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Review By Dilip Davda on February 23, 2024

•    ETSL, a first mover in EV charging infra and power management solution provider.
•    The company marked setback in top line for FY23 on account of hiving of battery business.
•    The company is expanding its capacity with new project at Hyderabad.
•    Based on FY24 annualized earnings, the issue appears fully priced.
•    Investors may lap it up for the medium to long term rewards. 

ABOUT COMPANY:
Exicom Tele-System Ltd. (ETSL) is an India headquartered power management solutions provider, operating under two business verticals, (i) critical power solutions business, wherein it designs, manufactures and services DC Power Systems and Li-ion based energy storage solutions to deliver overall energy management at telecommunications sites and enterprise environments in India and overseas ("Critical Power Business"); and (ii) electric vehicle supply equipment ("EV "EV Charger Business") and which commenced commercial sales in the Financial Year ended March 31, 2019. 

ETSL is amongst the first entrants in the EV Source: CRISIL Report).

ETSL aims to be an impact business contributing to the sustainable energy transition by enabling electrification of transportation, and energy stability of digital communication infrastructure. Its Critical Power Business delivers overall energy management at telecommunications sites and enterprise environments. Under this business vertical, it offers a diversified portfolio of DC power conversion systems ("DC Power Systems") and Li-ion based energy storage solutions to deliver back-up power during grid interruptions ("Li-ion Batteries" or "Energy Storage Solutions") and have deployments in India, South East Asia and Africa.

Its DC Power Systems are typically customized to customers' specifications for use cases at telecommunications sites, including at large central offices, renewable hybrid sites, base station sites (independent or shared) and small cell/Wi-Fi sites. As on the date of this Red Herring Prospectus, the company achieved deployment of DC Power Systems across 15 countries in South East Asia and Africa. Its Li-ion Batteries provide back-up power in case of power grid interruptions or intermittent renewable energy supply, and are based on modular and parallelable platforms supported by its proprietary battery management system ("BMS") and can be combined to make battery systems to meet the requirements of the end-application. 

As of September 30, 2023, the Company has deployed 470,810 Li-ion Batteries for application in the telecommunications sector, equivalent to a storage capacity of over 2.10 GWH. As per the CRISIL Report, the increasing demand for mobile data and voice services, the growing adoption of 4G and 5G networks, telecommunications power upgrade projects, expansion of telecommunications network in bad-grid and off-grid locations, and overall need for reliable and uninterrupted power supply for telecommunications towers are the key factors driving the growth of telecommunications power industry. The telecommunications power systems market in India is expected to grow from approximately Rs.15 billion in Financial Year ended March 31, 2023 to Rs. 22 billion in Financial Year ended March 31, 2028 at a CAGR of 8.50% (Source: CRISIL Report). 

The energy storage solutions market for telecommunications is expected to grow from Rs. 19.50 billion in Financial Year ended March 31, 2023 to Rs. 36.10 billion in Financial Year ended March 31, 2028 at CAGR of 13.10%, with an aggregate market potential of approximately Rs. 150 billion over the next five Financial Years (Source: CRISIL Report). Furthermore, according to CRISIL, the proliferation of data centres has heightened the demand for accompanying infrastructure, including energy solutions such as Li-on Batteries. The market size for Li-ion based battery energy storage solutions for data centres is estimated at approximately Rs. 3.20 billion for Financial Year ended March 31, 2023 and is projected to grow to Rs. 47 billion by Financial Year ended March 31, 2028, with an aggregate market potential of approximately Rs. 120 billion over the next five Financial Years, as per Customized Energy Solutions (Source: CRISIL Report). 

Whether this growing quantity of data is exchanged through telecommunications networks or managed through data centres centrally in cloud locations, distributed at the "edge" of the network or processed in an enterprise location, ETSL endeavors that the underpinnings and operations of such locations rely on its Critical Power Business products. It leveraged nearly three decades of domain experience and know-how in power conversion, energy management and de-carbonization solutions, along with tapping into its existing manufacturing and supply chain operations, to commence EV "EV") charging products and solutions. 

The company is guided by its overall objective of making EV Source: CRISIL Report). 

It endeavors to differentiate our EV despite lack of FAME demand incentive, albeit on a lower base). 

