IPO Analysis: Rishabh Instruments Limited

IPO Rating: Apply for listing gains

About the issue

Incorporated in 1982, Rishabh Instruments Ltd (RIL) is engaged in the business of manufacturing, design, and development of Test and Measuring Instruments and Industrial Control Products. The company is coming out with its initial public offering (IPO) of equity shares with a face value of Rs 10 per equity share. The price band of the issue has been fixed at Rs 418 to Rs 441 per equity share. The issue size is Rs 490.78 crore at a higher price band.

The IPO opening date is August 30, 2023, and it will be closing on September 01, 2023. The issue is likely to be listed on the exchange on September 11, 2023. The IPO market lot size is 34 shares and in multiple thereof. A retail-individual investor can apply up to a maximum of 13 lots (442 shares or Rs 194,922) at the upper price band.

Objects of the Issue

The company intends to utilise the net proceeds from the issue towards the funding of the following objects:

1. Financing the cost towards the expansion of Nashik Manufacturing Facility I, and
2. General corporate purposes.

Promoter holding

The pre-issue shareholding is 80.67 per cent, post the IPO the promoter stake will be 70.68 per cent.

About the company

Rishabh Instruments Ltd (RIL) is a global energy efficiency solution provider focused on electrical automation, metering and measurement, precision-engineered products, and broad applications in industries such as power, automotive, and industrial. It provides a wide range of electrical measurement and process optimisation equipment and is heavily involved in the design, development, manufacturing, and selling of devices under its own brand in a variety of sectors.

RIL's product portfolio offers comprehensive solutions to customers looking for cost-effective ways to measure, regulate, record, analyse, and optimise energy and processes. It also offers comprehensive aluminium high-pressure die casting solutions for customers who require close tolerance fabrication (such as automobile compressor manufacturers and automation high precision flow metre manufacturers), as well as precise machining and finishing. RIL is a global leader in the manufacture and supply of analogue panel metres, as well as a global leader in the manufacture and supply of low-voltage current transformers. Lumel is Poland's most popular brand for metres, controllers, and recorders, and Lumel Alucast is one of Europe's major non-ferrous pressure casting players.

RIL is a vertically integrated manufacturer and supplier of (a) electrical automation devices; (b) metering, control, and protection devices; (c) portable test and measurement instruments; and (d) solar string inverters. Furthermore, through its subsidiary, Lumel Alucast, it manufactures and supplies aluminium high-pressure die casting. The Engineering Export Promotion Council of India recognised it as a 'Star Performer' in the product group of various instruments and appliances (big firm) for six years (Fiscals 2005, 2006, 2008, 2009, 2011 and 2012).

The company also provides certain manufacturing services which include mould design and manufacturing, EMI/EMC testing services, Electronic Manufacturing Services, and software solutions (e.g., MARC). Electrical automation products include energy management software, transducers and isolators, paperless recorders (chartless) and data loggers, temperature and humidity recorders, I/O converters and temperature controllers among others.

Its metering, control and protection devices consist of analogue panel meters, rotary cam switches, current transformers, shunts, digital panel meters, multifunction meters, multi-load monitoring meters, power quality meters, power quality analysers, power factor controllers, LV and MV relays, genset controllers, synchronizing units, power supply and battery chargers among others. Under its portable test and measuring instruments portfolio, RIL manufactures various categories of digital multimeters, digital clamp meters, digital insulation testers, digital earth testers and environmental products such as ultrasonic level/thickness meters, digital lux meters, non-contact tachometers, DB meters, submarine 

cable fault locator among others. It also manufactures solar string inverters in India designed for use in photovoltaic installations connected to the grid. In terms of aluminium high-pressure die castings, it serves global automation, automotive and other industries with its in-house designed tools (which include die casting moulds and CNC fixtures) and various post-casting processes such as high precision machining, surface treatment and heat treatment.

As of May 31, 2023, RIL's product portfolio included of 145 product lines and 0.13 million stock-keeping units. In fiscal years 2023, 2022, and 2021, it produced a total of 16.21 million units, 14.02 million units, and 13.35 million units of product across all product lines. RIL has served consumers in over 100 countries throughout the last three fiscal years, i.e. fiscal years 2023, 2022, and 2021. It serves industrial (FMCG, pharmaceutical, cement, steel, railways), power (generation, transmission, and distribution, renewable energy, oil and gas), OEM industries (transformer, motor, cable, and special machine manufacturers), and new applications (data centre, laboratories, semiconductors, consumer electronics, and building automation).

RIL is a technology and R&D-focused enterprise concentrating on the innovation of its products, processes and applications to add value to customers as well as the industry. It primarily follows a business-to-business (B2B) model which is purchase order-based for all segments except portable test and measuring instruments which are also sold on a merchant basis. The company has an extensive network of 175 authorized distributors/stockists across 81 districts in India with direct sales conducted through eight sales and marketing offices which collectively house 53 engineers and 24 sales personnel. The eight locations of its sales and marketing offices across India are New Delhi-Delhi, Kolkata-West Bengal, Mumbai-Maharashtra, Ahmedabad-Gujarat, Pune-Maharashtra, Chennai-Tamil Nadu, Bangalore- Karnataka and Hyderabad-Telangana. Apart from sales and marketing offices, it also has resident sales engineers in 10 cities across India.

Globally it has served customers in over 100 countries in the last three financial years, i.e. Fiscals 2023, 2022 and 2021 through five sales and marketing offices and a strong global network of 339 authorized distributors/stockists as of May 31, 2023. Globally (outside India) the company has over 164 authorized distributors/stockists catering to international customers across 70 countries including Germany, the United States, the United Kingdom, Australia, the Middle East, etc. Lumel has 15 authorized distributors/stockists in Poland and over 20 authorized distributors/stockists outside Poland. Lumel also has resident sales engineers situated in the UAE, Hungary, Taiwan, Spain, Germany and Cyprus.

In Fiscals 2023, 2022 and 2021, the revenue generated from Indian operations accounted for 34.26 per cent, 32.14 per cent and 32.25 per cent, respectively, of total revenue from operations. In Fiscals 2023, 2022 and 2021, the revenue generated from overseas operations accounted for 65.74 per cent, 67.86 per cent and 67.75 per cent of total revenue from operations, respectively.

Financials

On the financial performance front, for the last three fiscals, RIL has (on a consolidated basis) posted a revenue/net profit of Rs 389.96 crore /Rs 31.55 crore (FY21), Rs 470.25 crore/Rs 49.65 crore (FY22), and Rs 569.54 crore/Rs 49.69 crore (FY23).

Valuation and Outlook

If we attribute FY23 earnings to post-IPO fully diluted paid-up capital, then the asking price is at a P/E of around 33.69x. The issue is priced at a P/BV of 4.01 based on its NAV of Rs. 109.98 as of March 31, 2023, and at a P/BV of 3.52 based on its post-IPO NAV of Rs. 125.40 per share (at the upper cap). Thus, the issue appears fully priced.

The company has not declared any equity dividends for the reported periods. It will adopt a prudent dividend policy based on its financial performance and future prospects.

The company is a world pioneer in energy efficiency solutions and precision engineering goods. Its top line includes over 66 per cent of export revenues, indicating that it had already carved out a position in the global market for its products.

The company has reported inconsistency in its PAT margins with 8.93 per cent in FY21, 10.35 per cent in FY22, and 8.57 per cent in FY23 along with ROE of 12.01 per cent, 14.58 per cent, and 12.39 per cent, respectively. Hence, we recommend investors cautiously subscribe to the issue as there might be limited listing gains.