Concord Control Systems coming with an IPO to raise upto Rs 8.32 crore

Concord Control Systems

• Concord Control Systems is coming out with a 100% book building; initial public offering (IPO) of 15,12,000 Equity Shares of face value of Rs 10 each in a price band Rs 53-55 per equity share.
  
• The issue will open for subscription on September 27, 2022 and will close on September 29, 2022.
  
• The shares will be listed on SME Platform of BSE.
  
• The face value of the share is Rs 10 and is priced 5.30 times of its face value on the lower side and 5.50 times on the higher side.
  
• Book running lead manager to the issue is Hem Securities.
  
• Compliance Officer for the issue is Lavisha Wadhwani.
  

Profile of the company

The company is engaged in the business of manufacturing and supply of coach related and electrification products for Indian Railways and other Railway Contractors. It manufactures products required in railway coaches like: Inter-Vehicular Coupler, Emergency Lighting System, Brushless DC carriage fan, Exhaust fans, Cable Jackets, Bellows etc. and products required in electrification of coaches and broad gauge network of Indian Railways like: Battery Charger 200 AH, Battery Charger 40 AH, Tensile Testing Machine. It is approved vendor by Research Design and Standards Organisation (RDSO) to manufacture and supply these products for the Indian Railways.

The company started its operations in the year 2011 when it got approval to manufacture and supply battery charger in traction system of railway electrification. The company further expanded its business in manufacturing products fitted in coaches of Indian Railways in the year 2013 and got approved for Emergency Light Unit which is one of the most critical items of rolling stock application in coaches of Indian Railways for passenger safety. Emergency Light Unit switches on automatically in case of power failure or in case of accidents. Thereafter in the year 2014 it successfully received RDSO approval for manufacturing and supply of Tensile Load Testing Machine for Porcelain & Composite Insulators before installation electrical lines. Eventually the company got approval to Supply Brushless Dc Carriage Fans to Indian railways when it changed its technology of fans from normal DC to Brushless DC. Over the years the company has successfully developed and is supplying a wide range of products.

Currently the company has two manufacturing units situated at Lucknow, Uttar Pradesh with total size admeasuring to over 1880 sq. mtrs. The company’s unit has a well-equipped laboratory, modern technology and testing equipments to ensure that the products confirm with the predetermined standards. The company has a research and development team dedicated towards developing new products or improving existing products. Its R&D capabilities include product engineering, product simulation, prototyping and testing which are mainly undertaken at its manufacturing facilities. With its R&D capabilities, it is currently developing several new products like the company is in the process of developing product prototype of Control and Relay Panels and has received Capacity cum Capability Assessment certificate for the same from RDSO.

Proceed is being used for:

• Meeting working capital requirements.
  
• General corporate purpose.
  
• Meeting issue expenses.
  

Industry overview

Indian Railways has 126,611 kms of total tracks over a 68,103-km route and 7,337 stations. India has the fourth largest railway network with over 22,593 operating trains (9141 freight and 13,452 passenger) with a daily passenger count of 24 million passengers and 203.88 million tonnes of freight. India's railway network is recognised as one of the largest railway systems in the world under single management. The railway network is also ideal for long-distance travel and movement of bulk commodities, apart from being an energy efficient and economic mode of conveyance and transport. Indian Railways is the preferred carrier of automobiles in the country. Government of India has focused on investing in railway infrastructure by making investor-friendly policies. It has moved quickly to enable Foreign Direct Investment (FDI) in railways to improve infrastructure for freight and high-speed trains. At present, several domestic and foreign companies are also looking to invest in Indian rail projects. Revenue growth has been strong over the years.

