Courtesy: https://www.chittorgarh.com/
Review By Dilip Davda on February 10, 2025
- The company is an emerging Indian player in critical energy transition equipment and power technologies.
• It marked 75+% average global revenue in its top lines for the reported periods.
• Based on its recent financial performance, the issue appears reasonably priced.
• The company aims to be the Indian global player in the segment with its niche play.
• Investors may grab this opportunity for medium to long term.
ABOUT COMPANY:
Quality Power Electrical Equipments Ltd. (QPEEL) is an Indian player serving global clients in critical energy transition equipment and power technologies. It provides high voltage electrical equipment and solutions for electrical grid connectivity and energy transition. It is a technology-driven company specializing in the provision of power products and solutions across power generation, transmission, distribution, and automation sectors. Additionally, the company offers equipment and solutions tailored for emerging applications such as large-scale renewables. (Source: Care Report).
Its manufacturing facilities adhere to the quality standards required by global conglomerate clientele, including those listed on the Fortune 500. Additionally, the Company’s Test & Research Lab in Sangli holds ISO 17025:2017 accreditation from the National Accreditation Board for Testing and Calibration Laboratories (“NABL”), certifying it as an independent test laboratory that complies with both Indian and international standards for systems up to 765kV (Source: Care Report).
It is among the few global manufacturers of critical high voltage equipment for High Voltage Direct Current (“HVDC”) and Flexible AC Transmission Systems (“FACTS”) networks. These equipment and networks form key components for energy transition from renewable sources to traditional power grids. With over two decades of experience in the energy transition space, it provides an extensive range of products crucial for effective power transmission and advanced power automation. QPEEL’s offerings include reactors, transformers, line traps, instrument transformers, capacitor banks, converters, harmonic filters, and reactive power compensation systems. Additionally, its grid interconnection solutions feature technologies such as STATCOM and static var compensator systems (“SVC”). Its domestic and global footprint allows the company to cater to both Indian and global customer bases. (Source: Care Report).
HVDC technology is transforming the landscape of energy transition equipment and power technologies by enabling efficient, long-distance power transfer with markedly reduced energy losses. This advancement is crucial for integrating renewable energy sources from remote locations, such as offshore wind farms and solar plants in remote regions, into urban areas. FACTS devices, including Static Synchronous Compensators (“STATCOM”), are pivotal in ensuring grid stability and reliability. They manage fluctuations from variable renewable energy sources through dynamic voltage regulation and reactive power compensation. The adoption of HVDC and STATCOM technologies is vital for the green energy transition, as they facilitate the efficient and stable integration of renewables into the power grid (Source: Care Report).
Its portfolio of high voltage products and solutions is critical for advancing and modernizing electrical networks. Company’s technologies are designed to enhance grid reliability and performance by providing critical support for power grid management and overall network stability. Engineered to meet the demanding requirements of contemporary electrical infrastructure, these products ensure optimal efficiency and resilience. Its high voltage solutions help to maintain and improve network performance, offering advanced capabilities to address the complexities of modern energy systems and assist operators in effectively managing power quality and operational reliability. (Source: Care Report)
Its product portfolio contributes to advancing decarbonization efforts, sustainability, and green energy initiatives. The company offers a range of technology-driven products, comprehensive system solutions, and professional services tailored for the power sector. The customers it caters to run their operations across multiple key areas, including (i) power transmission, providing effective transfer of electricity over distances, (ii) power distribution, ensuring the delivery of electricity to end users, and (iii) power automation, integrating advanced technologies for efficient power management. The company also specialize in grid interconnection equipment, which addresses infrastructure and devices needed to connect multiple power grids or electrical systems. This equipment is crucial for facilitating the smooth transfer of energy between various stages: from generation to transmission, and from transmission to distribution, ensuring that energy flows throughout the power system, promoting integration and consistent operation. (Source: Care Report).
Its manufacturing operations in India are spread across two locations, including Sangli, Maharashtra, and Aluva, Kerala. As part of its global expansion, the company acquired 51% of the share capital in Endoks Enerji AnonimŞirketi (“Endoks”) in 2011, which has design, operation, assembly, project management, and delivery facilities in Ankara, Turkey. Pursuant to this acquisition, Endoks became indirect subsidiary. As of September 30, 2024, it had 167 full-time employees and 325 contractual workers and we also have
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ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route combo IPO of 20204618 equity shares issue worth Rs. 858.70 cr. (at the upper cap). The company has announced a price band of Rs. 401 – Rs. 425 per equity shares of Rs. 10 each. The IPO consists of fresh equity shares issue worth Rs. 225 cr. (approx. 5294118 shares at the upper cap), and an Offer for Sale (OFS) of 14940500 shares (worth Rs. 633.70 cr. at the upper cap). The issue opens for subscription on February 14, 2025, and will close on February 18, 2025. The minimum application to be made is for 26 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 26.09% of the post-IPO paid-up equity capital. From the net proceeds of the fresh equity issue, the company will utilize Rs. 117.00 cr. for purchase consideration of Mehru Electrical & Mechanical Engineers Pvt. Ltd. acquisition, Rs. 27.22 cr. for capex on plant and machinery, and the rest for inorganic growth funding and general corporate purposes.
