Lakshya Powertech coming with IPO to raise Rs 49.91 crore

Lakshya Powertech

• Lakshya Powertech is coming out with an initial public offering (IPO) of 27,72,800 equity shares in a price band Rs 171-180 per equity share.
• The issue will open on October 16, 2024 and will close on October 18, 2024.
• The shares will be listed on SME Platform of NSE.
• The face value of the share is Rs 10 and is priced 17.10 times of its face value on the lower side and 18.00 times on the higher side.
• Book running lead manager to the issue is GYR Capital Advisors.
• Compliance Officer for the issue is Utsav Himanshu Trivedi.

Profile of the company

Lakshya Powertech started as an Engineering Consultancy and Contracting Company, distinguished for its expertise in Mechanical and Electrical services. It embarked as a freelancing consultancy in power generation and the company rapidly transitioned into a multifaceted entity with a robust expansion into Operations and Maintenance (O&M) for Gas Power Generation. It strategically expanded its operations by delving into significant Power Generation Projects, a move that was strengthened by its entry into the Oil and Gas sector. This diversification not only broadened the scope of its services but also solidified its position in the industry. Its global reach was further established through an Engineering, Procurement, and Construction (EPC) Contract in Renewables in Malaysia, and its growth extended into the Operations and Maintenance (O&M) of Oil and Gas facilities.

The company is predominantly engaged across four key sectors: Oil and Gas, Power, Renewable Energy, and Industrial. Its services are organized into various primary divisions: (i) Engineering, Procurement, Construction & Commissioning; (ii) Integrated Operation & Maintenance Services; (iii) Special Services. Within these segments, it delivers comprehensive solutions tailored to meet the unique needs of its clients, ensuring excellence at every stage of project execution. It has earned distinction in providing Engineering, Procurement, Construction, and Commissioning (EPCC) services, tailored for projects spanning the Oil and Gas, Power, Industrial, and Renewable Energy sectors. In addition to its EPCC proficiency, the company offers extensive Integrated Operation and Maintenance Services aimed at ensuring the sustained efficiency and longevity of its clients’ assets, further supported by specialized services such as testing & commissioning, overhauls, and refurbishing/retrofitting, ensuring optimal performance across multi-discipline and multi-sector projects and Trading operations. It enters into contracts primarily through a competitive bidding process.

The company is committed to quality and safety, and it has ISO 9001:2015, ISO 45001:2018 and 5S certifications, ensuring adherence to the highest standards. It maintains a vigilant focus on delivering excellence in all aspects of its operations. Its dedication to quality assurance is unwavering, driving it to continuously enhance its service portfolio. Its Promoters, driven by their entrepreneurial spirit and industry acumen, laid the groundwork for the company, steered it through growth phases, and paved the way for future expansions. Working alongside them, its experienced Managerial Team from diverse backgrounds refines and executes corporate strategies, adeptly navigating challenges, seizing opportunities, and driving it toward its goals. The backbone of its operations is its team of skilled engineers and technicians, organized into specialized departments based on their expertise areas, such as Project Engineering, Designing, Drawing, Planning, Supervision, and Execution. 

Proceed is being used for:

• Prepayment or repayment of all or a portion of certain outstanding borrowings availed by the company
• Funding working capital requirements of the company
• General corporate purposes

Industry Overview

The Power EPC Market denotes a segment within the broader energy sector concentrating on Engineering, Procurement, and Construction (EPC) services specialized for power generation, transmission, and distribution endeavors. It encompasses diverse tasks ranging from project planning and design to procurement, construction, and commissioning across various power infrastructure projects. Various significant factors shape the Power EPC Market, including increasing energy demands, the necessity to modernize aging infrastructure, government backing for renewable energy endeavors, advancements in technology, and a heightened emphasis on sustainability and carbon emission reduction. Entities operating within the Power EPC Market typically offer a wide spectrum of services, encompassing feasibility evaluations, engineering design, equipment procurement, construction supervision, project funding, and project initiation. These firms engage in collaborative efforts with a diverse array of stakeholders, such as utility providers, independent energy producers, governmental entities, and private developers, to provide integrated solutions for power infrastructure projects.

