Supreme Power Equipment
- Supreme Power Equipment is coming out with an initial public offering (IPO) of 71,80,000 equity shares of face value of Rs 10 each in a price band Rs 61-65 per equity share.
- The issue will open on December 21, 2023 and will close on December 26, 2023.
- The shares will be listed on NSE Emerge platform.
- The share is priced 6.10 times of its face value on the lower side and 6.50 times on the higher side.
- Book running lead manager to the issue is Narnolia Financial Services.
- Compliance Officer for the issue is Priyanka Bansal.
Profile of the company
Supreme Power Equipment is currently engaged in the areas of manufacturing, up-gradation, and refurbishment of transformers ranging from power transformer, generator transformer, windmill transformer, distribution transformer, isolation transformer, solar transformer, energy efficient transformer, converter and rectifier transformer.
The company is an ISO 9001:2015 company, in the area of Design, Manufacture, Services and Supply of Transformer. The company also has ISO 14001:2015 certificate in the area of Design, Manufacture, Services and Supply of Transformers. Also, the company is ISO 45001:2018 certified in the area of design, manufacture, services and supply of transformers. supreme power equipment limited has its quality management system certified by TUV/QACS. CPRI (Central Power Research Institute) has type tested its transformers upto 25MVA/110kV Voltage Class. Right from manufacturing to distribution, it has consistently delivered competitive edge in the form of robust, foresighted, and quality products.
Proceed is being used for:
- Meeting out the capital expenditure
- Meeting out the working capital requirements of the company.
- Meeting out the general corporate purposes
- Meeting out the issue expenses
Industry Overview
Power is among the most critical components of infrastructure, crucial for the economic growth and welfare of nations. The existence and development of adequate power infrastructure is essential for sustained growth of the Indian economy. The fundamental principle of India’s power industry has been to provide universal access to affordable power in a sustainable way. The Ministry of Power has made significant efforts over the past few years to turn the country from one with a power shortage to one with a surplus by establishing a single national grid, fortifying the distribution network, and achieving universal household electrification. India’s power sector is one of the most diversified in the world. Sources of power generation range from conventional sources such as coal, lignite, natural gas, oil, hydro and nuclear power, to viable non-conventional sources such as wind, solar, agricultural and domestic waste. Electricity demand in the country has increased rapidly and is expected to rise further in the years to come. In order to meet the increasing demand for electricity in the country, massive addition to the installed generating capacity is required.
Meanwhile, transformer market size is valued at $54 billion in 2022 and is anticipated to grow at a CAGR of 7.2% between 2023 and 2032. Large scale integration of renewable energy sources coupled with increasing electrification programs primarily across the emerging economies will accelerate the industry scenario. The Indian transformer industry is more than five decades old, hence mature. Domestic manufacturers have developed capabilities to manufacture all types of equipment to meet the country’s demand for transformers up to 800 Kilovolts (kV) and going up to 1,200 kV. The industry enjoys a good reputation in terms of quality, price, and delivery in the domestic as well as overseas markets. India’s transformer market is predominantly unorganized with many small participants catering to the smaller distribution transformer markets. However, many are slowly graduating to the medium-sized category, thus expanding the organized participants’ base. The Transformer market in India can be pegged at more than Rs 12,000 crore. Power Transformers contribute 45 percent of the total market and distribution transformers, 55 percent. Over the last two years, the market has grown at a very moderate rate at less than 4 percent, due to the slowdown of power generation capacity addition and T&D infrastructure expansion.
The Indian power and distribution transformer markets are highly dependent on investments planned by the Government of India for the T&D segment and reform programmes like the Revised Accelerated Power Development and Reform Program and Rajiv Gandhi Grameen Vidyutikaran Yojna. These programmes, when fully implemented as scheduled, are expected to drive the demand for both power and distribution transformers. The Government of India currently plans to strengthen transmission lines and create a National Grid interconnecting the five regions (northern, southern, eastern, western and north-eastern) through the creation of ‘Transmission Super Highways’ this is expected to drive the demand for higher-rated power transformers. With huge investments proposed across sectors such as power, infrastructure, etc., the transformers market in India is slated for strong growth. The excess capacity in the Transformer industry in India, and entry of new players is further expected to increase market competitiveness. Market consolidation over the next few years is inevitable.
