Rajesh Power Services coming with IPO to raise Rs 160.47 crore

Rajesh Power Services 

• Rajesh Power Services is coming out with an initial public offering (IPO) of 47,90,000 equity shares in a price band Rs 319-335 per equity share. 
• The issue will open on November 25, 2024 and will close on November 27, 2024.
• The shares will be listed on SME Platform of BSE.
• The face value of the share is Rs 10 and is priced 31.90 times of its face value on the lower side and 33.50 times on the higher side.
• Book running lead manager to the issue is ISK Advisors.
• Compliance Officer for the issue is Jyoti Dakshesh Mochi. 

Profile of the company

Rajesh Power Services (RPSL) offers services to Renewable and Non-Renewable segment of Power sector. In Renewable power sector, the company offer technical services to setup solar power plant and also work on Turkey bases to build operate and maintain solar power plant. Further in Non-Renewable power sector RPSL offers services which includes implementation of Turnkey projects for laying Extra High Voltage cables & transmission lines, setting up Extra High Voltage (EHV) substation, Design and implication of underground power distribution system. Rajesh power also offers Operations and Maintenance which includes operating and maintaining solar plants and EHV substations. Further the company is also engaged into providing Utility Services to power plants and power transmission companies, services include cable fault location and rectification, Replacement and retrofitting of transformers and switch gears. Rajesh Power also provides services Consultancy Services with regard to designing of power substations and cable system. The clients include Government and private companies which are into Power generation, transmission and distribution of power. 

Proceed is being used for:

• Capital expenditure including Purchase of cable identification, testing and fault location equipments; Setting up of DC Solar Power Plant having capacity of 1300 KW; and Inhouse development of Technical Expertise in Production of Green Hydrogen and associated equipment such as Electrolysers. 
• Additional Working Capital Requirement
• General Corporate Purpose

Industry Overview

India’s transmission segment has undergone a significant transformation over the years, transitioning from a fragmented network to a well-integrated and interconnected grid. The segment has taken significant strides in expanding the physical infrastructure of the grid and consolidating it into one of the largest synchronous grids globally. Looking ahead, as India aims to meet 50 per cent of its generation capacity from non-fossil fuel sources by 2030, and given the rising significance of electricity in the nation’s energy mix, substantial investments will be imperative in both the inter-state and intrastate transmission networks. India is the third-largest producer and consumer of electricity worldwide, with an installed power capacity of 429.96 GW as of January 31, 2024. As of January 31, 2024, India’s installed renewable energy capacity (including hydro) stood at 182.05 GW, representing 42.3% of the overall installed power capacity. As of January 31, 2024, Solar energy contributed 72.31 GW, followed by 44.95 GW from wind power, 10.26 GW from biomass, 4.99 GW from small hydropower, 0.58 from waste to energy, and 46.93 GW from hydropower. The non-hydro renewable energy capacity addition stood at 15.27 GW in FY23, up from 14.07 GW in FY22.

The expansion of transmission networks is driven by the increasing capacity of renewable energy. To ensure adequate infrastructure for renewable projects, the transmission system is planned in advance, aligned with the shorter gestation period of wind and solar projects. The CEA’s plan outlines transmission for major renewable zones, with some parts commissioned and others in progress. With the government targeting 500 GW of renewable energy by 2030, significant expansion of transmission systems is under way, supported by the Green Energy Corridor (GEC) project. The evolving energy mix, including the rise of prosumers and decentralized energy generation, adds complexity to grid management, emphasizing the importance of green grids and GECs. Additionally, the focus on creating a regional power grid is meant to optimize resources in South Asia and stabilize India’s grid amidst growing renewables. Cross-border interconnections, such as those with Bangladesh and Nepal, are being enhanced to accommodate increased transmission capacity, while plans for an overhead link with Sri Lanka are under way. Offshore wind transmission is also a key focus, with India targeting 37 GW by 2030.

Pros and strengths

Business execution expertise and Strong Order Book of Rs 2,35,817.40 lakh: Successfully executed several projects in power sector, working as EPC Contractors for Government and private sector companies since more than two decades. The company have developed In-house expertise to execute varied projects in renewable and non-renewable power sector and is having on-hand confirmed orders of Rs 2,35,817.18 lakh which are to be executed in the next three years.

Exploring opportunities to expand business offerings in renewable energy: The company is in the business of EPC contracting and providing services to power transmission and distribution utilities. The company has its presence in renewable and non-renewable energy sector, since 2012, RPSL under the Government of Gujarat’s First Solar Scheme (Charanka), owns and operates 1 MW Solar Power Plant at Gujarat. The company aims to expand its renewable energy portfolio by setting up a Solar Power Plant having Capacity of 1300 KW DC. Further, the company aims to built its offering in green Hydrogen energy sector by developing expertise for which it has entered into consulting agreement with B.B Chauhan who will assist it in hiring technical engineers/ experts and guide it in arranging getting technical expertise by entering into Knowledge sourcing, Technology transfer agreements/tie-ups with Bhabha Atomic Research Centre (BARC) in green hydrogen sector. 

