Danish Power coming with IPO to raise Rs 197.90 crore

Danish Power

• Danish Power is coming out with an initial public offering (IPO) of 52,08,000 equity shares in a price band Rs 360-380 per equity share.
• The issue will open on October 22, 2024 and will close on October 24, 2024.
• The shares will be listed on SME Platform of NSE.
• The face value of the share is Rs 10 and is priced 36.00 times of its face value on the lower side and 38.00 times on the higher side.
• Book running lead manager to the issue is HEM Securities.
• Compliance Officer for the issue is Vimal Chauhan.

Profile of the company

Danish Power is an ISO 9001:2015, ISO 14001: 2015 and ISO 45001:2018 certified company, engaged in the business of manufacturing of different types of transformers including inverter duty transformers used in renewable power projects like solar power plant or wind farms, oil and dry type power and distribution transformers, control relay panel along with substation automation services. These transformers and panels are used across various sectors and industries to facilitate the efficient transmission and distribution of electrical power such as renewable power EPC projects like solar power plant, wind power farms, other power generation plants, power transmission, electricity sub-stations, power utilities etc. The company’s customers include companies like Tata Power Solar System, Waaree Renewable Technologies, Jakson Green Private, ABB India & Torrent Power.

The company was founded in the year 1985 and currently operates from its two manufacturing facilities located at F-679, 680, G-694, Sitapura Industrial Area, Jaipur & Plot no 02-07 & 08, DTA Phase II, PO Mahinda World City, Jaipur. It started operations at its second plant located at Plot no 02-07 & 08, DTA Phase II, PO Mahinda World City, Jaipur during the Year 2022. These plants have a combined capacity of around 4681 MVA for transformer manufacturing and a capacity of around 576 units for control relay panels manufacturing. The manufacturing facilities of the company are equipped with Foil winding machine, Oil storage tanks, Bus bar processing machine, Lath machine, CNC plasma machine, Transformer oil filter machine, Sheet rolling machine, Powder coating plant, Motorized sheet cutter machine, Power press, HV/LV coil winding machine, Vacuum drying oven with trolly, Pipe & bolt threading machine, Roller bending machine, Vacuum pump, Shearing machine insulated motorized.

The company’s manufacturing facility is staffed with a workforce of approximately 346 employees as of June 30, 2024. The company’s testing facility is NABL accredited and is capable for routine test as per industry standards along with tests such as lighting impulse withstand tests, capacitance - tan delta, temperature rise & partial discharge tests. These manufacturing capabilities and testing facilities have been critical for the production of transformers and panels with strict compliance with the regulatory standards and requirements of the customer, which are very important for customer satisfaction and client retention. 

Proceed is being used for:

• Funding capital expenditure towards expansion of the manufacturing facility of the company by building of factory shed and installation of additional plant and machinery therein
• Meeting working capital requirements
• Repayment of certain borrowing availed by the company, in part or full
• General corporate purpose

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.

By 2025, for the first time in history, Asia will account for half of the world’s electricity consumption and one-third of global electricity will be consumed in China. Over the outlook period, global electricity demand is set to grow at an accelerated pace, by an annualized 3%, as electricity consumption increases in emerging markets and developing economies (EMDEs), led by the People’s Republic of China (hereafter China), India and Southeast Asia. As the energy crisis abates, global electricity demand growth is set to rise from 2.6% in 2023 to an average 3.2% in 2024-2025. This stronger growth is well above the pre-pandemic rate of 2.4% observed in the 2015-2019 period. Indeed, by 2025 demand will increase by 2500 TWh from 2022 levels, which means that over the next three years the electricity consumption added each year is roughly equivalent to that of the United Kingdom and Germany combined. More than half of the increase will come from China. The remaining growth will largely take place in India and Southeast Asia.

The electrical equipment market share in India is expected to increase from $52.98 billion in 2022 to $125 billion by 2027, implying a robust CAGR of 11.68%. The domestic electrical equipment market is expected to grow at an annual rate of 12% to reach $72 billion by 2025. In FY23, India’s heavy electrical equipment production stood at Rs 2,44,300 crore ($29.38 billion). The electrical machinery segment grew nearly 13% with shipments jumping to $10.19 billion in the April-December 2023 from $9.06 billion in the year-ago period. The Indian textile machinery industry was expected to touch the $6 billion mark by 2022. Meanwhile, engineering accounts for about 25% of India’s total global exports in the goods sector and is one of the largest foreign exchange earners. In FY24, exports of engineering goods stood at $109.32 billion, reflecting a marginal growth of 2.1% of YoY growth. Moreover, the value of shipments to the US, the top market for India's engineering goods, stood at $17.63 billion in FY24. The engineering industry in Maharashtra reported exports worth $22.99 billion in FY24 contributing around 21.0% of India’s engineering exports. Going forward, export of engineering goods is expected to reach $200 billion by 2030. 

Pros and strengths

Established manufacturing facility: The company operates through its manufacturing facilities one situated at Plot no 02-07 & 08, DTA Phase II, PO Mahinda World City, Jaipur and another facility located at F-679, 680, G-694, Sitapura Industrial Area, Jaipur. The manufacturing facility located at Mahindra World City, Jaipur is equipped with Foil winding machine, Oil storage tanks, Bus bar processing machine, Lath machine, CNC plasma machine, Transformer oil filter machine, Sheet rolling machine, Powder coating plant, Motorized sheet cutter machine, Power press, HV/LV coil winding machine, Vacuum drying oven with trolly, Pipe & bolt threading machine, Roller bending machine, Vacuum pump and Shearing machine insulated motorized capable of manufacturing & material handling to facilitate smooth and on time production. Its manufacturing units are equipped with the required machinery, equipment and infrastructure and capable to carry out the requisite manufacturing activities and are in compliance with the manufacturing standards.

