Divine Power Energy coming with IPO to raise Rs 18.09 crore

Divine Power Energy

• Divine Power Energy is coming out with initial public offering (IPO) of 45,22,222 shares of Rs 10 each in a price band Rs 36-40 per equity share.  
• The issue will open for subscription on June 25, 2024 and will close on June 27, 2024.
• The shares will be listed on NSE Emerge Platform.
• The face value of the share is Rs 10 and is priced 3.60 times of its face value on the lower side and 4.00 times on the higher side. 
• Book running lead manager to the issue is Khambatta Securities.
• Compliance Officer for the issue is Swati Bansal.

Profile of the company

Divine Power Energy is a manufacturer of Bare Copper/ Aluminium Wire, Bare Copper/ Aluminium Strip, Winding Copper/ Aluminium Wire, Winding Copper / Aluminium Strip. Winding wires / strips are manufactured by annealing and insulating wires / strips and covering them with paper, cotton, fiberglass etc. Winding wires/ strips covered with paper, crepe paper and cotton are sold to power distribution companies and transformer manufacturers to manufacture transformers and also to fix normal wear and tear. The company started manufacturing wires / strips covered with fiberglass which are used in manufacturing electromagnetic coils, like the one used in lifting magnets which are used to lift heavy objects like containers, machinery etc. The company has supplied wires / strips covered with fiberglass to markets like Punjab, Bengaluru, Ahmedabad. In the recent past the company has started trading in super enamelled wires and strips in an effort to cater customer demand and remain competitive.

The company mainly sells winding wires to the power distribution companies and transformer manufacturers. Transformers play a critical role in power distribution by regulating the voltage from generation source to the consumer end. The transformer steps up the voltages to higher voltages before transmission at the generator, reducing the power loss during transmission and steps down the higher voltage to lower as required before transmitting the power to the end user. One of the critical components of a transformer is its coil which plays the role of converting electric energy to magnetic energy and then to electric energy, and changes the voltage and current at the same time. The coil is made from winding the wires in a given ratio as per the capacity and ability of the transformer. The company manufactures winding wires by insulating bare conductors (wires / strips of copper/ aluminium) by paper, cotton, super enamel, fiberglass etc. which are used to make coils of the transformers. Therefore, making its product indispensable for manufacturing transformers and hence power transmission and distribution.

Proceed is being used for:

• Meeting the working capital requirements
• General corporate purpose

Industry overview

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. 

India's power generation witnessed its highest growth rate in over 30 years in FY23. Power generation in India increased by 8.87% to 1,624.15 billion kilowatt-hours (kWh) in FY23. In FY24 (until January 2024), the power generation in India was 1,452.42 BU. During FY10-FY23, electricity generation in India increased at a CAGR of 4.75%. In the Union Budget 2022-23, the government allocated Rs. 7,327 crore for the solar power sector including grid, off grid, and PM-KUSUM projects. For FY24, the electricity generation target from conventional sources has been fixed at 1,750 BU, comprising 1,324.11 BU of thermal energy, 156.70 BU of hydro energy, 46.19 BU of nuclear energy, 215 BU of RES (excluding hydro), and 8 BU to be imported from Bhutan.

In the current decade (2020-29), the Indian electricity sector is likely to witness a major transformation with respect to demand growth, energy mix and market operations. India wants to ensure that everyone has reliable access to sufficient electricity at all times, while also accelerating the clean energy transition by lowering its reliance on dirty fossil fuels and moving toward more environmentally friendly, renewable sources of energy. The Government of India also plans to set up 21 new nuclear power reactors with a total installed capacity of 15,700 MW by 2031.

Pros and strengths

Wide product range: With a diverse portfolio of insulated wires and strips, the company caters to varied industry needs, providing a comprehensive solution to its customers. It supplies its products to transformer manufactures and power distribution companies. It supplies copper and aluminium wires / strips insulated with paper, crepe paper, and fiberglass, to Discoms and transformer manufacturers which are used for assembling and repairing transformers. In the financial year 2023 the company started manufacturing fiberglass coated winding wires / strips and also started trading of super enamelled wires and strips in an effort to cater customer demand and remain competitive.

Customization capabilities: The company caters specific customer requirements by offering tailored solutions as per their needs, enhancing its competitiveness in the market. The company has the ability to produce products in different shapes and descriptions as per the Customer demand. The company manufactures wires in the range of 0.19 mm to 4.00 mm and strips in the range of 5 mm sq. to 150 mm sq., catering to the specific demand of its customers. It produces winding wires/ strips from copper and aluminium by insulating wires / strips by paper, cotton, fiberglass etc. which have different usage.

