Transrail Lighting coming with an IPO to raise upto Rs 860 crore

Transrail Lighting

• Transrail Lighting is coming out with a 100% book building; initial public offering (IPO) of 1,99,16,097 shares of Rs 2 each in a price band Rs 410-432 per equity share.
• Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
• The issue will open for subscription on December 19, 2024 and will close on December 23, 2024.
• The shares will be listed on BSE as well as NSE.
• The face value of the share is Rs 2 and is priced 205.00 times of its face value on the lower side and 216.00 times on the higher side.
• Book running lead managers to the issue are Inga Ventures, Axis Capital, HDFC Bank and IDBI Capital Markets & Securities.
• Compliance Officer for the issue is Gandhali Upadhye.

Profile of the company

Transrail Lighting is an Indian engineering, procurement and construction (EPC) company. The company primarily focuses on power transmission and distribution business and integrated manufacturing facilities for lattice structures, conductors, and monopoles. It has a track record of four decades in providing comprehensive solutions in the power transmission and distribution sector, on a turnkey basis globally and has been a trusted and longstanding partner. It has completed more than 200 projects in power transmission and distribution vertical since its inception, along with comprehensive and extensive project execution capabilities in terms of manpower, supply of materials (including self-manufactured products) and availability of world class machinery, both in India and internationally (majorly across Asia and Africa).

Over a period of time, it has steadily invested into backward integration by adding manufacturing units for towers, conductors and poles to its business and has developed the ability to provide comprehensive solutions including designing, manufacturing, procuring, testing and supplying of conductors, towers etc. for its EPC projects and also towards direct supplies. Generally, these products and services cover a substantial part of the EPC value in a typical transmission line project, which reduces its dependency on third-party suppliers. 

The company caters to a wide client base in India including central public sector undertakings under the Ministry of Power of India, state government run and private power transmission and distribution companies. Further, it has actively diversified and expanded its business across the globe with its overall footprint of supply and service in 58 countries. It generally takes export orders which are either funded by multilateral funding agencies (which include organisations like World Bank, African Development Bank, Asian Development Bank etc) or backed by letters of credit. As on June 30, 2024, the company’s order book comprises of international projects and domestic projects and is a healthy client mix with typically governmental authorities of various countries such as India, Bangladesh, Kenya, Tanzania, Niger, Nigeria, Mali, Cameroon, Philippines, Suriname, Nicaragua etc. 

Proceed is being used for:

• Funding incremental working capital requirements of the company
• Funding capital expenditure of the company
• General corporate purposes

Industry Overview

A transmission and distribution (T&D) system comprises transmission lines, substations, switching stations, transformers, and distribution lines. To ensure reliable supply of power and optimal utilisation of generating capacity, a T&D system is organized in a grid which interconnects various generating stations and load centres. This is done to ensure uninterrupted power supply to a load centre, even if there is a failure at the local generating station or a maintenance shutdown. In addition, power can be transmitted through an alternative route if a particular section of the transmission line is unavailable. In India, the T&D system is a three-tier structure comprising distribution networks, state grids, and regional grids. The distribution networks and state grids are owned and operated by the respective state transmission utilities or state governments (through state electricity departments). Most inter-state and inter-regional transmission links are owned and operated by the PGCIL which facilitates the transfer of power from a surplus region to one with deficit.

With significant investments expected in the T&D sector in India from fiscal 2024 – 2029, the market for EPC for T&D will also improve. EPC involves engineering, procurement, and construction of a project. The cost breakup of a T&D infrastructure including EPC vary depending on size, complexity, no. of lines, substations, location, topography of land and prevailing market conditions. Generally, equipment costs account for around 50-60% of total cost. Design and engineering contribute to around 5-10% of the total cost. Civil construction including labor, material, and erection work account for around 15-20% of the total cost. Apart from these costs, other costs such as land acquisition, administrative expenses, project management, approvals/clearance, compensations contribute to 15-20% of the total cost. Considering the expected investment in T&D segment, Indian T&D EPC market is estimated at around $20.5-21 billion in 2029. The Indian T&D EPC market is expected to experience significant growth in the coming years driven by increasing electricity demand, government initiatives, strong thrust on sustainability and rising adoption of smart grid technologies.

