Rishabh Instruments IPO review (May apply)

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Review By Dilip Davda on August 26, 2023

•    RIL is a global energy efficiency solution provider manufacturing precision-engineered products.
•    Its top line includes an average of 66% of export revenue.
•    The company posted static bottom lines for FY22 and FY23.
•    Based on FY23 earnings, the issue appears fully priced. 
•    Well-informed investors may consider parking funds for the medium to long term.

ABOUT COMPANY:
Rishabh Instruments Ltd. (RIL) is a global energy efficiency solution company focused on electrical automation, metering and measurement, precision engineered products, with diverse applications across industries including power, automotive and industrial sectors. It supplies a wide range of electrical measurement and process optimization equipment and is engaged in designing, developing manufacturing, and sale of devices significantly under its own brand across several sectors. 

The company provides comprehensive solutions to customers looking for cost-effective ways to measure, control, record, analyze and optimize energy and processes through RIL's array of products. It also provides complete aluminium high-pressure die casting solutions for customers requiring close tolerance fabrication (such as automotive compressor manufacturers and automation high precision flow meters manufacturers), machining and finishing of precision components. RIL is a global leader in the manufacturing and supply of analogue panel meters and is also among the leading global companies in terms of manufacturing and supply of low-voltage current transformers (Source: F&S Report). Lumel is the most popular brand in Poland for meters, controllers, and recorders and Lumel Alucast is one of the leading non-ferrous pressure casting players in Europe (Source: F&S Report).

RIL is a vertically integrated player involved in designing, developing, manufacturing and supplying (a) electrical automation devices; (b) metering, control and protection devices; (c) portable test and measuring instruments; and (d) solar string inverters. In addition, it manufactures and supplies aluminium high-pressure die casting through its Subsidiary, Lumel Alucast. For six years (Fiscals 2005, 2006, 2008, 2009, 2011 and 2012), the Engineering Export Promotion Council, India, recognized it as a 'Star Performer' in the product group of miscellaneous instruments and appliances (large enterprise). 

The company also provides certain manufacturing services which include mould design and manufacturing, EMI/EMC testing services, Electronic Manufacturing Services, and software solutions (e.g., MARC). Electrical automation products include energy management software, transducers and isolators, paperless recorders (chartless) and data loggers, temperature and humidity recorders, I/O converters and temperature controllers among others. Its metering, control and protection devices consist of analogue panel meters, rotary cam switches, current transformers, shunts, digital panel meters, multifunction meters, multi-load monitoring meters, power quality meters, power quality analyzers, power factor controllers, LV and MV relays, genset controllers, synchronizing units, power supply and battery chargers among others. Under its portable test and measuring instruments portfolio, RIL manufactures various categories of digital multimeters, digital clamp meters, digital insulation testers, digital earth testers and environmental products such as ultrasonic level/thickness meters, digital lux meters, non-contact tachometers, DB meters, submarine cable fault locator among others. It also manufactures solar string inverters in India designed for use in photovoltaic installations connected to the grid. In terms of aluminium high-pressure die castings, it serves global automation, automotive and other industries with its in-house designed tools (which include die casting moulds and CNC fixtures) and various post-casting processes such as high precision machining, surface treatment and heat treatment. RIL's product portfolio consists of over 145 product lines and 0.13 million stock-keeping units as of May 31, 2023. In Fiscals 2023, 2022 and 2021, it manufactured an aggregate of 16.21 million units, 14.02 million units and 13.35 million units of products, respectively, across product lines. Over the last three financial years, i.e. Fiscals 2023, 2022 and 2021, RIL has served customers in over 100 countries. It is diversified in terms of end users of products, serving industrial (FMCG, pharmaceutical, cement, steel, railways), power (generation, transmission and distribution, renewable energy, oil and gas), OEM industries (transformer, motor, cable and special machine manufacturers) and new applications (data centre, laboratories, semiconductors, consumer electronics, and building automation).

RIL is a technology and R&D-focused enterprise concentrating on the innovation of its products, processes and applications to add value to customers as well as the industry. It primarily follows a business-to-business (B2B) model which is purchase order-based for all segments except portable test and measuring instruments which are also sold on a merchant basis. The company has an extensive network of 175 authorized distributors/stockists across 81 districts in India with direct sales conducted through eight sales and marketing offices which collectively house 53 engineers and 24 sales personnel. The eight locations of its sales and marketing offices across India are New Delhi-Delhi, Kolkata-West Bengal, Mumbai-Maharashtra, Ahmedabad-Gujarat, Pune-Maharashtra, Chennai-Tamil Nadu, Bangalore- Karnataka and Hyderabad-Telangana. Apart from sales and marketing offices, it also has resident sales engineers in 10 cities across India.