Diversified product base: The company is engaged in the business of manufacturing of different types of transformers including inverter duty transformers which are used in renewable power projects like solar power plant or wind farms, oil and dry type power and distribution transformers, control relay panel along with substation automation services. These transformers and panels are used across various sectors such as renewable power EPC projects like solar power plant, wind power farms, other conventional power generation plants, power transmission, electricity sub-stations, power utilities etc.

Existing relationship with the clients: The company focuses on building sustained and long-term relationship with its clients and constantly tries to cater customer needs with quality and products with latest technologies. Since it is mainly engaged in B2B business model, its existing clients provide it continuous business due to delivery of quality product and timely delivery. It trusts that its existing relationship and goodwill serves as a competitive advantage in gaining new clients and increasing its business with existing clients. Over the years, due to its commitment towards its customers, the company is successful in building a strong client base for its business. The company’s existing relationship with its clients represents a competitive advantage in gaining new clients, increasing its business and improve its customer retention strategy.

Risks and concerns  

Substantial portion of revenues comes from few customers: The substantial portion of its revenues has been dependent upon few customers. For instance, its top ten customers for the period ended June 30, 2024, March 31, 2024, March 31, 2023 and March 31, 2022 accounted for 87.48%, 88.04%, 76.75% and 79.86% of its revenue from operations for the respective year/period. The company’s reliance on a limited number of customers for its business exposes it to risks, that may include, but are not limited to, reductions, delays or cancellation of orders from its significant customers, a failure to negotiate favourable terms with its key customers or the loss of these customers, all of which would have a material adverse effect on the business, financial condition, results of operations, cash flows and future prospects of the company.

Significantly depend upon few of the raw material suppliers for manufacturing activities: The company’s production requires substantial amounts of raw materials which majorly includes Cold Rolled Grain Oriented (CRGO) Electrical Steel, Copper Wire, Copper Strip, Copper sheet and Aluminum Wire, Strip, Sheet, Mild Steel, Transformer Oil and Relays etc. which are subject to significant price volatility. The amount spent for the procurement of raw materials from its top ten suppliers, as a percentage of its total purchases, was 41.42% for the period June 30, 2024, was 38.70% in Fiscal 2024, 43.59% in the period Fiscal 2023 and 53.07% in the period Fiscal 2022. Volatility in the supply and pricing of its raw materials may have an adverse effect on its business, financial condition and results of operations.

Completely dependent on industries and large organizations: The company is engaged in the manufacturing of transformers and relay panels which are totally designed and manufactured for large industries, EPC service providers, public utilities and not for the general public or use in the homes. Thus the company is completely dependent on industries and large organizations which use these products, this dependency on industries may affect its profits and revenue. In case these industries refuse to accept the delivery of the product manufactured by the company it would be very difficult for it to find an alternative market to sell the manufactured product and any such present and future conflicts could have a material adverse effect on its reputation, business, results of operations and financial condition which may affect its profitability and results of operations.

Outlook

Danish Power manufactures various types of transformers, including inverter duty transformers for use in renewable power projects such as solar power plants and wind farms. They also produce oil and dry type power and distribution transformers, control relay panels, and offer substation automation services. The company has well-equipped manufacturing facilities with various machines and equipment to facilitate smooth and timely production. It also has diverse product range serving various industries such as solar and wind power, conventional power generation, power transmission, electricity sub-stations, and power utilities. On the concern side, substantial portion of its revenues has been dependent upon few customers. The loss of any one or more of its major customers would have a material adverse effect on its business, cash flows, results of operations and financial condition. Moreover, the company is significantly dependent upon few of the raw material suppliers for its manufacturing activities. Volatility in the supply and pricing of its raw materials may have an adverse effect on its business, financial condition and results of operations.

The company is coming out with a maiden IPO of 52,08,000 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 360-380 per equity share. The aggregate size of the offer is around Rs 187.49 crore to Rs 197.90 crore based on lower and upper price band respectively. On performance front, the net revenue from operation of the company increased to Rs 33247.67 lakh in financial year 2023-24 as against Rs 18870.06 lakh in the Financial Year 2022-23, representing an increase of 76.19%. The main reason for increase in the revenue from operation was increase in the demand for the Invertor duty transformers which are used in the renewable energy production i.e. Solar plant and wind farm. Moreover, the company’s profit after tax for the year increase by 344.23% from net profit of Rs 857.09 lakh in financial year 2022-23 to net profit Rs 3807.36 lakh in financial year 2023-24.

The company continuously seeks to enhance its addressable market through meetings with its proposed customers, by carrying out promotional activities though sponsorship and taking part in events conducted by Indian electrical and electronics manufacturers association and through advertisements to industrial magazines to create awareness for its products. With its wide range of products and services, it further intends to grow its presence globally. Currently, the company is focused only in some states of India. However, it intends to cater to the increasing demand of its existing customers and also increase its existing customer base by enhancing the distribution reach of its products in different parts of the country and around the globe.