Private sector companies are being encouraged to participate in rail projects, which were largely in the public domain. The cabinet approved ‘participative models for rail-connectivity and capacity augmented projects’, which allowed private ownership of some railway lines. The government has announced two key initiatives for seeking private investments - running passenger trains by private operators across the railways network and redevelopment of railway stations across the country. According to Indian Railways, these projects have the potential of bringing an investment of over $7.5 billion in the next five years. Under the Union Budget 2022-23, the government allocated Rs 140,367.13 crore ($18.40 billion) to the Ministry of Railways. Indian Railways’ revenue reached $7.95 billion in FY 2023 (until July 10, 2022). Indian Railways has created a new world benchmark by successfully running 1st Double Stack Container Train in high rise Over Head Equipment (OHE) electrified sections, having a contact wire height of 7.57 metres. This achievement will also boost the Green India mission. Indian Railways has operationalised its First 12000 HP locomotive. For the first time in the world, a high horsepower locomotive has been operationalised on a broad gauge track. The locomotive has been produced under the Make in India initiative, and India has become the 6th country to join the elite club of producing high horsepower locomotive indigenously.

Pros and strengths

Diversified range of products: The company offers a wide range of products used in coaches of Indian Railways and on its broad gauge network. Its product portfolio includes Inter-Vehicular Coupler, Battery Chargers for 110 V, 200 Ah Lead Acid Batteries, Battery Charger for 110V, 40Ah Lead Acid Batteries, Tensile Load Testing Machine, Brushless DC Railway Carriage Fan, Emergency Light unit and Other Component and parts of railway coaches. With Government Initiative on PPP Model in Indian Railways, Ministry of Railways (MoR) has taken initiatives in various areas viz. network expansion, setting up of locomotive factories, induction of railway wagons, Station Re-Development etc. to attract private investment and participation there are resultant expanded opportunities for the private sector. Its core competencies include product prototype design and development, functional testing, validation and verification. The RDSO approval awarded to its wide range of products and the focus of the Indian government to enhance indigenization has endowed it with greater exposure and opportunity to benefit from the make-in-India programme. It therefore benefit from offering wide range of products by creating economic buffer and consistently generating returns.

Quality assurance: The company is dedicated towards quality of its products, processes and input raw material. It is accredited with “ISO 9001:2015” Certification for Quality Management System issued by TUV SUD South Asia Private Limited. It adheres to quality standards as prescribed by its customers to meet the desired requirement; hence it gets repetitive orders from its buyers. Delivering Quality products on time is one of its prime objective. It dedicates resources for quality assurance to ensure that quality norms are continually met. It also has quality control checks before any consignment of Raw material is accepted since it has a direct impact on the quality of Finished Product. The ability to consistently deliver high-quality products to customers is critical to its business. Quality control is ensured by strict adherence to work protocols, from the procurement of raw materials and through the various stages of production. Its quality assurance department conducts various tests such as functional test, reliability test, drop test, plug life test and tensile test to ensure that its end products adhere to its quality policies.

Long standing relationship with customers: While the bids for the purchase orders from Indian Railways are invited by issuing tender enquiries, the qualification process for securing such tenders is extremely stringent as there is no scope for faults in such sectors. It is registered as approved vendors of RDSO and registered with the National Small Industries Corporation Limited (NSIC) and hold valid Government Purchase Enlistment certificate to supply its wide of range of products to Indian Railways. These registrations along with its past experience in the supply of its products, ability to meet specific technical requirements of its customers, reputation for quality and safety features present in its products, financial strength, and the price competitiveness of its offerings, has not only strengthened its position in the market but also has enabled it to establish and maintain relationships with its customers.

Risks and concerns

Dependent on vendor approval registration awarded by RDSO: The company is largely dependent on vendor approval registration awarded to the company by RDSO to develop, manufacture and sell its products to Indian Railways. The company is approved vendor for manufacture and supply of products such as: Inter-Vehicular Coupler, Emergency Lighting System, Brushless DC carriage fan, Exhaust fans, Cable Jackets, Bellows etc. It is registered as Developmental Vendors for some of the products like: Control and Relay Panel which are under the stage of development and if it is unable to successfully develop or deliver such products as per RDSO standards, it may affect its reputation and future business operations. It is necessary for it to act in accordance with the directives of RDSO, it cannot assure that its investments and efforts into its current operation will be profitable. Moreover, these registrations set out various terms and conditions which are required to be strictly adhered to by the Company. Any failure to comply with these obligations and covenants may have a material adverse effect on its business, prospects, cash flows and financial condition.

