EPC Powerhouse IPO expects 28 per cent listing gains: Is it time to subscribe?

The IPO is showing a strong premium in the grey market ahead of its launch. Read on to discover the recommended course of action.

About the issue  

Transrail Lighting Ltd is preparing to launch its Initial Public Offering (IPO) for equity shares. Below and the issue details.

Objects of the Issue

The offer encompasses both the fresh issue and the offer for sale. It's important to note that the company will not accrue any proceeds from the offer for sale. The company plans to allocate the net proceeds raised from the fresh issue for the following purposes:

1. Funding incremental working capital requirements of the company

2. Funding capital expenditure of the company

3. General corporate purposes

Promoter holding  

Ajanma Holdings Pvt Ltd, Digambar Chunnilal Bagde and Sanjay Kumar Verma are the promoters of the company. The promoters currently hold a pre-issue shareholding stake of 84.50 per cent in the company.

Company profile  

The company is a leading Indian Engineering, Procurement, and Construction (EPC) firm with a primary focus on power transmission and distribution. It also boasts integrated manufacturing facilities for lattice structures, conductors, and monopoles.

With a proven track record spanning four decades, the company has successfully executed over 200 projects in the power transmission and distribution segment. Its strong project execution capabilities and extensive experience position it as a key player in this sector.

The company has established a global footprint across 58 countries, including Bangladesh, Kenya, Tanzania, Niger, Nigeria, Mali, Cameroon, Finland, Poland, and Nicaragua, delivering turnkey EPC and supply-based projects.

As of June 30, 2024, the company has undertaken EPC projects covering 34,654 circuit kilometres (CKM) of transmission lines and 30,000 CKM of distribution lines, both domestically and internationally.

Beyond power transmission and distribution, the company has diversified into other verticals, including civil construction, poles and lighting solutions, and railways.

As of June 30, 2024, the confirmed order book stood at Rs 10,213 crore with an anticipated revenue contribution of around 55-60 per cent from ongoing projects over the next twelve months.

Financials 

The company has consistently delivered robust growth in both revenue and profits over the past few years. Between FY22 and FY24, the company recorded a Compound Annual Growth Rate (CAGR) of around 32 per cent in revenue and 90 per cent in net profit. 

When annualized, the Q1FY25 figures suggest an around 10 per cent decline in revenue and net profit compared to FY24. This dip, however, is largely attributed to the seasonal slowdown in infrastructure activities. Extreme heatwaves and the onset of the monsoon often disrupt operations, prompting both companies and the government to scale back infrastructure spending during these months.

Despite this, the company is poised for a strong performance in FY25, supported by its robust order book and steady progress on ongoing projects.

Valuation & Outlook

The issue is priced with a P/BV ratio of 4.69 times, calculated using its Net Asset Value (NAV) of Rs 92.02 as of June 30, 2024. At the upper price cap, it is priced at a P/BV ratio of 3.8 times, considering its post-IPO NAV.

Considering the company's annualized FY25 earnings and fully diluted equity capital, the price-to-earnings (P/E) ratio stands at 26x.

The company delivered a robust return on equity (RoE) of 24 per cent and a return on capital employed (RoCE) of 24 per cent for FY24. Consequently, when compared to its listed peers, the company outperformed in both valuation and returns.

With its established global footprint, diversified order book of over Rs 10,000 crore, and proven financial track record, the company is well-positioned for long-term growth. We recommend investors subscribe to the issue with a long-term perspective.