The power transmission sector in the country has grown steadily in recent years, mainly due to the rising demand for electricity and the increasing capacity of power generation plants, particularly renewable energy plants. A major factor driving the further expansion of the grid is the need to evacuate electricity from upcoming renewable energy projects. Green energy corridors and a transmission system for renewable energy zones are already being built to make it easier to integrate renewable energy into the grid. Report on “Transmission System for Integration of over 500 GW RE Capacity by 2030” published by CEA portrays the broad transmission system roadmap for reliable integration of 537 GW RE capacity by the year 2030. The length of the transmission lines and sub-station capacity planned under ISTS for integration of additional wind and solar capacity by 2030 has been estimated as 50,890 ckm and 433,575 MVA respectively at an estimated cost of Rs 244,200 crore.

Pros and strengths

Track record of established presence and growth in power transmission and distribution vertical: The company has completed more than 200 projects in power transmission and distribution vertical, along with comprehensive and extensive project execution capabilities in terms of manpower, supply of materials (including self-manufactured products) and availability of world class machinery, both in India and internationally. With the company foraying into underground cabling and substations, it has a comprehensive execution profile for overhead transmission lines, monopole lines, underground cables, distribution networks as well as sub-stations. Additionally, it has developed extensive pre-qualifications in power transmission and distribution business owing to its extensive experience in the sector. As of June 30, 2024, it has constructed 34,654 CKM transmission lines, including more than 22,912 CKM of transmission lines which are above 220 kV thereby affirming its position as a reliable EPC partner in the ultra-high voltage (UHV) transmission lines sector.

Established manufacturing facilities: The company’s first manufacturing facility in Vadodara, Gujarat, where it manufactures galvanized lattice steel towers, was established in 1994. The manufacturing facility located in Deoli, Maharashtra, for manufacturing of galvanized steel towers was established in the year 2009. In parallel, it expanded its business by setting up two manufacturing facilities in Silvassa, Dadra and Nagar Haveli, in 2007 and 2010, for manufacturing conductors and poles, respectively. The company’s factories are fitted with advanced computer numerical control (CNC) machines, plasma / gas-cutting machines, shearing machines, welding facilities, large sized galvanizing baths, wire drawing machines and furnaces. As of June 30, 2024, it has supplied 1.3 million metric ton (MMT) of towers, 194,534 kilometer (KM) of conductors and 458,705 poles.

Strong in-house designing and engineering: The company undertakes its EPC business in an integrated manner. The company has developed key competencies and resources in-house to deliver a project from conceptualization until completion. It has an experienced team of 114 designers and engineers who are specialists in each segment of its business with a total cumulative experience of more than 17,000 man months. It also has access to industry leading software for design and engineering including software such as PLS Tower, PLS Poles, I tower, Bocad, Staad Pro, PLS Star, PLS CAAD, PLS Lit, DiLux, AGI 32, Autocad 3D, Solidworks etc.

Quality assurance: The company’s facilities are ISO 9001:2015 certified for Quality Management System, ISO 14001:2015 certified for Environmental Management System, ISO 27001:13 certified for Communications Security and ISO 45001:2018 certified for Occupational Health and Safety Management System. It has also received certifications based on external inspections such as CE and NABL. In addition to the inspections conducted by the external agencies, it also conducts internal inspection and incremental quality control of raw materials used for its projects in order to maintain quality assurance. Strict procedures followed by the company help it to ensure timely delivery and competitive prices of its products and services in the market.

Risks and concerns

Maximum revenue comes from Government authorities: The company derived a significant portion of its revenues, i.e. around 70% of its revenue from operations for the three months’ period ended June 30, 2024 and around 82% for its average revenue from operations for the Financial Years ended March 31, 2024, March 31, 2023 and March 31, 2022 from Government authorities. Any delays in tenders released or no tenders released by such entities may have a material adverse effect on its business and results of operations. Additionally, there can be no assurance that the central or state governments will continue to place emphasis on the sectors, where it operates. In the event of an adverse change in budgetary allocations for such sectors resulting from a change in government policies or priorities, its business prospects and its financial performance may be adversely affected.

