IPO Size: Rs. 475 cr IPO

• 63% of IPO is offer for sale (OFS), by the Promoter (54% to drop to 33%) and other individual shareholders
• Rs. 175 cr is fresh issue, for Rs. 88 cr debt repayment (Rs. 100 cr net debt) and Rs. 38 cr brownfield expansion

Price band: Rs. 234-247 per share

M cap: Rs. 1,227 cr, implying a heavy dilution of 39%

IPO Date: Tue 20^th Dec to Thu 22^nd Dec 2022, Listing Fri 30^th Dec 2022

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

3^rd Party Electronics Manufacturer

Elin is a 40 year old manufacturer of electronic products for OEMs like Philips, Crompton, Eveready, Panasonic, Signify Lighting (erstwhile Philips), Havells, Usha, Bosch, IFB, Faber etc, with product mix comprising:

1. LED lighting, fans, switches – accounting for 30% of FY22 revenue of Rs. 1,094 cr
2. Small appliances like iron, toaster, grinder, hair dryer and straightener – accounting for 23% revenue
3. Fractional horsepower/small electric motors (among India’s largest with 12% market share) – 24% revenue
4. Other products like medical diagnostic cartridges, plastic moulded and sheet metal parts, terminal block, stainless steel blade, die casting, radio sets.

Future Growth Avenues

Elin’s current capacity utilisation has already reached 75-105% across products. But brownfield expansion can add Rs. 200 cr incremental revenue, as fixed asset turnover ratio is 5x. Also, new products with existing customers can aid topline, for example trimmer manufacturing for Philips in FY23.

Slim Margins in relation to Peers

Elin’s topline is very small compared to Dixon and Amber, hence recently listed electronic manufacturers Syrma SGS and Kaynes are more apt for comparison. Elin’s EBITDA margin of 7% is lower than Syrma’s 11% and Kaynes’ 14%, leading to net margin of under 4%. Debt repayment from IPO proceeds will expand net margin to about 4.2-4.3%, but only FY25 onwards, as repayment is staggered (Rs. 30 cr in FY23, Rs. 18 cr in FY24, Rs. 41 cr in FY25).

Historic Growth also Lower

For 3 years between FY19-22, Elin’s revenue grew at 10% CAGR with 11% PAT CAGR, lower than Syrma’s topline CAGR of 17%, as well as Kaynes’ 25%. Lower growth rates imply lower multiples for Elin.

‘Fully-Valued’ Stock

Based on FY23E EPS of about Rs. 10.4, Elin’s current year PE multiple is 24x, while on a one year forward basis, PE is about 22.5x, on FY24E EPS of about Rs. 11, which is lower than Syrma’s 27x and Kaynes’ 32x PE. And rightly so, factoring in slower historical growth and slimer margins, as explained above.

Another electronics manufacturer PG Electroplast has similar topline as Elin (Rs. 1,100 cr for FY22) but higher EBITDA margin (8.5%) with portfolio of higher-margin consumer durables and 16% RoE, justifying its PE of 42x.

Elin clocks RoE of 13%, which is just about average, as presence is mainly in the lower margin verticals of lighting and automotive. Thus, IPO looks fully-priced.