Rishabh Instruments coming up with IPO to raise upto Rs 494.90 crore

Rishabh Instruments

• Rishabh Instruments is coming out with a 100% book building; initial public offering (IPO) of 1,12,22,436 shares of Rs 10 each in a price band Rs 418-441 per equity share.
• Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
• The issue will open for subscription on August 30, 2023 and will close on September 1, 2023.
• The shares will be listed on BSE as well as NSE.
• The face value of the share is Rs 10 and is priced 41.80 times of its face value on the lower side and 44.10 times on the higher side.
• Book running lead managers to the issue are DAM Capital Advisors, Mirae Asset Capital Markets (India) and Motilal Oswal Investment Advisors.
• Compliance Officer for the issue is Ajinkya Joglekar. 

Profile of the company

The company is a global energy efficiency solution company focused on electrical automation, metering and measurement, precision engineered products, et al. with diverse applications across industries including power, automotive and industrial sectors. It supplies a wide range of electrical measurement and process optimization equipment, and is engaged in designing, developing and manufacturing, and sale of devices significantly under its own brand across several sectors. It provides comprehensive solutions to its customers looking for cost-effective ways to measure, control, record, analyse and optimise energy and processes through its array of products. It also provide completes aluminium high pressure die casting solutions for customers requiring close tolerance fabrication (such as automotive compressor manufacturers and automation high precision flow meters manufacturing and supply of analog panel meters, and it is among the leading global companies in terms of manufacturing and supply of low voltage current transformers. Lumel is the most popular brand in Poland for meters, controllers, and recorders and Lumel Alucast is one of the leading non-ferrous pressure casting players in Europe.

The company is a vertically integrated player involved in designing, developing, manufacturing and supplying (a) electrical automation devices; (b) metering, control and protection devices; (c) portable test and measuring instruments; and (d) solar string inverters. In addition, it manufactures and supply aluminium high pressure die casting through its Subsidiary, Lumel Alucast. It also provides certain manufacturing services which include mould design and manufacturing, EMI/EMC testing services, Electronic Manufacturing Services, and software solutions (e.g., MARC). 

Proceed is being used for:

• Financing the cost towards expansion of Nashik Manufacturing Facility I (Expansion of Nashik Manufacturing Facility I).
• General corporate purposes.

Industry overview

The Indian Electrical Automation market was valued at $6367.8 million in 2022 and is forecasted to grow at a CAGR of 9% to reach $9802.6 million by 2027. The market experienced a slowdown in 2020 due to the COVID-19 pandemic, but it has bounced back strongly and showcases a strong and positive outlook. China’s weakening economic projections and ongoing trade wars will create opportunities for India to develop its cuttingedge technologies. By attracting investments from companies looking to diversify their manufacturing and supply chains away from China, India has more room to negotiate favorable trade agreements with other countries and strengthen its global influence. With Indian Prime Minister’s visit to the US in June 2023, both the countries are set to take a major step towards semi-conductors, defense and emerging technology (such as AI, 5G, 6G) supply chain market. This would promote semi-conductor manufacturing in India. In India, Automotive and transportation, food and beverage, FMCG, chemicals, and textiles are major end users. Steel, semiconductor, and defense growth is less due to muted economic situation across the globe. Building automation and data centers are the emerging end-user segments. The push for localized manufacturing, development of IT infrastructure, and home automation systems can be seen as driving factors for electrical automation components.

In India, the market is dominated by international players. The top 5 companies occupy approximately 50% market share. Local players compete with global brands on price points and customer service and are emerging competition. Industrial end users prefer a single vendor for all their needs, so international players have an advantage because of their wide product portfolio in this segment. Local players form a major part of others (48.8%) and in large part supply SMEs that make up the country’s manufacturing base in India. Rishabh Instruments is the number one player in electrical transducers in India and holds 37% of market share and it holds 0.07% market share in the electrical automation segment. (w.r.t the TAM). The Indian government has announced a string of policies focusing on the development of key industrial verticals. India has set up an Electronic Development Fund with a total target corpus of Rs 150 crore to foster R&D and innovation in technology sectors like electronics, IT, and Nanoelectronics. To position India as a global hub for Electronics System Design & Manufacturing, the government has proposed three schemes: Production Linked Incentive Scheme (PLI), Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS), and Modified Electronics Manufacturing Clusters Scheme (EMC 2.0).