Globally it has served customers in over 100 countries in the last three financial years, i.e. Fiscals 2023, 2022 and 2021 through five sales and marketing offices and a strong global network of 339 authorized distributors/stockists as of May 31, 2023. Globally (outside India) the company has over 164 authorized distributors/stockists catering to international customers across 70 countries including Germany, the United States, the United Kingdom, Australia, the Middle East, etc. Lumel has 15 authorized distributors/stockists in Poland and over 20 authorized distributors/stockists outside Poland. Lumel also has resident sales engineers situated in the UAE, Hungary, Taiwan, Spain, Germany and Cyprus. In Fiscals 2023, 2022 and 2021, the revenue generated from Indian operations accounted for 34.26%, 32.14% and 32.25%, respectively, of total revenue from operations. In Fiscals 2023, 2022 and 2021, the revenue generated from overseas operations accounted for 65.74%, 67.86% and 67.75% of total revenue from operations, respectively. As of May 31, 2023, it had 516 permanent employees in India and 90 labourers hired on a contract basis.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden combo IPO via a book-building route. It mulls a fresh equity shares issue worth Rs. 75 cr. (approx. 1700680 shares at the upper cap), and an Offer for Sale of 9428178 shares (approx. Rs. 415.78 cr. at the upper cap). It has announced a price band of Rs. 418 - Rs. 441 per share of Rs. 10 each. Thus at the upper cap, the company is likely to issue 11128858 equity shares to mobilize Rs. 490.78 cr. The issue opens for subscription on August 30, 2023, and will close on September 01, 2023. The minimum application to be made is for 34 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 29.31% of the post-IPO paid-up capital of the company. The company has allocated not more than 50% for QIBS, not less than 15% for HNIs and not less than 35% for Retail investors.

From the net proceeds of the fresh issue, the company will utilize Rs. 62.89 cr. for the expansion of its Nashik plant and the balance for general corporate purposes. 

DAM Capital Advisors Ltd., Mirae Asset Capital Markets (India) Pvt. Ltd., and Motilal Oswal Investment Advisors Ltd. are the three joint Book Running Lead Managers (BRLMs) to this issue and KFin Technologies Ltd. is the registrar of the issue. 

Having issued initial equity shares at par, the company issued/converted further equity shares in the price range of Rs. 30.21 - Rs. 174.10 between March 2000 and July 2023. It has also issued bonus shares in the ratio of 1.5 for 1 in August 2003, 14 for 1 in December 2007, and 1 for 1 in September 2022. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 0.03, Rs. 0.10, Rs. 0.13, Rs. 0.28, and Rs. 89.56 per share.

Post-IPO, RIL's current paid-up equity capital of Rs. 36.26 cr. will stand enhanced to Rs. 37.96 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 1674.10 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, RIL has (on a consolidated basis) posted a turnover/net profit of Rs. 402.49 cr. / Rs. 35.94 cr. (FY21), Rs. 479.92 cr. / Rs. 49.65 cr. (FY22), and Rs. 597.78 cr. / Rs. 49.69 cr. (FY23). Though it posted growth in the top line for FY23, its bottom line remained static at the FY22 level. 

For the last three fiscals, RIL has reported an average EPS of Rs. 12.23 (fully diluted) and an average RoNW of 12.38%. The issue is priced at a P/BV of 4.01 based on its NAV of Rs. 109.98 as of March 31, 2023, and at a P/BV of 3.52 based on its post-IPO NAV of Rs. 125.40 per share (at the upper cap). 

RIL has posted inconsistency in its PAT margins. It was at 8.93% (FY21), 10.35% (FY22), and 8.57% (FY23). Its RoE too posted inconsistency as it was 12.01% (FY21), 14.58% (FY22), and 12.39% (FY23). 

If we attribute FY23 earnings to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 33.69. Thus the issue appears fully priced. 

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

COMPARISON WITH LISTED PEERS:
As per the offer document, RIL has no listed peers to compare with. 

MERCHANT BANKER'S TRACK RECORD:
The three BRLMs associated with the offer have handled 20 public issues in the past three years, out of which 7 issues closed below the offer price on listing dates. 

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