Vdeal System coming with IPO to raise Rs 18.08 crore

Vdeal System

• Vdeal System is coming out with an initial public offering (IPO) of 16,14,000 equity of face value of Rs 10 each for cash at a fixed price of Rs 112 per equity share.
• The issue will open on August 27, 2024 and will close on August 29, 2024.
• The shares will be listed on SME Platform of NSE.
• The share is priced 11.20 times higher to its face value of Rs 10.
• Book running lead manager to the issue is Affinity Global Capital Market.
• Compliance Officer for the issue is Priyabrata Nayak.

Profile of the company

The company, is an ISO 9001:2015 certified, providing solutions in Smart Low Voltage (LV) panels, Smart Medium Voltage (MV) panels, Smart Variable Frequency Drive (VFD) panels, Medium Voltage (MV) Soft Starter, Energy Management System (EMS) and Smart Programmable Logic Controller (PLC) panels, Air insulated & Sandwich busducts backed by In-house Product design & development, manufacturing, system integration, servicing of automation solutions and smart electrical control panels that adhere to high international IEC standards of quality and safety. The company has business relationships with global electrical players. Such strategic tie ups with renowned brand owners give it the competitive edge over its competitors. The company is a growing Integrated Electrical and Automation solution provider dealing in comprehensive electrical solutions across industries with significant presence in multiple Industry segments. Its products are supplied to industry players through a business-to-business (B2B) model.

The company is also fueling the next wave of AI (Artificial Intelligence) and ML (Machine Learning)-driven innovation solution that can integrate IOT (Internet of things), AI and ML into a Cloud based Software as a Service (SaaS) Model. Over the past few years, IoT has become one of the most important technologies of the 21st century through which everyday objects like kitchen appliances, cars, thermostats, baby monitors can be connected to the internet via embedded devices. Hence, by providing IoT solutions, the company aims to integrate seamless communication between people, processes, and things.

Proceed is being used for:

• Meeting the working capital requirements
• Prepayment and repayment of all or a portion of certain secured and unsecured loan
• General corporate purposes
• Meeting the offer expenses

Industry Overview

India’s industrial automation and instrumentation market size is expected to grow by $2.58 billion during 2020-2024. It is expected to post a year-over-year growth rate of 9.38%. The market size of industrial automation in India is anticipated to expand significantly, driven by advancements in technologies such as the Industrial Internet of Things and Industry 4.0. These technologies are central to the evolution and management of smart factory automation, where machinery and devices are interconnected via the internet. The adoption of automated equipment is also expected to grow in the healthcare industry due to the expansion of manufacturing sectors. However, the high installation and acquisition costs of automation systems, as well as frequent changes in technology, are factors that may hinder the growth of this market. Furthermore, the COVID-19 pandemic and the associated lockdown restrictions have posed significant challenges to industrial activities, such as labor shortages and supply chain disruptions, which could impact the market's expansion.

The India - electrical equipment market is projected to reach a value of USD 52.98 billion at a CAGR of 11.68% between 2022 and 2027. The India electrical equipment market is experiencing significant growth due to rapid urbanization and infrastructural development. The market includes various segments such as power distribution equipment, transmission equipment, and generation equipment. India's government initiatives like Make in India have encouraged domestic manufacturing and boosted the electrical equipment sector. 

Given the huge unsaturated market for the automotive industry, industrial manufacturing, healthcare, etc., and with favorable policy changes by the Indian government in the past couple of years, India is deemed to become the global industrial hub. With 1.4 billion strong consumers, consumer IoT, automotive IoT, and healthcare IoT are also bound to grow strong in upcoming years. By 2028, the Indian IoT market is expected to reach $59.99 billion, of which $21.78 billion would account for industrial IoT and $21.26 billion for automotive IoT. The consumer IoT is also expected to reach $5.55 billion. The Internet of Things is one of the prominent industry 4.0 technologies, driving manufacturing supply chain and retail businesses globally and that is why the IoT market is witnessing a CAGR of over 16% over a period of 10 years (2018-2028). With the global semiconductor shortage slowing down the market supply chain and growth (pre-pandemic levels), the IoT demand in industry, security, and smart city projects is still on the rise. With more Indians adopting a tech-savvy lifestyle including smart homes, wearables, smart travel, etc., IoT is unstoppable.

Pros and strengths

Tailoring or customization of products: The company takes pride in manufacturing smart electrical control panels that adhere to the global standard IEC 61439 Part-1 and Part-2. The company prioritizes design verification to ensure the highest quality with safety regulations and compliance with international specifications. With a keen focus on customization, the company goes beyond providing standard solutions, offering a range of Electrical Control Panels designed to specifically address individual customer requirements. The company's dedication towards digitalization of Electric Control Panels with optional implementation of IoT strategically places it at the forefront of the industry, ensuring that each Electrical Control Panel is designed and manufactured with precision, efficiency, and the latest technological advancements.

Location advantage and competitive pricing: The company’s manufacturing unit is strategically located at Eastern Region of India i.e., Bhubaneswar, Orissa with International standards IEC 61439. Orissa is rich in mineral resources like coal, iron ore, bauxite, and chromite and mining industries ensuring stable industrial environment with established regulatory frameworks and favorable investment policies. Establishment of various Industrial belts, SEZ Units, renowned big Industries provides a favourable business environment for long-term operations and growth. Further, the state has several major ports like Paradip and Dhamra, providing convenient access to international markets. It also has significant workforce skilled in various manufacturing sectors like steel, aluminum, petrochemicals, and textiles, hence the company has an advantage of easy availability of skilled labour.