Cutting-edge technology: The company leverages state-of-the-art manufacturing technology to produce high-quality insulated copper and aluminium wires, ensuring efficiency and reliability. The company has added plant and machinery of Rs 165.55 lakh, 232.45 lakh and 119.57 lakh for the years ending March 31, 2024, March 31, 2023 and March 31, 2022. In the period ending March 31, 2024, the company purchased one online annealer machine which cools the wires and strips simultaneously during the annealing process, which has allowed the company to expand the production very efficiently. Over the period, the company has taken adequate steps in increasing efficiency, reducing manual intervention, and diversifying the product mix. It endeavors to update its technology with time and stay ahead of time and remain competitive and relevant in the market. Based on internal assessment and inputs received from Indian Transformers Manufacturers Association (ITMA) it continuously assesses the need to upgrade for technologies.

Risks and concerns

Dependent on few numbers of customers: Its top ten customers contribute 68.47%, 62.05% and 61.53% of its total revenue from operations on standalone basis for financial year ended on March 31, 2024, 2023 and 2022, respectively. The company is engaged in the business of Manufacturing of Copper and Aluminium winding wires. Its business operations are highly dependent on its customers and the loss of any of its customers may adversely affect its sales and consequently on its business and results of operations.

Operate in labour-intensive industry: Its manufacturing processes are labour intensive in nature. In the summer months or during the harvesting season, a significant portion of its labour force return to their hometowns for summer holiday and/or to assist their families in the harvesting of crops, resulting in a temporary labour shortage which may affect the production in its manufacturing facilities. Further, if it or its contractors are unable to negotiate with the labour or their subcontractors, it could result in work stoppages or increased operating costs due to higher than anticipated wages or benefits. If it or one or more of its customers or key suppliers experience a work stoppage, such work stoppage could have an adverse effect on its business, financial condition, cash flows and results of operations.

Significant power and fuel requirements: It requires substantial power and fuel for its manufacturing facility, and its energy costs represent a significant portion of the production costs for its operations. Also, being in high volume and low margin business, increase in power and fuel cost may affect its profit margins negatively. If energy costs were to rise, or if electricity supplies or supply arrangements were disrupted, its profitability could decline. Energy prices can be affected by numerous factors beyond its control, including global and regional supply and demand, carbon taxes, inflation, political and economic conditions and applicable regulatory regime.

Outlook

Divine Power Energy is one of the growing manufacturers of Copper and Aluminium Winding Wires in India having years of experience in manufacturing of winding wires. The company is a manufacturer of Bare Copper/ Aluminium Wire, Bare Copper/ Aluminium Strip, Winding Copper/ Aluminium Wire, Winding Copper / Aluminium Strip. Winding wires / strips are manufactured by annealing and insulating wires / strips and covering them with paper, cotton, fiberglass etc. Winding wires/ strips covered with paper, crepe paper and cotton are sold to power distribution companies and transformer manufacturers to manufacture transformers and also to fix normal wear and tear. On the concern side, the market for its products is characterized by competition, involving both organized and unorganized players. Players in this industry generally compete with each other on key attributes such as technical competence, quality of products, various products line, customer base, pricing and timely delivery. Some competitors boast longer industry experience and possess greater financial, technical, and overall resources, enabling them to adapt swiftly to changing market dynamics and sustain competitiveness.

The company is coming out with an IPO of 45,22,222 equity shares of face value of Rs 10 each. The issue has been offered in a price band of Rs 36-40 per equity share. The aggregate size of the offer is around Rs 16.28 crore to Rs 18.09 crore based on lower and upper price band respectively. On performance front, its revenue from operations increased by 47.48% to Rs 22,208.00 lakh for Fiscal 2024 as compared to Rs 15,058.53 lakh for Fiscal 2023. This increase in revenue from operations was primarily due to increased sales of its products resulting from a robust growth of domestic demand. Its profit for the year increased by 124.82% to Rs 640.59 lakh for Fiscal 2024 compared to Rs 284.94 lakh for Fiscal 2023. Going forward, the company intends to increase its production of its existing product and expand its product mix to cater growing demand from its existing markets and new markets. In the current calendar year, it has started manufacturing fiberglass insulated winding wires which are used in the manufacturing of electromagnetic lifting magnets. Besides, it continues to further develop its technology systems to increase asset productivity, operating efficiencies and strengthen its competitive position.