The India power EPC market refers to the sector in India that involves the Engineering, Procurement, and Construction (EPC) of power generation and distribution infrastructure. This market encompasses the planning, design, procurement of equipment and materials, and the construction of power plants, electrical grids, and related facilities necessary for the generation and distribution of electricity in India. It is a crucial sector that plays a vital role in meeting the energy needs of the country and is characterized by various technologies and sources, including conventional thermal power, renewable energy sources, and other innovative solutions. The India power EPC market involves a wide range of projects aimed at ensuring a reliable and efficient power supply to meet the growing energy demands of the nation.

India power EPC market is on the verge of significant changes that has redefined the industry outlook. Power sector in India is one of the most diversified in the world, sources of power generation include conventional sources such as coal, natural gas, oil, lignite, nuclear power, and non-conventional sources such as solar, wind, and biomass. In 2018, India ranked fourth in wind power and fifth in renewable power installed capacity. India made significant investments in clean energy which is estimated at $90 billion and is only country among the G20 nations that is on track to achieve the targets under the Paris Agreement. India power EPC market has attracted significant foreign direct investments (FDI) in the past two decades which is anticipated to be more than $15 billion accounting for 3% of total FDI inflow. There is a considerable interest from government of India in the power sector which has led to more focused approach in promoting sustained industrial growth in the recent years. According to Central Electricity Authority (CEA) the share of renewable energy generation would increase from 18% to 44% by 2029-30 and thermal is expected to see reduction from 78% to 52%. The government of India plans to establish renewable capacity if 500 GW by 2030 and has allocated $1.4 trillion under the National Infrastructure Pipeline for FY 2019-25. India’s power consumption showed a considerable increase to 50.15 billion units (BU) in the year 2020, direct result of growing economic activity. 

Pros and strengths

Substantial growth substantiated by a robust order: Within its industry, the order book serves as a key performance indicator, reflecting a portion of anticipated future revenue. While its strategy is not solely centred on increasing the order book, it prioritizes the addition of high-quality projects with the potential for greater margins. Through diversifying its expertise and expanding its order book across various industries and geographic regions, it can pursue a wider array of project opportunities, thereby optimizing its business volume and contract profitability. Over the past three years, its order book has witnessed significant growth.

Integrated operation and management services: The company provides a comprehensive range of integrated operation and management services tailored for the energy industry sector. The company’s project engagements extend to both full and partial scope, with clients entrusting it with the operation and maintenance of their assets. Its services are designed to ensure operational safety and asset control, even in the most challenging environments. This strategic outsourcing allows its clients to significantly reduce management time input, enabling them to concentrate on their core business areas without compromising on safety or asset oversight. The company provides the Integrated Operations and Maintenance service to the Power, Oil & Gas, Renewables Industry.

Operations in diverse industries and economies: The company specializes in offering comprehensive engineering, procurement, and construction services tailored to the oil and gas industry. Its journey begins by merging cutting-edge technology with meticulous engineering process design. Its proficient team manages both basic and detailed engineering, ensuring precision in every step. From civil and structural design to the installation of static and rotary equipment, electrical systems, and instrumentation, it guarantees a seamless blend of precision and expertise. Its procurement process is characterized by stringent vendor development, qualification, and assessment, coupled with thorough cost estimation, and purchasing practices to maximize value. 