Consistent Financial Performance: Demonstrated strong financial performance, and total income as per Restated Standalone Financial Statement has grown at CAGR of 40.55% from Rs 14,936.84 lakh in financial Year 2021-22 to Rs 29,506.07 in financial year 2023-24. Consistently growing the business year on year and also maintaining healthy profit margins. Profit for the year as per Restated Financial Information has grown at a CAGR of 174.80% from Rs 344.60 lakh in financial yearn 2021-22 to Rs 2602.29 lakh in financial year 2023-24. The Total income as per Restated Standalone Financial Statement for period ended on 30th September 2024 is Rs 31,785.09 lakh and Profit for the said period is Rs 2768.25 lakh. The company expect to explore new business opportunities in coming years and continue to grow its business and show strong financial performance.

Risks and concerns  

Dependent on infrastructure projects undertaken by governmental authorities: The company’s business is substantially dependent on infrastructure projects undertaken by governmental authorities and other entities funded by Governments. Contracts awarded by central, state and local governmental authorities are tender-based. It competes with various infrastructure companies while submitting the tender to Government and other agencies. In case it does not qualify or are not amongst the lowest bidders, it stands to lose the business. It cannot assure that any of the bids that it submits would be accepted/ awarded to it; therefore, its ability to procure the business by bidding at the lowest rates is crucial for its revenues. Further, company prepares the tender as competitive as possible and bids at the competitive rates to get bids accepted/awarded.

Business is manpower intensive: The company’s business is manpower intensive and it is dependent on the availability of its permanent employees and the supply of a sufficient pool of contract labourers at its project locations. Unavailability or shortage of such a pool of workmen or any strikes, work stoppages, increased wage demands by workmen or changes in regulations governing contractual labour may have an adverse impact on its cash flows and results of operations. The number of contract labourers employed by it varies from time to time based on the nature and extent of work contracted to it and the availability of contract labour. It may not be able to secure the required number of contractual labourers for the timely execution of its projects for a variety of reasons including, but not limited to, possibility of disputes with subcontractors, strikes, less competitive rates to its sub-contractors as compared to its competitors or changes in labour regulations that may limit availability of contractual labour. 

Rely on third-party contractors: The company relies on third-party contractors and its employees for the development, construction and operation of its projects as well as other business operations. While it maintains a diversified set of vendors, it remains subject to the risk that the third-party contractors will not perform their obligations. If the third-party contractors do not perform their obligations or if they deliver any components that have a manufacturing defect or do not comply with the specified quality standards and technical specifications, it may have to enter into new contracts with other contractors at a higher cost or suffer schedule disruptions. Changing a contractor may incur additional costs in finding a replacement service provider or experience significant delays. 

Outlook

Rajesh Power Services is amongst the largest players in the country firmly established in the underground power transmission and infrastructure EPC space. The company today has proven experience and expertise in executing large-scale projects with notable capabilities that deliver end-to-end solutions covering design, consultancy, procurement, project execution, & testing and commissioning projects on a turnkey basis. It is also a leading power utility service provider in the area of operations and maintenance services, utility services like cable testing and fault location for its utility as well as private clients. With strengthened resident talent and expertise in HV/EHV transmission and distribution system, it is currently providing consultancy and turnkey project execution services to state transmission and distribution companies. The group has experience and proven track record of transmission projects up to 220 KV including underground cable laying up to 220 kV cables with full-fledged facility for cable jointing, terminations and testing--commissioning for such projects. On the concern side, the EPC activity carried on by the company is working capital intensive. There is always an amount of risk involved due to longer execution period, fluctuation in material and equipment prices and cost overrun due to delay in project completion on account of availability of right of way (ROW) and other necessary clearances, etc.

The company is coming out with a maiden IPO of 47,90,000 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 319-335 per equity share. The aggregate size of the offer is around Rs 152.80 crore to Rs 160.47 crore based on lower and upper price band respectively. On performance front, the company’s total income/Revenue is increased by Rs 8,388.50 lakh or 39.72% from Rs 21,117.57 lakh in FY 2022-23 to Rs 29,506.07 lakh in FY 2023-24, primarily due to an increase in its revenue from operations and profit from partnership firm. The company’s Profit after Tax had increased by Rs 1927.15 lakh or 285.44%, from Rs 675.15 lakh in Fiscal 2023 to Rs 2602.29 lakh in Fiscal 2024. Meanwhile, to expand the company’s business operations in Renewable energy sector it plans to develop expertise in green hydrogen energy sector. It wishes to develop inhouse expertise by recruiting technical staff having experience in setting hydrogen electrolyser. It will also tie-up with BARC, and other institutions for knowledge transfer/ technology for setting up hydrogen electrolyser. To obtain cost reduction and complete projects within the estimated time, the company intends to develop and implement different approaches for each and every project.