The company has allocated not less than 75% for QIBs, not more than 15% for HNIs and not more than 10% for Retail investors.
The sole Book Running Lead Managers (BRLM) to this issue it Pantomath Capital Advisors Pvt. Ltd., while MUFG Intime India Pvt. Ltd. (erstwhile Link Intime India Pvt. Ltd., is the registrar to the issue. Asit C Mehta Investment Intermediates Ltd. is the syndicate member.
The company has issued entire initial equity shares at par value. It has also issued bonus shares in the ratio of 480 for 1 in January 2024. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. NIL, Rs. 0.02, and Rs. 0.06 per share.
Post-IPO, its current paid-up equity capital of Rs. 72.15 cr. will stand enhanced to Rs. 77.44 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 3291.39 cr.
FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit of Rs. 211.73 cr. / Rs. 42.23 cr. (FY22), Rs. 273.55 cr. / Rs. 39.89 cr. (FY23), and Rs. 331.40 cr. / Rs. 55.47 cr. (FY24). For H1 of FY25 ended on September 30, 2024, it earned a net profit of Rs. 50.08 cr. on a total income of Rs. 182.72 cr. Lower profits for FY23 is attributed to change in accounting standards and delayed shipments due to disturbed global situation.
According to the management, it is poised for bright prospects considering its ongoing plans for solutions providing in renewable energy transmission and distribution and continue its global earnings which is currently around 75+% on an average for the reported periods. It aims to be the global Indian company in the segment.
As per historical data, its first half normally has around 35 to 40% top line with commensurate earnings, and the rest is coming in second half. So any calculations on the basis of first half earnings will not give the real picture. Secondly, reflection of its recent acquisitions will get merged with its account for complete FY25 consolidated numbers post listing, and that will have bearing on its earnings and valuations.
In fact, the company has given the likely impact of merged financial data under proforma numbers for the last 18 months. Based on it the company has posted net profit of Rs. 65.70 cr. on a total income of Rs. 550.70 cr. for FY24, and Rs. 53.79 cr. on a total income of Rs. 294.70 cr. for H1 of FY25, ended on September 30, 2024. Based on this proforma data, its valuation will improve.
For the last three fiscals, the company has posted an average EPS of Rs. 3.93 and an average RoNW of 26.53%. The issue is priced at a P/BV of 12.85 based on its NAV of Rs. 33.07 as of September 30, 2024, and at a P/BV of 7.10 based on its post-IPO NAV of Rs. 59.87 per share (at the upper cap).
If we attribute FY25 annualized earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 32.87. Based on FY24 earnings, the P/E stands at 56.59. Thus the issue relatively appears reasonably priced.
The company reported PAT margins of 19.94% (FY22), 14.58% (FY23), 16.74% (FY24), 27.41% (H1-FY25) and RoCE margins of 20.58%, 22.32%, 19.20%, 15.84% for the referred periods, respectively.
DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It has already adopted a dividend policy in February 2024, based on its financial performance and future prospects.
COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Transformers & Rectifiers, Hitachi Energy, and GE Vernova, as their listed peers. They are trading at a P/E of 83.0, 166.0, and 89.1 (as of February 10, 2025. However, they are not truly comparable on an apple-to-apple basis.
MERCHANT BANKER’S TRACK RECORD:
The BRLM associated with the offer has handled 10 pubic issues in the past three fiscals, out of which none of issues closed below the offer price on the listing date.
Conclusion / Investment Strategy
QPEEL is an emerging Indian player in critical energy transition equipment and power technologies. It marked 75+% average global revenue in its top lines for the reported periods. Based on its recent financial performance, the issue appears reasonably priced. The company aims to be the Indian global player in the segment with its niche play. Investors may grab this opportunity for medium to long term.
Review Author
DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. My reviews do not cover GMP market and operators game plans. Readers must consult a qualified financial advisor before making any actual investment decisions, based the on information published here. With entry barriers, SEBI wants only well-informed investors to participate in such offers. With crazy listings in the recent past, SME IPOs drew the attention of investors across the board and lead to seer madness. However, as SME issues have entry barriers and continued low preference from the broking community, any reader taking decisions based on any information published here does so entirely at their own risk. The above information is based on information available as of date coupled with market perceptions. The Author has no plans to invest in this offer.
About Dilip Davda
Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.
Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detailed fundamental and financial analysis of companies coming up with IPOs helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.
(Dilip Davda -SEBI registered Research Analyst-Mumbai,
Registration no. INH000003127 (Perpetual)
Email id: dilip_davda@rediffmail.com ).
Review By Dilip Davda on February 10, 2025
Courtesy: https://www.chittorgarh.com/
