Rishabh Instruments Ltd – IPO Note – Equity Research Desk

Company Overview:

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 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.

Objects of the Offer:

• Financing the cost towards the Expansion of Nashik Manufacturing Facility I – Rs.63 crore.
• General corporate purposes.

Investment Rationale:

• Leading Position: The Company is a global leader in manufacturing and supply of analog panel meters, and it is one 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. The company has a product portfolio of over 145 product lines and 0.13 million stock keeping units as of May 31, 2023. In the Fiscals 2023, 2022 and 2021, the company manufactured an aggregate of 16.21 million units, 14.02 million units and 13.35 million units of products across the product lines, respectively. Its panel instruments are used not only in the electrical switch boards which are used for distribution of electricity, but also for industrial applications such as multiload monitoring, cloud and connectivity, and energy monitoring systems.

• Client Base: Some of the domestic and overseas customers, Siemens Limited and Lucy Electric India private Limited, have been with the company for over five years, while ABB India Limited, Gama Electrical Trading (LLC), Perel OY, Pronutec S.A. and Lucas-Nulle GmbH, have been with the company for over 8 years. The company has limited customer concentration as, in the global electrical segment, top five customers from Indian operations account for 15% of sales revenue and the top five customers from overseas operations account for 6% of sales revenue in Fiscal 2023. Also, in the aluminium high pressure die casting business, the top five domestic customers account for 15% of sales revenue and the top five overseas customers account for 50% of sales revenue in the total sales of this segment. Overall, the top 10 global customers accounted for only 32% of global sales revenue in Fiscal 2023, respectively, and the top 20 global customers accounted for only 43% of the global sales revenue and the top 30 global customers accounted for only 49% of the global sales revenue in the Fiscal 2023.

• Financial Track Record: The company’s revenue has grown at a CAGR of 12% from Rs.401 crore in FY20 to Rs.570 crore in FY23. EBITDA has grown at a decent rate of 9% CAGR from Rs.60 crore in FY20 to Rs.77 crore in FY23. EBITDA margin has been hovering around 13-16% in the last 4 years. Though EBITDA growth has been somewhat average, the PAT of the company has grown at a CAGR of 16% for the same period on account of decrease in taxation for the past 2 years. Segment wise, Indian market derived 34% of the overall revenue and overseas market derived the rest 66%.

Key Risks:

• Forex Risk – The company is exposed to foreign exchange risks, as major portion of its revenues are generated in foreign currencies. Fluctuations in exchange rates could affect its financial performance.

• OFS – The IPO is a mix of offer for sale (OFS) and Fresh issue with OFS being 85% of the overall issue size. In the offer for sale (OFS), Promoter selling shareholders named Asha Narendra Goliya, Rishabh Narendra Goliya and Narendra Rishabh Goliya (HUF) will offload up to 24,17,500 equity shares. Investor selling shareholder named SACEF Holdings II will offload up to 70,10,678 equity shares.

Outlook:

Rishabh Instruments is a global leader in energy efficiency solutions and precision engineering products. The significant chunk of revenues from the overseas indicates that it has already created a niche place in the global market for its products. According to RHP, there are no comparable listed companies in India or globally that engage in a business similar to that of Rishabh Instruments. At the higher price band, the listing market cap will be around ~Rs.1675 crore and the company is demanding a P/E multiple of 33x based on post issue diluted FY23 EPS. Since, the company has a unique product portfolio and no listed peers, the issue seems to be fully priced in (Fairly valued). Based on the above views, we provide a ‘Subscribe’ rating for this IPO for a medium to long-term Holding.

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