Vilas Transcore coming with IPO to raise Rs 95.26 crore

Vilas Transcore 

• Vilas Transcore is coming out with initial public offering (IPO) of 64,80,000 shares of Rs 10 each in a price band Rs 139-147 per equity share.   
• The issue will open for subscription on May 27, 2024 and will close on May 29, 2024.
• The shares will be listed on NSE Emerge Platform.
• The face value of the share is Rs 10 and is priced 13.90 times of its face value on the lower side and 14.70 times on the higher side. 
• Book running lead manager to the issue is Hem Securities.
• Compliance Officer for the issue is Gandhali Gurunath Paluskar.

Profile of the company

The company is majorly catering to the power distribution and power engineering industry. Its products, CRGO laminated Core, CRGO core and slit coils are one of the most important parts of different kinds of power transformer, distribution transformer & other current transformers. The core of a transformer is a very important part for the proper functioning of the transformer. The core of the transformer is made through laminated sheets which are used to minimize current losses and CRGO steel material is used to minimize hysteresis losses, it provides a low reluctance path for electromagnetic flux and supports the primary and secondary windings of transformer. The core is laminated to reduce these currents to a minimum as they interfere with the efficient transfer of energy from the primary coil to secondary coil. Considering the importance of core, many points are kept in mind while the designing and manufacturing of the laminations, like manufacturing, functional reliability, longer service life, economy etc. The use of proper material & optimization of the shape are also very important for the efficiency of the transformer.

Currently, the company operates from its two manufacturing facilities located at Por near Vadodara, Gujarat. The manufacturing unit 1 is located at GIDC, Por-Ramangamdi, N.H.No.8, Dist.: Baroda - (Gujarat) India admeasuring an area of over 2200 sq. mtrs. The manufacturing Unit 2 located at Plot No 435 To 437, Nr Galaxy Hotel, N H No 8, Village Por, Vadodara, Gujarat, is also being used as the registered office for the company is spread over an area of over 11000 sq. mtrs. Its plant configurations, allow it to produce the CRGO lamination and CRGO core based on the different requirements of its customers pertaining to the dimensions, size and material requirements. Both its manufacturing facilities are equipped with the latest machineries such as slitting machines for X’mer lamination, batch annealing furnaces, roller hearth annealing furnaces, EOT cranes (2MT to 10 MT), power presses, power shearing machines, power hole punching machines, automatic core winding machines, treadle shears, weighing machines, deburring and grinding machines and CNC cut to length lines with auto stacking system and a Laboratory for testing the material, electricity losses etc. It has a combined installed manufacturing capacity of 12000 MT including the CRGO laminations, coils, assemble and cores. Its manufacturing facility has been certified for conforming to the standards of quality management systems i.e., ISO 9001:2015 and has been approved for sourcing toroidal core for current transformers (CT) upto 400 KV class for Power Grid projects.

Proceed is being used for:

• Funding for strategic investment and acquisitions.
• Funding Capital Expenditure towards construction of factory building.
• Funding capital expenditure towards acquisition and installation of additional plant and machinery.
• General Corporate Purpose.
• Meeting issue expenses.

Industry overview

India is the third-largest producer and consumer of electricity worldwide, with an installed power capacity of 423.35 GW as of July 31, 2023. India was ranked fourth in wind power capacity and solar power capacity, and renewable energy fourth in installed capacity, as of 2021. India has been on a path to achieve 100% household electrification as envisaged under the Saubhagya scheme. As of March 2023, more than 2.86 crore households were electrified under the Saubhagya scheme. A total of 185.21 GW of capacity from non-fossil fuel sources has been installed in the country as of July 31, 2023. As of July 31, 2023, India’s installed renewable energy capacity (including hydro) stood at 177.73 GW, representing 41.9% of the overall installed power capacity. As of July 31, 2023, Solar energy contributed 71.14 GW, followed by 43.94 GW from wind power, 10.24 GW from biomass, 4.98 GW from small hydropower, 0.57 from waste to energy, and 46.85 GW from hydropower. The non-hydro renewable energy capacity addition stood at 15.5 GW in FY22, up from 7.7 GW in FY21. 100%FDI is allowed under the automatic route in the power segment renewable energy. Under the Union Budget 2022-23, the government announced the issuance of sovereign green bonds, as well as conferring infrastructure status to energy storage systems, including grid-scale battery systems.