EV penetration is expected to grow across vehicle segments, i.e., two-wheelers ("2W"), three- wheelers ("3W"), passenger vehicles ("PVs"), buses and commercial vehicles. The EV PV and bus market is estimated to grow by nine times between Financial Year ended March 31, 2023 and Financial Year ended March 31, 2028, at a CAGR of 50% to 60% with 8% to 10% EV penetration, while the electric bus market is estimated to achieve penetration of 14% to 16% by Financial Year ended March 31, 2028, which translates into growth at a CAGR of 55% to 60% (Source: CRISIL Report).

As per the CRISIL Report, there is a growing focus on expanding the charging infrastructure network across India as public charging stations are being installed in cities, highways, and commercial areas, and adoption fast charging technologies, such as DC fast charging, is increasing. By designing and manufacturing EV Chargers for residential, business, and public use, it aims to provide products to lay the infrastructure required to meet the demands of growing EV ownership in India.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden combo book building route IPO of equity shares of Rs. 10 each for Rs. 429 cr. (for approx. 30211200 shares - at the upper price band). The issue consists of fresh equity issue worth Rs. 329 cr. (approx. 23169000 shares at the upper cap) and an offer for sale of 7042200 equity shares (approx. Rs. 100 cr. at the upper cap). The company has announced a price band of Rs. 135 - Rs. 142 per share. The issue opens for subscription on February 27, 2024, and will close on February 29, 2024. The minimum application to be made is for 100 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 25% of the post-IPO paid-up capital of the company. From the net proceeds of the fresh equity issue, the company will utilize Rs. 145.77 cr. for part financing cost of new facility at Telangana, Rs. 50.30 cr. for repayment of certain borrowings, Rs. 69.00 cr. for working capital, Rs. 40.00 for investment in R & D and product development, and the rest for general corporate purposes. 

The company issued 5259257 shares at Rs. 135 per share (worth Rs. 71 cr.) in January 2024 as pre-IPO placement, and accordingly its fresh equity issue size is reduced to that extent. 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 three Book Running Lead Managers to this issue are Monarch Networth Capital Ltd., Unistone Capital Pvt. Ltd. and Systematix Corporate Services Ltd., while Link Intime India Pvt. Ltd. is the registrar of the issue. 

Having issued initial equity capital at par value, the company issued further equity shares in the price range of Rs. 20 - Rs. 1065 between December 1994 and August 2023. It has also issued bonus shares in the ratio of 11 for 1 in September 2023. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 31.43 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 97.66 cr. will stand enhanced to Rs. 120.83 cr. Based on the upper price band of IPO, the company is looking for a market cap of Rs. 1715.71 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has ported a total income/net profit of Rs. 524.36 cr. / Rs. 12.68 cr. (FY21), Rs. 848.96 cr. / Rs. 30.40 cr. (FY22), and Rs. 723.40 cr. / Rs. 31.03 cr. (FY23). For H1 of FY24 ended on September 30, 2023, it has reported a net profit of Rs. 27.46 cr. on a total income of Rs. 467.21 cr. 

For the last three fiscals, from continuing operations, it reported an average EPS of Rs. 3.02 and an average RoNW of 12.25%. The issue is priced at a P/BV of 4.21 based on its NAV of Rs. 33.70 as of September 30, 2023, and at a P/BV of 2.44 based on its post-IPO NAV of Rs. 58.30 per share (at the upper cap). There appears to be some mismatch as the IPO ad shows Rs. 58.30 post-IPO NAV on lower as well as upper cap. 

If we attribute annualized FY24 earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 31.21. Thus the issue appears fully priced.

For the reported periods, the company has reported PAT margins of 2.47% (FY21), 3.61% (FY22), 4.38% (FY23), 6.04% (H1-FY24), and RoCE margins of 5.33%, 17.66%, 10.92%, 9.17% respectively for referred periods.

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Servotech Power and HBL Power as their listed peers. They are trading at a P/E of 142, and 60.3 (as of February 22, 2024). However, they are not comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
The three BRLMs associated with the offer have handled 19 public issues in the past three fiscals, out of which 2 issues closed below the offer price on listing date. 

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