Nurturing a strong brand reputation: The company is a leading manufacturing company in the Eastern Region of India for manufacturing and complete solution provider in the field of SMART LV & MV Electrical Control Panels, Industrial Automation, & Industrial IoT. The company playing a pivotal role in fostering a robust brand reputation within the demanding sectors of steel, power, and mining industry by forming strategic partnerships and collaborations with leading brand owners, Tech-driven companies and cloud service providers, the company incorporating cutting-edge technology into the production process, companies can enhance efficiency, reduce lead times, and ensure precision in the fabrication of electrical control panels. These partnerships or alliances drive innovation and help it to reach more customers ensuring that manufactured panels are well -adapted to meet evolving changing market demands.

Risks and concerns  

Maximum revenue comes from few customers: The company’s business is dependent on a few customers and the loss of, or a significant reduction in orders by such customers could adversely affect its business. Revenues from any of its particular customers may vary significantly from reporting period to reporting period, depending on the nature of ongoing orders and the implementation schedule for such orders. The efficiency of the sales and marketing network is critical to success of the company. The company’s top ten customers contribute 55.14%, 75.90% and 70.50% of its total sales for the financial year ended on March 31, 2024, 2023 and 2022, respectively. The company’s success lies in the strength of its relationship with the customers who have been associated with the company. However, such concentration of its business on a few customers may adversely affect the company if it does not achieve its expected margins or suffer losses on one or more of these customer contracts.

Geographical constrain: Significant portion of the company’s revenue is concentrated in Odisha and West Bengal. Any factors relating to political and geographical changes, growing competition and any change in the demand for its service by customers of these states may adversely affect its ability to retain them. From the total topline of Rs 26.22 crore, Rs 20.72 crore and Rs 16.18 crore in FY24, FY23 and FY22, Revenue of Rs 21.51 crore, Rs 12.66 crore and Rs 12.22 crore were generated from Odisha, while Rs 3.84 crore, Rs 8.03 crore and Rs 3.92 crore is generated from West Bengal. The company cannot assure that it shall generate the same quantum of business, or any business at all, from these states, and loss of business from one or more of them may adversely affect its revenues and profitability.

Global Shortage in chip supply could have adverse effects: The global shortage in chip supply poses a business risk to its manufacturing process. As chips are integral components in a wide array of electronic devices, including those used in its Electrical Control Panels, any disruption in the supply chain could severely impact its ability to produce goods efficiently and meet customer demand. This shortage not only threatens production timelines but also increases costs due to potential price hikes and the need to explore alternative sourcing options. Moreover, prolonged shortages could lead to delays in product launches, loss of market share, and ultimately, diminished profitability. Therefore, it is imperative for the company to proactively diversifying its supply chain, fostering closer relationships with chip suppliers, and exploring strategic partnerships to ensure continuity in its manufacturing operations despite the challenges posed by the chip shortage. However, the company has not faced any such instance in the past. 

Outlook

Vdeal System is ISO 9001:2015 certified company and is an Integrated Electrical and Automation solution provider. The company specializes in Smart Low Voltage panels, Smart Medium Voltage panels, Smart Variable Frequency Drive panels, Medium Voltage Soft Starter, Energy Management System, and Smart Programmable Logic Controller panels. They also offer air-insulated & Sandwich bus ducts. Their services include in-house product design & development, manufacturing, system integration, and servicing of automation solutions and smart electrical control panels that comply with high international IEC standards for quality and safety. The company’s product portfolio includes several Sense IoT Gateway, Reveal Sense Node and REVNET IIoT Platform. On the concern side, the company’s business is substantially dependent on certain key customers; from whom it derives a significant portion of its revenues. The loss of any significant customer may have a material and adverse effect on its business and results of operations. Moreover, significant portion of its revenue has been generated from Eastern part of India, any loss of business from these states may adversely affect its revenues and profitability.

The company is coming out with a maiden IPO of 16,14,000 equity shares of Rs 10 each at a fixed price of Rs 112 per share to mobilize Rs 18.08 crore. On performance front, total Income for the Financial Year 2023-24 stood at Rs 2,625.08 lakh whereas the same stood at Rs 2,075.41 lakh in financial year 2022-23, representing an increase of 26.48%. This significant growth is mainly attributable to increase in sales of the company which is mainly on account of company’s focus on growth in production and sale of its key product i.e. Smart Electrical Control Panels and Automation Panels. Moreover, the company had reported net profit after tax of Rs 311.38 lakh, in financial year 2023-24, which marks a substantial increase when compared to the preceding financial year, 2022-23, where the PAT was Rs 110.09 lakh. There is an increase in PAT by 182.83% which is mainly due to an increase in revenue from operation and increase in revenue from its Manufactured product in the financial year 2023-24. Meanwhile, the company plans to diversify its solution categories into other industries or market places, while maintaining its focus on Electrical Control Panels and related electronics equipment. The company is now venturing into the renewable energy segment by implementing IoT sensors, which will add value and complement its existing offerings such as smart panels and solar energy solutions. This move allows it to seize growth opportunities emerging in the Indian energy sector and helps mitigate overall business risks. Going forward, the company aims to enhance its product and service portfolio to drive business growth by aligning with the evolving needs and technological advancements of various industries.