Power consumption in India in FY23 logged a 9.5% growth to 1,503.65 billion units (BU), as compared to 1,374.02 BU in FY22. India’s electricity generation from renewable and non-renewable sources for FY21, FY22, and FY23 was 1,373.08 BU, 1,484.36 BU, and 1,617.72 BU, respectively. India ranked sixth in the list of countries to make significant investments in clean energy by allotting US$ 90 billion between 2010 and the second half of 2019. India’s power sector is expected to attract investment worth $ 128.24-135.37 billion (Rs. 9-9.5 trillion) between FY19-FY23. The power generation industry in India will require a total investment of Rs. 33 lakh crore ($ 400 billion) and 3.78 million power professionals by 2032 to meet the rising energy demands, as per the National Electricity Plan 2022-32. Total FDI inflows in the power sector reached $ 16.58 billion between April 2000-March 2023. India has the potential to attract an investment of over $ 20 billion in renewables in 2023. Asper the National Infrastructure Pipeline 2019-2025, energy sector projects accounted for the highest share (24%) out of the total expected capital expenditure of $ 1.4 trillion (Rs. 111 lakh crore).

Pros and strengths

Established player in manufacturing of transformer component and power equipment sector: The company has been engaged in the manufacturing of electrical lamination i.e., cold rolled grain oriented (C.R.G.O.) lamination, CRGO slit coils, CRGO stacked (assembled cores), CRGO wound core and CRGO toroidal core which are mainly used in power transformer, distribution transformer & dry type transformers, high voltage / medium voltage & low voltage current transformers. These precision components are manufactured using engineering processes and given the criticality of the use, require adherence to high levels of quality and exact customer’s specifications. Its revenue from the sale of these components have grown 13,265.15 lakh to 28,260.51 lakh for a period from 2021 to 2023. During the same period. its market position is the result of its established presence in the precision components manufacturing industry and its ability to manufacture and supply precision components according to its customers’ specifications. It is well positioned to leverage its strengths towards the expected growth in the transformer components industry due to increased demand for power.

Longstanding relationships with customers: The company has over the year established long-standing relationships with several Indian and global transformer manufacturers. Between fiscals 2021 and 2023, its revenue from operations have increase from Rs 13265.15 lakh to Rs 28260.51 lakh and during the same period it has increased the number of customers with whom it has over Rs 100 lakh annual sales from 3 to 6. Its customers typically have stringent selection, inspection and review procedures for procurement of components from manufacturers. The selection of vendors involves review of the manufacturer’s expertise, available manufacturing facilities, processes, financial capabilities etc. Its consistent delivery of quality and cost competitive products over the past years and its ability to continuously engineer its products to meet its customers’ designs and specifications have helped it in receiving repeated orders. It also undertakes product development initiatives for its customers based on their specifications which enables it to deepen its customer relationships through cost optimization and reduction of development and testing time. 

Strong manufacturing capabilities: The company operates from its two manufacturing facilities located across the Ahmedabad Mumbai highway at Por near Vadodara spread over a combined area of over 13000 sq. mtrs. As on March 31, 2023, its aggregate installed capacity across these manufacturing facilities was 12000 metric tonne per annum. Its manufacturing capabilities allows it to service customer requirements from these locations, providing customers the benefit of regular supply and cost-competitive manufacturing operations. Over the years, it has built its manufacturing process capabilities, ranging from material testing, slitting, cutting, staking, winding, finishing etc. With continued investments in its facilities and capabilities, it has been able to develop an efficient, technology-driven manufacturing process that has helped it to manufacture its products in accordance with the requirements and specifications of its customers in a cost-effective manner. Its presence in these locations allows it to service and grow in these markets more efficiently by becoming a trusted vendor for its customers. Proximity to its key customer groups provides it with an advantage in ensuring cost effectiveness, quicker delivery and faster turnaround times. 