Risks and concerns  

Maximum revenue comes from few customer: The company’s business and revenues are substantially dependent on a few clients. Its top five clients contributed nearly upto 78.67%, of its aggregate revenues for the financial year ended on August 31, 2024, as per its restated financial statements. It does not enter into long term contracts with its client and most of the solutions and services provided are project specific and last only upto the completion of the project. It provides EPCC, Integrated Operation & Management services backed by engineers and technicians who possesses relevant expertise of the project goes on stream. As its business is currently concentrated with a select number of clients, any adverse development with such customers, including because of any dispute with, or disqualification by such major customer, may result in it experiencing significant reduction in its cash flows. If its clients are able to fulfil their requirements by employing any of its competitors, it may lose a significant portion of its business.

Dependent on a few suppliers for purchases of products: The company’s top ten suppliers contribute 86.91%, 57.15% and 71.93% of its total purchase for the financial year / period ended on March 31, 2024, 2023, and 2022, respectively based on restated financial statement. It cannot assure that it will be able to get the same quantum and quality of supplies, or any supplies at all, and the loss of supplies from one or more of them may adversely affect its purchases of stock and ultimately its revenue and results of operations. However, the composition and amount of purchase from these suppliers might change as it continues seeking new suppliers for its product for better quality and price in the normal course of business. Though the company will not face substantial challenges in maintaining its business relationship with them or finding new suppliers, there can be no assurance that it will be able to maintain long term relationships with such suppliers or find new suppliers in time.

Huge working capital requirement: The company’s business is working capital driven. The successful operation of its business heavily relies on significant working capital, which is essential for various aspects, including financing project operations, inventory management, and the purchase of raw materials and may continue to so in future also. However, changes in credit terms and payment delays can adversely impact on its working capital, resulting in lower cash flows and increased funding requirements. Inadequate financing of its working capital needs may arise due to several factors, such as delays in disbursements under financing arrangements, higher interest rates, increased insurance costs, or borrowing and lending restrictions. Such circumstances could have a material adverse effect on its overall business, financial condition, and prospects.

Outlook

Lakshya Powertech started as an engineering consultancy firm specializing in mechanical and electrical services. The company quickly expanded from freelance power generation consultancy into operations and maintenance (O&M) for gas-fired power plants and large power generation projects. The company has strategically positioned itself to address the complex demands of the ever-evolving digital landscape, particularly in enhancing the resilience and efficiency of Data Centre amid the exponential growth of data. Leveraging its expertise in emergency power generation and fuel handling systems, it is committed to ensuring uninterrupted power supply and operational integrity for Data Centres. On the concern side, the company’s business is dependent on a few of its clients who contribute to significant of its revenues from operations. Any loss of business from them may adversely affect its revenues and profitability. Moreover, the company is dependent on a few suppliers for purchases of products. The loss of any of these large suppliers may affect its business operations.

The company is coming out with a maiden IPO of 27,72,800 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 171-180 per equity share. The aggregate size of the offer is around Rs 47.41 crore to Rs 49.91 crore based on lower and upper price band respectively. On performance front, the revenue from operations of the company for fiscal year 2024 was Rs 14,813.46 lakh against Rs 5,304.52 lakh for Fiscal year 2023. An increase of 179.26% in revenue from operations. This increase was due rise in number of projects received during the year. Moreover, profit after tax for the Fiscal year 2024 was at Rs 1,567.77 lakh against profit after tax of Rs 271.09 lakh in fiscal year 2023, an increase of 478.32%.

The company’s service portfolio is reliant on securing EPCC projects initiated by both Public and Private conglomerates. In selecting contractors for major EPCC projects, clients generally limit the tender to contractors they have pre-qualified based on several criteria including experience, technological capacity and performance, reputation for quality, safety record, financial strength, and previous experience in similar projects, as well as price competitiveness of the bid. Pre-qualification is key to its being awarded major EPCC projects. It continues to maintain long term sustainable strategic partnerships to pre-qualify with major energy conglomerates. These relationships are paramount to its success, enabling it to access new opportunities and leverage synergies within its industry. By forging these synergistic alliances, it enhances its competitive positioning and broaden its spectrum of opportunities for sustainable growth and value creation.