IPO Size: Rs. 839 cr   

• Fresh Issue of Rs. 400 cr for (i) working cap Rs. 250 cr (ii) capex Rs. 91 cr
• Offer for Sale (OFS) of Rs.439 cr by the promoter (86% stake to drop to 73% post IPO)

Price band: Rs. 410-432 per share

M cap: Rs. 5,800 cr, implying 14.5% dilution

IPO Date: Thu 19^th Dec to Mon 23^rd Dec 2024, Listing Fri 27^th Dec 2024

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

Power Sector EPC Company

Transrail Lighting is an engineering, procurement and construction (EPC) company focused on power transmission and distribution business and civil construction. It has 4 integrated manufacturing plants in India, with near full utilization of capacity. It is undertaking capex worth Rs. 91 cr to increase capacity by ~30%. This capex is sizeable, as net fixed assets stood at Rs. 355 cr, as of 30.6.24.

Healthy Order Book

In Q1FY25, company won new orders worth Rs. 944 cr, majority from international geographies. Order book, as of 30.6.24, stood at Rs. 10,200 cr and company is the L1 bidder for Rs. 3,221 cr (not included in order book), implying a healthy book-to-bill ratio of 3.4x on FY24 revenue of Rs. 4,009 cr. This is higher than bigger peers KEC (2.1x), Kalpataru (3x) as well as Skipper (2.3x) and Bajel (3x). Transrail guides to execute all orders in the next 24 months, providing excellent growth outlook.

Margins Improving

FY24 revenue rose 30% YoY to Rs. 4,009 cr, and stood at Rs. 897 cr in Q1FY25. EBITDA margin increased from 9% in FY23, to 12% in FY24 to 13% in Q1FY25. Backward integration and superior product mix (high voltage and extra high voltage) make company’s margins superior, even to peers. Transrail’s 12% EBITDA margin of FY24 is higher than Kalpataru (8%), KEC (6%), Skipper (10%) as well as Bajel (6%). Despite 60% revenue from international geographies, working capital is well managed, leading to 22% RoE in FY24, again higher than peer average of 8-10%. Debt equity ratio of 0.3:1 is also comfortable.

Attractive Valuation

Transrail’s EPS was at Rs. 20 and Rs. 4.2 for FY24 and Q1FY25 respectively. As execution picks up in H2, it guides sustaining margin.

Based on FY25E EPS of about Rs. 25, shares are being offered at a PE multiple of 17.5x, on current year basis, lower than peer average of 40-55x, despite better margins.

In Sep 2024, Transrail raised Rs. 50 cr via pre-IPO placement, at Rs. 484 per share. The IPO is priced at an unusual discount of 11% in barely 3 months.