Pros and strengths

Ability to drive technology and innovation through advanced research and development capabilities: The company is a technology and R&D focussed enterprise striving to set trends for the industry and concentrating on innovation of its products, processes as well as applications to add value to the industry and to its customers. Its global presence affords it exposure to the latest technologies for its core segments and it accordingly strives to drive both its product portfolio and service offerings with its R&D capabilities. Its ability to develop and integrate technology allows it to provide innovative and customizable solutions to its customers more efficiently. It has been granted two patents for clamp meters with rotary jaw mechanism and clamp meter safe trigger mechanism in India and inter alia the United States (since 2011 and 2012 respectively), Poland and United Kingdom and three design registrations in relation to multimeter, current and voltage transducer and power transducer in India.

Global engineering solution provider operating in large addressable markets: As a global energy efficiency solution company providing electrical measurement and process optimization equipment, and engaged in the designing, development and manufacturing of devices primarily across power and industrial sectors, the company is well positioned to leverage its market position to tap the opportunities from the mega industrialisation trends. Its established manufacturing facilities and processes, its global footprint and exposure in over 100 countries, its wide distribution network, and its track record of innovation and research and development, position it advantageously to capture modern engineering requirements. It has a separate in-house automation department at each of its Manufacturing Facilities, formed with an objective of designing and developing automation facilities in order to reduce manufacturing cycle time, enhance process efficacies, optimize manual efficiency, de-skill critical manufacturing operations, optimize utilization of resources, enhance product quality and increase the overall productivity. 

Vertically integrated operations, backed by strong manufacturing capabilities: The company’s geographically distributed Manufacturing Facilities make it among the leading global companies in terms of manufacturing and supply of low voltage current transformers and its vertical integration makes it a cost and time efficient supplier of its products to its customers. Its fully integrated operations comprise worldwide procurement of raw materials, injection moulding of engineering plastics, turning, punching and forming of metal components, surface mounting and through hole assembly of electronic components, conversion into sub-assemblies, integration of sub-assemblies into finished products, calibration and automated testing of finished products. Additionally, all its Manufacturing Facilities are vertically integrated with end-to-end product development capabilities from concept design to prototype testing, along with dedicated R&D units. 

Diversified product portfolio: The company is a global leader in manufacturing and supply of analog panel meters, and it is among the leading global companies in terms of manufacturing and supply of low voltage current transformers. Lumel is the most popular brand in Poland for meters, controllers, and recorders and Lumel Alucast is one of the leading non-ferrous pressure casting players in Europe. It has a product portfolio of over 145 product lines and 0.13 million stock keeping units as of May 31, 2023. In the Fiscals 2023, 2022 and 2021 it manufactured an aggregate of 16.21 million units, 14.02 million units and 13.35 million units of products across its product lines, respectively. Its panel instruments are used not only in the electrical switch boards which are used for distribution of electricity, but also for industrial applications such as multiload monitoring, cloud and connectivity, and energy monitoring systems. In a fragmented portable TMI market where both Indian and Chinese players limit themselves to low-end maintenance and repair solutions, it has extended its offerings to professional industrial TMI products capable of serving needs in modern laboratories and even aerospace. 

Risks and concerns

Dependent on Poland Manufacturing Facilities: The company’s Poland Manufacturing Facilities are situated in Zielona Gora, Poland which is equipped with advanced equipment, modern technology and automated systems. It is dependent on the Poland Manufacturing Facilities for a significant portion of its production. However, its Poland Manufacturing Facilities are subject to various operating risks, including the breakdown or failure of equipment and performance below expected levels of output or efficiency. Any significant malfunction or breakdown of its equipment, its automation systems, or any other part of its manufacturing processes or systems at its Poland Manufacturing Facilities may entail significant repair and maintenance costs and cause delays in its operations. If it is unable to repair its Manufacturing Assets at its Poland Manufacturing Facilities in a timely manner or at all, its operations may need to be suspended until it procure the appropriate Manufacturing Assets at its Poland Manufacturing Facilities to replace them and there can be no assurance that the new Manufacturing Assets at its Poland Manufacturing Facilities will be procured and/or integrated in a timely manner.