Significant revenue comes from limited clients: The company’s business is substantially dependent on the revenue from operations generated from limited clients. The company has garnered 77.89%, 87.34% and 83.40% of its total revenue from top 10 customers in FY24, FY23 and FY22 respectively. Any reduction in its revenue from operations generated from these entities may have a material adverse effect on its business and results of operations.

Business is subject to seasonal or climatic fluctuations: The company’s business operations may be affected by seasonal factors which may restrict its ability to carry on activities related to its construction projects and fully utilize its resources. Heavy or sustained rainfalls or other extreme weather conditions such as cyclones could result in delays or disruptions to its operations during the critical periods of its projects and cause severe damages to its premises and equipment. In particular, the monsoon season may restrict its ability to carry on activities related to its projects and fully utilize its resources and may slow its activities on construction projects, which shifts its revenue and accordingly profit recognition to subsequent quarters. Adverse seasonal developments may also require the evacuation of personnel, suspension or curtailment of operations, resulting in damage to construction sites or delays in the delivery of materials. Such fluctuations may adversely affect or delay its revenues, cash flows, results of operations and financial conditions.

Stiff competition: The company’s business is highly competitive as it faces competition from its competitors such as KEC International Limited, Kalpataru Projects International Limited, Skipper Limited etc., in the domestic market and Chubu Electric Power, NextEra Energy Inc. etc. in international markets. These competitors are not strictly comparable with the company owing to their size and scale of operations. The company primarily procures projects on the basis of competitive bidding which entails significant managerial time to prepare bids and proposals for contracts and at times requires it to resort to aggressive pricing to be able to be awarded the contracts. It may not be in a position to aggressively price its services in the future which may result in loss of business and adversely affect its future prospects. With increased competition, its ability to estimate costs to provide services required under the contracts and ability to deliver the project in a timely manner will determine its profitability and competitive position in the market.

Outlook

Transrail Lighting is an engineering and construction company focused on power transmission and distribution and manufacturing lattice structures, conductors, and monopoles. It has proven track record of growth and established presence in the power transmission and distribution sector through effective implementation and execution skills. On the concern side, the company’s business is substantially dependent on tenders being floated by government authorities, public sector undertakings and utilities, from which it derives a significant portion of its revenues, i.e. approximately 70% of its revenue from operations for the three months’ period ended June 30, 2024 and around 82% for its average revenue from operations for the Financial Years ended March 31, 2024, March 31, 2023 and March 31, 2022. Any delays in tenders released or no tenders released by such entities may have a material adverse effect on its business and results of operations.

The company is coming out with a maiden IPO of 1,99,16,097 equity shares of Rs 2 each. The issue has been offered in a price band of Rs 410-432 per equity share. The aggregate size of the offer is around Rs 816.56 crore to Rs 860.38 crore based on lower and upper price band respectively. On performance front, the company’s total revenue increased by 30.20% from Rs 31,720.34 million in Financial Year ended March 31, 2023 to Rs 41,299.99 million in Financial Year ended March 31, 2024. This increase was primarily due to an increase in revenue from operations. Moreover, the company’s profit for the year was Rs 2,332.05 million in Financial Year ended March 31, 2024 as compared to the profit for the year of Rs 1,075.68 million in Financial Year ended March 31, 2023.

The company will continue to focus on existing projects while seeking opportunities to expand its portfolio into other allied/ancillary infrastructure sectors. It is proposing to acquire BH business of Gammon Engineers and Contractors Private Limited, in order to expand its scope to hydro power projects as well. Further, it is also planning to expand its footprint in the solar EPC industry by including turnkey projects in relation to installation of solar rooftops, solar streetlights, ground mounted solar projects etc. The company intends to draw on its experience, asset base, market position and ability to execute and manage multiple projects across various geographies to further grow its portfolio of EPC projects.