Largely dependent on orders from Indian Railways and other railway contractors: As the company’s business is currently concentrated to orders received from either Indian Railways or contractors supplying to Indian Railways any adverse development with such customers, including as a result of a dispute with or disqualification by such customers, may result in it experiencing significant reduction in its business operations. If its customers are able to fulfil their requirements through any of its existing or new competitors, providing products with better quality and / or cheaper cost, it may lose significant portion of its business. Additionally, consolidation of any of its customers may also adversely affect its existing relationships and arrangements with such customers, and any of its customers that are acquired may cease to continue the businesses that require products manufactured by it.

Significant working capital requirements: The company’s business requires significant working capital including in connection with its manufacturing operations, financing its inventory, providing bank guarantees, purchase of raw materials and its development of new products which may be adversely affected by changes in terms of credit and payment. It is required to maintain a high level of working capital because its business activities are characterised by long product development periods and production cycles. A large amount of its working capital is blocked in availing bank guarantee for its tenders, in trade receivables and inventories. Delays in payment under ongoing purchase orders or reduction of advance payments and/or accelerated payments to suppliers, fixed deposits to facilitate bank guarantees to its customers, could adversely affect its working capital, lower its cash flows and materially increase the amount of working capital to be funded.

Outlook

Incorporated in 2011, Concord Control Systems is engaged in the business of manufacturing and supply of coach-related and electrification products for Indian Railways and other Railway Contractors. The company manufactures products required in railway coaches like Inter-Vehicular Coupler, Emergency Lighting System, Brushless DC carriage fan, Exhaust fans, Cable Jackets, Bellows etc. and products required in the electrification of coaches and broad gauge network of Indian Railways like Battery Charger 200 AH, Battery Charger 40 AH, Tensile Testing Machine. It is an approved vendor by Research Design and Standards Organisation (RDSO) to manufacture and supply these products for the Indian Railways. currently the company has two manufacturing units situated at Lucknow, Uttar Pradesh with a total size admeasuring over 1880 sq. Mtrs. On the concern side, the company is subject to strict quality requirements and customer inspections, and any failure to comply with quality standards may lead to cancellation of existing and future orders and could negatively impact its reputation and its business and results of operations and future prospects. The company’s business is substantially dependent on its ability to accurately carry out the pre-bidding studies for potential contracts. Any deviation during the execution of the purchase orders as compared to its pre-bid estimates could have a material adverse effect on its cash flows, results of operations and financial condition.

The issue has been offered in a price band of Rs 53-55 per equity share. The aggregate size of the offer is Rs 8.01 crore to Rs 8.32 crore based on lower and upper price band respectively. On performance front, Total income for the financial year 2021-2022 stood at Rs 3,173.54 lakh whereas in Financial Year 2020-2021 the same stood at Rs 1,760.91 lakh representing significant increase of 80.22%.The company reported Restated profit after tax for the financial year 2021-2022 of Rs 258.97 lakh in comparison to Rs 143.22 lakh in the financial year 2020-2021. Meanwhile, the company seeks to leverage its capabilities, including its manufacturing facilities and quality control practices, to further expand its product portfolio in the existing segments. Currently it is manufacturing various kinds of products offered to Indian Railways and other railway electrification contractors. It intends to enhance its capabilities and hence grow value chains to supply products with a healthy mix of developmental and volume-based production. The company aims to continue to maintain its focus on cost management, including its manufacturing capabilities to deliver growth as well as to achieve economies of scale.