Understanding Business, SWOT Analysis, Financials and Risks in Rishabh Instrument IPO

A) Business Overview

a) Rishabh Instruments is a global energy efficiency solutions provider with a focus on electrical automation, metering, and measurement.

b) The company’s applications span across various sectors like power, automotive, and industrial.

c) Rishabh Instruments designs, develops, manufactures, and sells a wide range of products under its own brand.

B) Product Portfolio

a) Over 145 product lines and 0.13 million SKUs as of May 31, 2023.

b) The company’s products include electrical automation devices, metering and control devices, portable test instruments, and solar string inverters.

C) Vertical Integration

a) Rishabh Instruments has vertically integrated operations, from designing and development to manufacturing and supply.

b) The company also offers aluminum high-pressure die casting solutions via its subsidiary, Lumel Alucast.

D) Global Presence

a) Manufacturing facilities in India, Poland, and China.

b) The company has served customers in over 100 countries across various sectors.

E) Revenue Breakup

They have 5 main revenue segments i.e. Electrical automation, Metering control and Protection devices, Portable test and measurement instruments, Solar string inverters and Aluminium high pressure die-casting.

65% –  Global Operations
35% – India Operations

For Revenue they are dependent on the long-term relationships that they have established with their customers, especially the marquee customers such as ABB India Limited, Siemens Limited, Pronutec S.A, Gossen Metrawatt GmBH, Inox Solar Energy, Saicon Power System and Endress+Hauser Flowtec AG, as they primarily cater to the electrical automation and aluminium industry.

F) Financial Performance

a) Revenue has increased from INR 390 Cr in F21 to INR 570 Cr in Fy23. A CAGR of 21% in the last 3 years.

b) EBITDA margins have gone down from 17% in Fy21 to 15% in Fy23. This is because their 40% business comes from Poland.

The geopolitical conflict between Russia and Ukraine, along with sanctions by the Polish Government, exposes Rishabh Instruments to a significant risk in terms of natural gas supply for its Poland Manufacturing Facility II. While a complete cut-off is less likely due to local distribution, but the cost of natural gas have spiked. Resulting in pressure on margins.

c) The Net-profit has increased from INR 35 Cr in Fy21 to INR 50 Cr in Fy23. Not much growth due to pressure on EBITDA margins.

d) In the last 3 years, they have generated cash flow from operations of INR 98 Cr.

G) Sales and Distribution Network

a) A strong network of 175 authorized distributors in India and 339 globally.

b) Eight sales and marketing offices in India and five globally.

H) Research and Development

a) Strong focus on R&D with centers in India, Poland, and China.

b) A team of 95 engineers as of May 31, 2023.

c) Granted patents in India, the United States, Poland, and the United Kingdom.

I) Management Team

Founded in 1982 by Narendra Joharimal Goliya, a highly experienced individual with a background in electrical engineering and over four decades in the industry.

J) Strengths

a) Diverse Product Portfolio: Rishabh Instruments offers a wide range of products catering to various industries.

b) Global Reach: The company’s global presence allows it to tap into markets across the world.

c) Innovation: A strong focus on R&D gives the company a competitive edge.

d) Vertical Integration: Complete in-house capabilities offer better control over quality and costs.

K) Weaknesses

a) Over-Dependence on Global Markets: With over 65% revenue coming from overseas, Rishabh Instruments is exposed to global economic fluctuations. That means out of INR 570 Cr in Fy23, INR 370 Cr is coming from global subsidiaries in China, Poland, UK and USA. And, out of that 40% is coming from Poland.

b) Complex Supply Chain: Managing a large number of SKUs and a global supply chain can be challenging.

L) Opportunities

a) Expanding into emerging markets.

b) Focusing on sustainable energy solutions.

M) Threats

a) Increasing competition in the energy efficiency solutions market.

b) Regulatory changes and compliance requirements.

G) Projected Valuation Analysis for Rishab Instruments After IPO

Introduction

The management of Rishab Instruments has made a forward-looking statement, projecting a 22-25% growth in their top-line revenue over the next three years post their fund-raising event. Based on this, we have conducted an analysis to understand the potential valuation of the company.

Assumptions

a) We are taking a conservative approach by assuming only a 20% top-line growth.

The financials are given in INR Crore.

Financials for FY23 (Base Year)

a) Revenue: ₹570 Crore

b) EBITDA: ₹86 Crore

c) PAT (Profit After Tax): ₹50 Crore

Projected Financials for FY24

a) Revenue: ₹684 Crore (20% growth from FY23)

b) EBITDA: ₹109 Crore (20% growth from FY23)

c) PAT (Profit After Tax): ₹68 Crore (20% growth from FY23)

Valuation Metrics

Price-to-Earnings Ratio (P/E): We are considering a P/E ratio of 30 for this analysis.

Market Capitalization (Mcap)

a) Mcap = P/E * Projected PAT for FY24

b) Mcap = 30 * 68 = ₹2040 Crore

Total Shares Outstanding After IPO

a) 3.79 Crore shares

Price Per Share

a) Price Per Share = Mcap / Total Shares Outstanding

b) Price Per Share = ₹2040 Crore / 3.79 Crore

c) Price Per Share = ₹537.73

Conclusion

Based on the above analysis, we expect the Market Capitalization of Rishab Instruments to be around ₹2040 Crore post-IPO, with a projected price per share of approximately ₹538. This indicates a potential upside of 20% on listing.

Please note that this analysis is based on various assumptions, including a 20% growth in top-line and a P/E ratio of 30. Investors are advised to conduct their own due diligence before making any investment decisions.