Shortages in supply of semiconductors: The semiconductor industry is subject to periodic shortages due to factors like increased demand, supply chain disruptions, and capacity constraints. The company sources components and other inputs, including microcontroller semiconductor chips used in its manufacturing operations, and in certain cases from suppliers identified by its OEM customers or, in some cases, directly from its OEM customers. Some of the products it manufactures require components that are only available from one manufacturer. In these cases, supply shortages will substantially curtail production using a particular component such as semiconductors. A supply shortage may increase its costs if it is forced to pay higher prices for components or raw materials or both, or if it has to redesign or reconfigure products to accommodate a substitute component. For instance, in the past, it has faced a significant shortage of key components and inputs, particularly, semiconductors that are imported from various geographies. There has been a significant amount of stockpiling of semiconductors by OEMs in various sectors.

Face competition: The company faces competition domestically in India as well as globally across the segments it operate in from companies which either operate in the same line of business as it or offer similar products. Its electrical automation competitors include Masibus Automation and Instrumentation and Selec Controls. In respect of metering, control and protection devices its competitors include Schneider Electric India, Elmeasure India and Selec Controls. Its portable test and measuring instruments segment competitors include Hioki India and Meco Instruments. Its solar string inverter international competitors include companies such as Shenzhen Growatt New Energy internationally, whereas domestically it competes with companies such as KSolare Energy. Competitors for its aluminum high pressure die casting offerings include Endurance Technologies and Sunbeam Lightweighting Solutions in India. Its failure to obtain new customers or to retain or increase its existing market share or effectively compete could adversely affect its business, financial condition and results of operations. 

Significant capital requirement: The company’s business is capital intensive as it constantly seek to add new and upgrade its existing Manufacturing Facilities; increase its product portfolio; and invest in the research and development of new technologies and products, among others. It also has significant working capital requirements to finance the purchase of raw materials and the development and manufacturing of products before payment is received from customers. The actual amount of its future capital requirements may differ from estimates as a result of, among other factors, unforeseen delays or cost overruns, unanticipated expenses, regulatory changes, economic conditions, technological changes, additional market developments and new opportunities in the industry. Its working capital requirements may increase if the payment terms in its purchase orders or invoices include longer payment schedules. These factors may result in increases in the amount of its receivables and may result in increases in any future short-term borrowings. Continued increases in its working capital requirements may adversely affect its results of operations and financial condition.

Outlook

Incorporated in 1982, Rishabh Instruments is engaged in the business of manufacturing, design, and development of Test and Measuring Instruments and Industrial Control Products. The company provides cost-effective solutions to measure, control, record, analyze, and optimize energy and processes through an array of products. It also provides complete aluminum high-pressure die-casting solutions for customers requiring close tolerance fabrication (such as automotive compressor manufacturers and automation high precision flow meters manufacturers), machining, and finishing of precision components. In 2011, the company acquired Lumel Alucast, a non-ferrous pressure casting company in Europe, which helped the company establish a strong foot in manufacturing and supply of low-voltage current transformers. 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). It has 4 segments: (a) electrical automation devices; (b) metering, control, and protection devices; (c) portable test and measuring instruments; and (d) solar string inverters. On the concern side, there may be significant fluctuations in the demand for the company’s products and components, as well as fluctuations in commodity prices, which increase the difficulty for it to determine and consequently maintain optimal levels of inventory. Besides, the company’s key overseas markets include Central and Eastern European markets. The countries in these regions impose varying import duties on its products. There can be no assurance that the import duties will not increase or new restrictions will not be imposed by such countries.

The company is coming out with an IPO of 1,12,22,436 equity shares of face value of Rs 10 each. The issue has been offered in a price band of Rs 418-441 per equity share. The aggregate size of the offer is around Rs 469.09 crore to Rs 494.90 crore based on lower and upper price band respectively. On the financial front, the company’s total income increased by 20.81% from Rs 4,799.15 million in Fiscal 2022 to Rs 5,7997.15 million in Fiscal 2023. The company recorded an increase in its profit for the year by 0.07% from Rs 496.52 million in Fiscal 2022 to Rs 496.87 million in Fiscal 2023. Meanwhile, the company proposes to capitalize on its presence in India and expand its network of stockists/distributors supported by opening up of branch offices in Tier II cities. In addition, it proposes to upgrade existing branches to include regional technical training and service centres which will make its product offerings more accessible and allow it to provide product and application training along with calibration and repair services as well.