IPO Analysis: Elin Electronics Limited

Company has fixed the price band at Rs 234 to Rs 247 per equity for its maiden public offer.

IPO Rating: Invest 

About the issue: 

Elin Electronics (EEL), a leading electronics manufacturing services (“EMS”) provider is hitting the primary capital market, with its initial public offering. The issue of the company will open on Tuesday, December 20, 2022, for subscription and closes on Thursday, December 22, 2022. Investors can bid for a minimum of 60 Equity Shares and in multiples of 60 Equity Shares thereafter. The public issue with a face value of Rs 5 per equity share comprising a fresh issue aggregating up to Rs 175 crore, and an offer for sale of up to Rs 300 crore by existing shareholders. EEL has fixed the price band at Rs 234 to Rs 247 per equity for its maiden public offer. 

The Offer for Sale comprises up to Rs 17.18 crore by Kamal Sethia, up to Rs 28.09 crore by Kishore Sethia, up to Rs 25.37 crore by Gaurav Sethia, up to Rs 6.66 crore by Sumit Sethia, up to Rs 30.52 crore by Suman Sethia, up to Rs 8.33 crore by Vasudha Sethia, up to Rs 4.96 crore by Vinay Kumar Sethia, (The Promoter Selling Shareholders”), and up to Rs 178.88 crore by other selling shareholders. 

About the company: 

EEL was incorporated in 1969 and is one of India’s leading electronics manufacturing services (EMS) providers. It manufactures end-to-end product solutions for major brands of lighting, fans, and small kitchen appliances in India. Moreover, it is one of the largest fractional horsepower motors manufacturers in India. The company serves under both original equipment manufacturer (OEM) and original design manufacturer (ODM) business models. Under the OEM model, it manufactures and supplies products basis designs developed by customers, who then distribute these products under their brands. Under the ODM model, in addition to manufacturing, EEL conceptualizes some designs of the products which are then marketed to their customers under their brands. 

The company started its relationship with Philips by manufacturing radios in 2001 and subsequently started manufacturing small appliances for them. Currently, the company also manufacture lighting products and fractional horsepower motors for Philips and Preethi (owned by Philips). The company partners with leading consumer electronics and appliances brands for LED lighting, fans and switches such as Signify Innovations and Eveready; for Small appliances such as Philips, Bosch, Faber, Panasonic and Usha; for fractional horsepower motors such as Havells, Bosch, Faber, Panasonic, Preethi (owned by Philips), Groupe SEB (Maharaja brand) and Usha; as well as for Medical diagnostic cartridges such as Molbio Diagnostics Private Limited and Moulded and sheet metal parts and components such as Denso and IFB.    

Based on the overall market, Elin Electronics is the largest player in this category, with a market share of 12 per cent in Fiscal 2021. In addition, it is also one of the key players in LED lighting and flashlight with an EMS market share of approximately 7 per cent in Fiscal 2021, and are also one of the key players in the small appliances vertical with an EMS market share of 10.7 per cent in Fiscal 2021. (Source: F&S Report)

Currently, company’s major EMS portfolio includes 1) LED lighting, fans, switches and sockets etc.; 2) Small appliances such as dry and steam irons, toasters, hand blenders and mixer grinders among others; 3) Fractional horsepower motors and 4) other miscellaneous products like medical diagnostic cartridges and sheet metal parts etc. 

The company also has a centralized R&D centre in Ghaziabad, which focuses on the research and development of all aspects of OEM and ODM models including concept sketching, design refinement, generating optional features and testing. In addition, the company also has 2 other manufacturing facilities strategically located in Baddi (Himachal Pradesh) and Verna (Goa). In FY22 and the seven months that ended October 2022, the company catered to 342 and 297 customers, respectively. 

As on October 31, 2022, its large-scale setup included 157 units of moulding machines and 104 units of power presses which enable the company bringing efficiencies and economies of scale.

The company received approval under the Production Linked Incentive (“PLI”) Scheme for White Goods (Air Conditioners and LEDs) for manufacturing of specified eligible products in the LED (components) target segment and with a committed investment of Rs 10 crore.

Company Financials: 

For the period between FY20 and FY22, the company’s revenue and PAT clocked CAGR of 18 per cent and 19 per cent respectively, while the EBITDA margin remained flat at around seven per cent during FY20-22. The company reported revenue of Rs1093.8 crore in FY22, up 27 per cent YoY, while EBITDA increased to Rs 79 crore in FY22 from Rs66.5 crore in FY21. PAT for FY22 stood at Rs39.1 crore from Rs34. 9 crore in FY21 and Rs27. 5 crore in FY20. The company’s average debt-to-equity ratio during FY20-22 stood at ~0.3x. RoE increased from 12.1 per cent in FY20 to 12.9 per cent in FY22. 

The company have a strong balance sheet with a net worth of Rs 320.15 crore as of September 30, 2022, and has been able to maintain a low debt position. As of September 30, 2022, the company had total long-term borrowing of Rs 50.17 crore, while its interest coverage ratio was 4.72 times. 

Valuation and Outlook 

The issue is available at price to earnings (PE) of 29.67x after accounting for expanded equity post issue and annualizing H1FY23 earnings per share. Compare this with other listed players, which are available at a much higher PE ratio. Even if we look at the market cap to sales, the issue seems to be attractively priced. Given the company’s dual OEM and ODM-based business model, diverse products and services portfolio, healthy financials, and attractive valuation, we recommend investing in the issue.