Electro Force (India) comes up with IPO to raise Rs 80.68 crore

Electro Force (India) 

• Electro Force (India) has come out with an initial public offering (IPO) of 86,74,800 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 93 per equity share.
• The issue has opened for subscription on December 19, 2023 and will close on December 21, 2023.
• The shares will be listed on NSE Emerge Platform.
• The share is priced 9.30 times higher to its face value of Rs 10.
• Book running lead manager to the issue is First Overseas Capital.
• Compliance Officer for the issue is Reetu Bansa. 

Profile of the company

It is an ISO 9001:2015-certified company that designs and manufactures electrical components, metal / plastic contact  parts,  and  supplies  these  products  to  the  industry  players  via  a  business-to-business  (B2B)  model.  The company started in the year 2010 as Electro Force (India). Since inception, the company has been a supplier of high-grade precision metal electrical contact parts and components, connectors and assemblies for applications in electronics, lighting, switchgear and allied industries in India.

Its manufacturing unit is located at Vasai in Maharashtra. It offers end-to-end product solutions to its customers under  the  B2B  model  wherein  it  provides  services  ranging  from  designing,  manufacturing,  quality  testing  and packaging to logistics. It also offers products in the intermediate stages to many of its customers. Its main focus has  been  on  offering  integrated  services,  mostly  to  Indian  manufacturers  of  electrical  components. It has the ability to perform precision metal stamping, assembly, and moulding. It specializes  in  designing and manufacturing  of  precision  sheet  metal  components,  high  speed metal stamping components,  plastic injection mouldings, insert and over moulding, sub-assemblies and value added services for diverse industries like electronics, lighting and other engineering industries in India.

Proceed is being used for:

• Funding additional working capital requirements of the company
• Pursuing inorganic growth 
• General corporate purposes

Industry overview

The Indian electronics system design and manufacturing (ESDM) sector is one of the fastest growing sectors in the economy and is witnessing a strong expansion in the country. The ESDM market in India is well known internationally for its potential for consumption and has experienced constant growth. The ESDM market in India is well known internationally for its potential for consumption and has experienced constant growth. Indian manufacturers are attracting the attention of multinational corporations due to shifting global landscapes in electronics design and manufacturing capabilities, as well as cost structures. Companies from all over the world are striving to develop local capacities in India not only to serve the domestic market but also to cater to international markets.

The Indian electronics manufacturing industry is projected to reach $520 billion by 2025. The demand for electronic products is expected to rise to $400 billion by 2025 from $33 billion in FY20. Electronics market has witnessed a growth in demand with market size increasing from $145 billion in FY16 to $215 billion in FY19-the market witnessed a growth of 14% CAGR from 2016-19. Electronics system market is expected to witness 2.3x demand of its current size (FY19) to reach $160 billion by FY25. The top products under the ESDM sector with the highest CAGR include IT/OA at 54%, followed by industrial electronics at 38% and automotive electronics at 10%.

Local electronics design and production are being positively influenced by ongoing domestic consumption, changing dynamics in the global supply chain, and a plethora of policy initiatives to assist indigenous manufacturing in the current period is most advantageous. The smooth implementation of new initiatives and the reversal of restrictive laws will go a long way toward boosting international business confidence in India's business environment and attracting manufacturing investments.

Pros and strengths

High standard of product quality and customer service: It undertakes manufacturing and supply of intermediate-stage products for its customers. Its multi-technological capabilities and integrated offerings combined with its product quality & customer service have helped it emerges as a preferred vendor to large corporates and over a period of time they have increased their product range with it rather than outsourcing different intermediary products through different vendors. Through its long standing business relationship with its customers, it has acquired invaluable knowledge of customers’ business process & quality expectations.

In-house R&D, tool room and continuous new product development: In house R&D enables it to quickly develop products and adapt to the needs of its customers. For various procedures used in product manufacturing, it has an internal R&D setup. Its R&D team is made up of qualified, experienced and committed individuals and the setup is well-equipped with cutting-edge technology and tools for designing and creating a variety of innovative products in accordance with the needs of its customers. The R&D team regularly conducts research and analysis for product development and enrichment because innovation is a key factor influencing its business and keeping its customers happy.

Offering variety of products to meet the needs of different customers: Its multi-technological capabilities and integrated offerings combined with its product quality & customer service have helped it emerge as a preferred vendor with its customers. It has been able to grow its business with the same customer base by offering new products from time to time.

Risks and concerns

Working capital requirements: Its business demands substantial funds towards working capital requirements. In case there are insufficient cash flows to meet its working capital requirement or it is unable to arrange the same from other sources or there are delays in disbursement of arranged funds, or it is unable to procure fundson favourable terms, it may result into its inability to finance its working capital needs on a timely basis which may have an adverse effect on its operations, profitability and growth prospects.

No long-term agreements with customers: It has not entered into any long-term agreements with its customers and instead rely on purchase orders to govern the volume and other terms of its sales of products other than as the company has entered into the long term business agreement dated November 26, 2019 with Larsen and Turbo with regards to purchase of raw materials supply of electronic components, assemblies and complete products which is valid upto next 5 years for the period ending Novemeber 25, 2024. There is no commitment on the part of its customers to continue to place new purchase orders with it and as a result, its cash flow and consequent revenue may fluctuate significantly from time to time. Although, it has a strong emphasis on quality, pricing, timely delivery of its products and personal interaction by the senior management with its customers, any change in the buying pattern of its customers can adversely affect the business and the profitability of the company.

Fail to adapt to industry trends: Changes in consumers’ preferences, regulatory or industry requirements, or competitive technologies may render certain of its products obsolete or less attractive. It could also face competition for potential future revenue streams if its competitors are able to commercialise certain innovations before it can does so. It may have to procure a license for the technology, which may not be available on reasonable terms, if at all, and may significantly increase its operating expenses or may require it to restrict its business activities in one or more respects. As a result, it may also be required to develop alternative non-infringing technology, which could require significant effort and expense. If it fails to develop sufficient revenue streams covered by adequately robust intellectual property rights, it could lose market share and revenues to competitors. Any of these developments, alone or in combination, may have a material adverse effect on its business, results of operations and financial condition.

Outlook

The company is engaged in designing, manufacturing and supply of electrical components to its customers as component suppliers to leading industry players on B2B model. Since inception, the company has been a supplier of high-grade precision metal electrical contact parts and components, connectors and assemblies for applications in electronics, lighting, switchgear and allied industries in India. On the concern side, it has manufacturing facilities located at Vasai in Maharashtra State. Its products go through various manufacturing stages at this plant. Major portion of its revenue is derived presently from products manufactured at this manufacturing facility; therefore, any disruption in its manufacturing facilities may result in production slowdown/shutdown.

The company has come out with an IPO of 86,74,800 equity shares of Rs 10 each at a fixed price of Rs 93 per share to mobilize Rs 80.68 crore. On performance front, the total income of the company for fiscal year 2023 was Rs 30.29 crore against Rs 34.44 crore total income for Fiscal year 2022. A decrease of 12.05% in total income. Profit after tax for the Fiscal 2023 was at Rs 8.00 crore against profit after tax of Rs 8.64 crore in fiscal 2022. Meanwhile, it supplies its components to electronics industry in India. It intends to enhance its product offerings from its current product portfolio to be able to cater to more industries, thereby helping it in diversifying its customer base. It has started supplying smaller quantities to medical devices manufacturers as well as to food industry for their machines.