Pros and strengths
Contracts from governments: The company has various categories of customers, including public sector undertakings, and have a strong and cordial relationship with these clients. The company is already generating a significant part of its revenue from operations by subscribing to and fulfilling government tenders. The company intends to continue obtaining more tenders and expanding its business.
Highly crafted and well-engineered product base: Engineering forms an essential element of manufacturing transformers. The company provides customer centric customized solutions for transformers. The company’s designs are crafted to minimize the losses occurring within the transformer thereby making them more efficient. The company’s transformers and the engineering behind it have driven the company to the current height.
Wide product portfolio: The company’s product portfolio ranges from power transformation, generator transformer, windmill transformer, distribution transformer, isolation transformer, solar transformer, energy efficient transformer, converter and rectifier transformer in both refurbishing & manufacturing segment, thus catering to diverse needs of markets.
Risks and concerns
Maximum revenue comes from few clients: The company’s business and revenues are substantially dependent on a few clients. The company’s top 10 clients contributed 75.38%, 82.74%, 87.92% and 81.98% of its aggregate revenues for the period ended on July 31, 2023 and financial year ended March 31, 2023, 2022 and 2021, respectively, as per its restated consolidated financial statements. Any decline in its quality standards, growing competition and any change in the demand for its products by these customers may adversely affect its ability to retain them. The company cannot assure that it shall generate the same quantum of business, or any business at all, from these customers, and loss of business from one or more of them may adversely affect its revenues and profitability.
Geographical constrain: The company’s revenue from operations are sourced from Tamil Nadu only. Relying heavily on revenue from one state can expose a company to various risks, primarily related to geographical concentration. Economic instability in the state can have a direct and immediate negative effect on its business. In addition to this, there may be limitations to market growth, depending on the size and population of the state which can lead to intense local competition to maintain market share and pricing power, potentially leading to margin pressure.
Present promoters are first generation entrepreneurs: The company’s present Promoters are first generation entrepreneurs. Their experience in managing and being instrumental in the growth of the company is limited to the extent of their knowledge and experience and it cannot assure that this will not affect its business growth. However, its promoters have experience of more than 40 years cumulatively. Investors and stakeholders may be more cautious when the entrepreneurs belong to first generation. This could affect the ability to secure funding or partnerships that are critical for growth. Established entrepreneurs often have extensive networks within their industries, which can be invaluable for partnerships, collaborations, and accessing resources. First-generation entrepreneurs may have limited connections, making it more challenging to tap into these opportunities.
Outlook
Supreme Power Equipment is engaged in manufacturing, upgrading and renovating various types of transformers such as power transformers, generator transformers, windmill transformers, distribution transformers, isolation transformers, solar transformers, energy efficient transformers, converters and rectifier transformers. The company has supplied transformers for various sectors, including the local public power utility and the windmill segment. The company has also supplied transformers to Gamesa Spain, a multinational company, for its solar energy projects in India. These transformers have a voltage range of 16KVA to 25MVA/110KV and a power range of 1250KVA/22KV to 6000 KVA/33KV. On the concern side, the company’s top ten customers contribute significant portion of its revenues during the current and previous financial years. Any loss of business from one or more of them may adversely affect its revenues and profitability. Moreover, the majority of its revenue primarily comes from the state of Tamil Nadu in terms of geographical distribution.
The issue has been offered in a price band of Rs 61-65 per equity share. The aggregate size of the offer is Rs 43.80 crore to Rs 46.67 crore based on lower and upper price band respectively. On performance front, revenue of operations on consolidated basis for the period ended March 31, 2023, stood at Rs 9,975.94 lakh which is 99.85% of the Total Income. Moreover, profit after tax on consolidated basis for the period ended March 31, 2023, stood at Rs 1107.88 lakh which is 11.09% of the Total Income.
Going forward, the company has focused on constant up gradation of its machinery and equipment used in its business from various parts of the world keeping in mind its usage in the Indian Environment. Further, the company is able to achieve greater efficiency due to its in-house testing process, reducing the time taken for and the cost of manufacturing its products, from design to commercial production, resulting in higher profit margins. Moreover, the company continually seeks to enhance its addressable market through private meetings with its proposed customers, by carrying out promotional activities to create awareness for its products. With its wide range of products and services, it is further intended to expand its presence globally. It intends to spread its wings in the international market too.
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