What you need to know before buying Energypack stocks

You have to understand the products this company is selling to its customers, the outlook of the industry in the long-term, the competition it faces and how the management runs the company.

Energypac Power Generation was set up in 1982 as a power engineering business in Bangladesh. The company now consists of five sister concerns—Energypac Engineering, Energypac Electronics, Energypac Agro, Energypac Fashions and Energypac Power Venture, according to its website.

Its business activities are related to power generation, energy, infrastructure, commercial automotive, industrial and commercial building and assembling and manufacturing.

Power generation is the biggest business of Energypac in terms of revenue. The earnings of three of its power plants constitute 36.7 percent of the company's annual revenue, according to its prospectus.

The management of the company is very experienced in the automobile industry, which is good to run a company, according to an analysis of Royal Capital.

In terms of annual income, Energypac is placed in the second position after IFAD Auto. In 2019, IFAD’s income was Tk 11,017 million, followed by Enerypack Tk 10,079 million, Navana CNG Tk 5,886 million and Aftab Auto Tk 2, 818 million.

Returns are an important aspect of stocks that people have to understand before buying. Energypac’s average return on equity is 6.7 percent while its competitors’ average return on equity is 9 percent, which means the company’s products decreased. Energypac’s returns on equity dropped to 7.1 percent in 2019 from 7.4 percent in 2018.

Its debt to equity ratio is 196 percent in 2019 and 202 percent in 2018, indicating that there is a financial risk. Its dividend payout was 16 percent in 2019 and 17 percent in 2018, which is a positive signal for the investors.

It would be very difficult to maintain its growth in future as the automobile industry is very competitive. Nitol Motors and IFAD Auto are aggressively expanding their operations.

Energypac’s direct expenditure is very high, which means it would be difficult to gain financially overnight. Its long term prospect is dim due to the lower entry barrier in the automobile industry. The company’s capital expenditure might be increased due to the fluctuated bank interest rate and profits might be affected. 

Energypac’s non-growth assets are high, indicating that the company could not be benefited directly. Out of the current capital, the company’s cash and the amount of cash equivalent assets is moderate, which means that it has a medium level of liquidity flow.

Between 2018 and 2019, the company’s total liabilities increased, it should be taken into mind before betting the stocks. The company invested in many unquoted companies that have no identical market and there is no scope to pull out investment.

The company’s financial performance is moderate in terms of sales and profits. The industry has bright prospects to grow, but is very competitive.

Its IPO subscription will open on December 7 and continue until December 13. It will raise Tk 150 crore from the public to expand and energise its liquefied petroleum gas (LPG).

It is noteworthy that with the supply of natural gas through pipelines facing infrastructural and other constraints, LPG has gained momentum in Bangladesh over the last decade. In the last six years, the annual market demand for LPG tripled to around one million tonnes.

Apart from LPG business expansion and loan repayment, the company’s IPO proceeds will be used to meet the cost of the public offering process. The lion share of the IPO funds will be used in building a satellite station at Rupganj, Narayanganj with a storage capacity of 1,200 tonnes of LPG.

The offer price of Energypac is Tk 35 a share fixed by eligible institutional investors after bidding in line with the book building method.