IPO Size: Rs. 491 cr

• Rs. 75 cr Fresh Issue, Rs. 63 cr for capex
• Rs 416 cr Offer For Sale (OFS) by investor South Asia Clean Energy Fund (SACEF) completely exiting 19% stake (17% IRR over 10 years) and by promoter (81% to shrink to 71%)

Price band: Rs. 418-441 per share

M cap: Rs. 1,674 cr, implying 29% dilution

IPO Date: Wed 30^th Aug to Fri 1^st Sep 2023, Listing: Mon 11^th Sep 2023

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

Engineering Goods Maker for Electrical and Automotive Sectors

Rishabh Instruments, promoted by a 71 year old technocrat, who is an alumni of IIT Bombay and Stanford University, is a B2B supplier of electrical and automotive goods. Electrical metering, control and protection devices account for 43% of company’s Rs. 570 cr revenue, aluminium high-pressure die castings (undertaken by Polish subsidiary Lumel) 40% of revenue, while balance comes from electrical automation, solar string inverter and portable test and measuring instruments. Dependence on global economy is high, especially Europe, which accounted for 70% of FY23 revenue.

Sizeable Capex at Nashik

Company has 5 integrated manufacturing facilities in India (2 in Nashik), Poland (2) and China (1). It is undertaking brownfield expansion at Nashik, to manufacture electrical automation products, metering, control and protection devices and solar string inverters, through Rs. 63 cr investment over the next 18 months, to be funded via fresh issue proceeds. This is a sizeable capex, as net fixed assets stood at Rs. 200 cr, as of 31.3.23. Since domestic demand outlook is positive, capex being undertaken in India will be beneficial for the company.

Financials

Between FY20-23, revenue grew at 12% CAGR to Rs. 570 cr, with FY23 revenue up 21% YoY despite challenging environment in Europe, due to Russia-Ukraine war. Adjusted for Rs. 8 cr non-cash ESOPs charge in FY23 (which may continue for a couple of years more) adjusted EBITDA stood at Rs. 94 cr, leading to 16% EBITDA margin. FY23 reported PAT was at Rs. 50 cr, adjusted PAT stood at Rs. 57 cr, translating into 10% net margin and EPS of about Rs. 14.5. Due to high working capital requirement (~5 months in debtors and inventory), RoE stood at 13%.

Inline Pricing

On historic FY23 adjusted EPS of Rs. 14.5, shares are being offered at a PE multiple of 30x, and at 28.5x, on current year FY24E basis, which is in-line, for company size, geographical mix and operating margins.

Domestic business, which is growing well, accounts for <20% of revenue, while global business uncertainty remains. Since company’s products find application in industries of the future, such as electric vehicles, semi-conductors and renewable energy, long term outlook remains healthy.