Risks and concerns

Do not enter into any firm supply agreements with customers: The company does not generally have firm supply agreements with most of its customers and instead it rely on the purchase orders issued by its customers from time to time that set out the volume and other terms of its sales of products. Many of the purchase orders it receives from customers specify the price per unit and delivery schedule, with the quantities to be delivered. However, such orders may be amended or cancelled prior to finalization, and in case of any such amendment or cancellation it may be unable to seek compensation for any surplus products that it manufactures that are unpurchased. Its customers do not typically place firm purchase orders until a short time before the products are required from it, making it difficult for it to forecast revenue, production volume or sales. In certain cases, the purchase orders may have general terms which do not bind customers to any specific products specifications, purchase volumes or duration and can be terminated by its customers with or without cause, with little or no advance notice and without compensation. Further, there is no commitment on the part of the customer to continue to place orders with it and accordingly, it may be unable to forecast its revenue, production volume or sales.

Excessive dependence on single or limited number of products: The company manufactures and supply different components that are critical for the manufacturing of the transformers used for distribution and transmission of electricity in the power sector including electrical lamination cold rolled grain oriented (C.R.G.O.) lamination core, CRGO slit coils, CRGO stacked (assembled cores), CRGO wound core and CRGO Toroidal core. Though, it has diversified into different products relating to the transformers lamination, core and coils but it rely on CRGO Electrical lamination for the major portion of its sale revenue. CRGO Electrical lamination accounts for more than 75% of its sales revenue. Thus, such reliance on a single product for major portion of its revenue or any change in the consumers requirements or preference, may have an adverse effect on its business operation in case the demand of the same is reduced due to any factor beyond its control. In case there is any reduction in the demand for the CRGO Electrical lamination which is its major product, may have an adverse effect on its business operations, results and financial conditions.

Dependent on third party service providers: The company relies on transportation service providers for the timely delivery of its products to its customers located in India and other countries. Therefore, it faces a risk that there could be deficiency or interruption in these third-party services. Disruptions of transportation services because of weather related problems, strikes, lock-outs, inadequacy of road infrastructure or other events may affect its delivery schedules and impair its supply to its customers. To the extent that its losses are not covered by insurance, this may have a material adverse effect on its business and results of operations. Delays or non-delivery of its products may also have a material adverse effect on its business and results of operations. Although it does not enter into formal contracts with its third-party logistic service providers, and hence are also exposed to fluctuations in transportation costs. 

Outlook

Vilas Transcore manufactures and supplies power distribution and transmission components, primarily to transformer and other power equipment manufacturers in India and abroad. The company produces and supplies various electrical lamination products, including CRGO cores and coils used in power and distribution transformers. The manufacturing process meets industry standards and customer specifications, using the latest technology to ensure quality and precision for application in the power equipment industry. The company's product line includes CRGO laminated Core, CRGO core, and slit coils, which are essential components of various types of power transformers, distribution transformers, and other current transformers. It also have a qualified and experienced senior management team that has demonstrated its ability to anticipate and capitalize on changing market trends, manage and grow its operations and leverage and deepen customer relationships. On the concern side, any changes in customer’s requirements, regulatory or industry requirements, or competitive technologies may render its products obsolete or less attractive. Customer preferences appear to be moving in favour of more energy efficient, low energy loss and environment friendly transformers. In addition, increased government regulations towards the safety and stability of transformers have brought significant pressure on the transformer manufacturers.

The company is coming out with an IPO of 64,80,000 equity shares of face value of Rs 10 each. The issue has been offered in a price band of Rs 139-147 per equity share. The aggregate size of the offer is around Rs 90.07 crore to Rs 95.26 crore based on lower and upper price band respectively. On performance front, the company’s total income has increased significantly by 21.09% to Rs 28478.14 lakh in Fiscal 2023 from Rs 23518.05 lakh in Fiscal 2022. It recorded significant increase of 12.54% in profit after tax from Rs 1791.49 lakh in Fiscal 2022 as compared to Rs 2022.43 lakh in Fiscal 2023. Meanwhile, the company endeavour to focus on process and product innovation and value engineering solutions in order to meet the requirements of a wider range of customer specifications, so as to strengthen and diversify its customer and product portfolio. Towards this objective, it seek to continue to improve its in-house value engineering, testing and designing capabilities through human resource and technical development, as well as continuing to work closely with its key customers to upgrade and customize its products while maintaining and improving its market share in the transformer component markets.