Low profitability

• Epack Durable operates in the manufacturing sector, specializing in Room air conditioners and additional components such as cooktops, mixer-grinders, and water dispensers. While the company has experienced overall growth in both its top line and bottom line since FY21, there are notable concerns regarding its financial performance. Specifically, the net profit margin has remained consistently low, hovering around 2%. In H1FY24, the company reported an even lower net profit margin of 0.3%, primarily attributed to escalating input costs. The erratic cash flow from operations further adds to the apprehension of investors.
• The industry itself is characterized by slim profit margins, exemplified by the 0.3% profit margin reported by Epack Durable. Such meager profitability may deter potential investors who seek more lucrative opportunities.
• A major issue facing the company is the substantial concentration of its revenue sources. In FY21, the top 10 customers contributed only 34% of the total revenue; however, this figure has surged to 62% in H1FY24. This heightened dependency on a limited number of key customers exposes Epack Durable to significant risks. Any adverse decision by one of these key customers to cease business with the company could have severe repercussions.

Valuations

• As per FY23, the company is asking for a PE of 68x and a market cap-to-sales of 1.4x. These valuations seem fair but considering the volatility of its financials and low profitability, we recommend avoiding this IPO.​