per share) which resulted in an overall allocation of ₹585.62 crore. The anchors have already absorbed 29.82% of the total issue size of ₹1,964.01 crore, which is indicative of fairly robust institutional demand.

Listed below are the 9 anchor investors who got allotted more than 3% of the shares as part of the overall anchor allocation quota for the IPO of RR Kabel Ltd. The entire anchor allocation of ₹585.62 crore was spread across 54 major anchor investors. These 9 anchor investors listed below accounted for 40.11% of the total anchor allocation of RR Kabel Ltd and their participation will set the tone for retail participation in the IPO.

Data Source: BSE Filings

While the GMP had surged to a robust level of ₹218, it has now sobered to ₹150 which still shows an attractive premium of 14.49% on listing. This has led to reasonable anchor response with the anchors taking in 29.82% of the total issue size. The QIB portion in the IPO will be reduced to the extent of the anchor placement done above. Only the balance amount will be available for QIB allocation as part of the regular IPO.

The general norm is that, in anchor placements, smaller issues find it hard to get FPIs interested while larger issues do not interest mutual funds. RR Kabel Ltd has witnessed anchor interest from domestic mutual funds, foreign portfolio investors, and even insurance companies.

RR Kabel Ltd, in consultation with the book running lead managers (BRLMs) have allocated a large chunk of the anchor portion to the domestic mutual funds, spread across 29 mutual fund schemes of 14 mutual fund AMCs.

Brief on the RR Kabel Ltd business model

RR Kabel Ltd Incorporated in 1995, and has a pedigree of over 25 years. RR Kabel Ltd can be classified predominantly as an FMEG (fast moving electrical goods) company. The company, essentially, provides consumer electrical products for use in residential, commercial, industrial, and infrastructure applications. In terms of its product verticals, RR Kabel Ltd operates in 2 broad verticals. The first vertical is the wires and cables business which includes home wires, industrial wires, and special cables. These are directly supplied to OEM users. The second predominant business vertical of RR Kabel Ltd is the FMEG vertical or the fast moving electrical goods segment. This FMEG segment broadly comprises of fans, lighting products, switches, and other electrical appliances.

RR Kabel Ltd manufactures and markets wires and cable products under the brand name RR Kabel while the FMEG products are sold under the brand name of Luminous Fans and Lights to distinguish the FMEG brand from the generic cables segment. In 2020, RR Kabel Ltd had acquired Arraystorm Lighting which specializes in light emitting diode (LED) lights and related hardware business. This automatically gave RR Kabel Ltd the access to the fast growing LED lights franchise. This will help RR Kabel Ltd to expand its offerings to cover offices, industrial and warehouse spaces etc.

In 2022, RR Kabel Ltd acquired the home electrical business (HEB) of Luminous Power Technologies, which is the brand under which the company currently sells its fans and lights as part of the FMEG portfolio. This deal gave RR Kabel Ltd access to 61 registered trademarks, and a fairly rich portfolio of lights and premium fans. Currently, the company has 2 manufacturing units located at Waghodia, Gujarat and at Silvassa. These units primarily manufacture wires, cables, and switches. In addition, 3 integrated manufacturing facilities at Roorkee, Bengaluru, and Gagret, Himachal Pradesh implement the FMEG manufacturing operations.

RR Kabel has a strong franchise in the domestic and global markets. It derives 71% of its revenues from the wires and cables segment with the balance from the FMEG segment. However, more than 97% of the sales of the FMEG products comes from the B2C channel, making it a scalable proposition. The issue of RR Kabel Ltd will be lead managed by Axis Capital, Citigroup Global Markets, HSBC Securities and JM Financial. They will act as the book running lead managers (BRLM) to the issue. Link Intime India Private Ltd will be the registrar to the issue.