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The Indian equity market is buzzing with the latest IPO from Transrail Lighting Limited, a prominent player in the Engineering, Procurement, and Construction (EPC) space. The company focuses on power transmission, civil construction, poles and lighting, and railway infrastructure.
But should you invest in the Transrail Lighting Limited IPO?
Let’s know more about Transrail Lighting Limited IPO, its fundamentals, financial performance, and competitive position.
Transrail Lighting Limited IPO is open for subscription from (19th Dec 2024) today onwards!
Transrail Lighting Limited IPO Details:
- IPO Open Date 19th December 2024, Thursday
- IPO Close Date 23rd December 2024, Monday
- Price Band ₹410 to ₹420 per share
- Lot Size 34 shares
- Face Value ₹2 per share
- Issue Size at upper price band ₹839 crore (Fresh Issue ₹400 crore and Offer for Sale ₹439 crore)
- Listing exchanges NSE, BSE
- Cut-off time for UPI mandate confirmation by 5 PM on December 23, 2024
The tentative timeline for the IPO is as follows:
- Basis of Allotment 24th December 2024, Tuesday
- Initiation of Refunds (if not allotted) 26th December 2024, Thursday
- Credit of Shares to Demat (if gets allotments of shares) 26th December 2024, Thursday
- Listing Date 27th December 2024, Friday
About the Company
Founded in 2008, Transrail Lighting Limited has established itself as a key player in the power transmission and distribution (T&D) sector. The company’s expertise spans the design, manufacturing, testing, installation, and supply of galvanized steel structures for power transmission. With a presence in 58 countries, including Bangladesh, Kenya, Tanzania, and Nigeria, Transrail has built a global reputation for executing complex EPC projects. Let’s understand their services:
- EPC of Transmission & Distribution Lines: The company’s power transmission and distribution portfolio covers a wide range of services, including the design, manufacturing, testing, installation, and supply of galvanized steel structures. It serves as an EPC service provider and a supplier of engineered products in this sector. Additionally, it offers EPC services for air-insulated and gas-insulated substations.
- Civil Construction: The company offers EPC services, such as designing bridges, tunnels, elevated roads, and other civil infrastructure projects. It has been awarded the Kosi Bridge project, which is one of the most significant civil construction projects it is currently executing in India. Its civil construction services are primarily provided within India.
- Poles & Lighting: The company offers a wide range of manufacturing capabilities, including high masts, street poles, stadium lighting, road gantries and signage, flag masts, solar streetlights, and more. It functions as both a manufacturer and a service provider, offering supply, installation, testing, and commissioning in the poles and lighting sector. The poles and lighting division mainly serves the Indian market with select international projects. Recently, it expanded its factory to include a dedicated facility for signage.
- Railways: The company offers a range of railway-related services, including overhead electrification signaling and telecommunication services, earthwork, track linking, and other related works. The railway division operates solely in India, where it provides services to government-owned companies and corporations under the Ministry of Railways.
Let’s look at the revenue breakup.
Sector Outlook in India
India’s power sector is extensively diversified, incorporating a wide range of power generation sources, from conventional ones like coal, lignite, natural gas, oil, hydro, and nuclear power to sustainable, non-conventional sources such as wind, solar, biomass, and municipal waste. Over the years, the transmission & distribution (T&D) infrastructure has grown to facilitate the transfer of electricity from generation stations to load centres through both intra-state and inter-state transmission systems (ISTS).
The transmission segment plays a crucial role in continuously delivering power to various distribution entities across the country. To ensure a smooth flow of electricity, the transmission sector must expand in parallel with generation capacity growth. In order to guarantee a reliable power supply and maximize the use of generating capacity, the T&D system is organized into a grid that connects different generating stations and load centres. It is expected that there will be an addition of 50,890 circuit kilometres (ckm) of transmission lines till FY30.
Read our blog to learn more about which infrastructure stocks should be in your portfolio.
Financial Performance of the Transrail Lighting Limited IPO
Sanathan Textiles has experienced fluctuating financial performance over the past three fiscal years. Revenue from operations stood at ₹3,185 crore in FY22, ₹3,329 crore in FY23, and ₹2,958 crore in FY24. EBITDA also declined from ₹538 crore in FY22 to ₹260 crore in FY23 and further to ₹227 crore in FY24. The net profit for FY22 was ₹355 crore, but it declined to ₹153 crore in FY23 and ₹134 crore in FY24. The dip in FY24 can be attributed to lower cotton yarn prices and reduced demand in the textile sector. However, the ongoing expansion of its manufacturing capacity is expected to bolster future revenue streams
Transrail Lighting Limited competes with significant industrial companies such as KEC International Ltd, Skipper Ltd and Bajel Projects Ltd. It stands out in the industry and has a strong market position compared to its peers. While KEC International has a market cap of ₹31,696 crore and an EBITDA margin of 6.1%, Transrail’s EBITDA margin of 11.7% is significantly higher. Skipper Limited and Bajaj Projects have EBITDA margins of 9.7% and 0.9%, respectively, both of which are lower than Transrail’s margins. In terms of valuation, Transrail’s P/E ratio of 24.9x is more reasonable compared to Bajaj Projects’ extremely high ratio of 161.6x. At the same time, KEC International boasts a larger market cap. Transrail’s superior margins and competitive P/E ratio position it as a strong contender in the EPC space.
Objectives of the Issue
The primary aims of the Transrail Lighting IPO are to strengthen the company’s financial position, promote operational growth, and improve overall efficiency.
- Funding the Incremental Working Capital Requirement: The company would use ₹217 crore of the net proceeds to increase its operating capital. This will ensure enough liquidity to cover day-to-day operations expenses, efficiently execute ongoing EPC projects, and handle cash flow requirements that may arise as a result of longer project schedules. This step will allow the organization to manage larger contracts and increase its project pipeline.
- Funding the Capital Expenditure of the Company: The company aims to utilize ₹91 crore on capital expenditure. This will be used to upgrade and modernize its existing manufacturing facilities, increase production capacity, and incorporate sophisticated technology.
- General Corporate Purposes: The remaining proceeds will be utilized for general company purposes. This may involve reducing debt, increasing operational efficiency, capitalizing on possible development opportunities, and supporting corporate initiatives that foster long-term success. This allocation gives financial flexibility, relieves financial stress, and allows the organization to pursue potential strategic possibilities in the EPC market.
These objectives are crucial for ensuring that Transrail Lighting is well-positioned to achieve sustainable growth, strengthen its competitive edge, and expand its footprint in both domestic and international markets.
Let’s now look at the risk factors of Transrail Lighting Limited IPO.
Risk Factors
While the Transrail Lighting Limited IPO appears promising, investors should consider the following risks:
- High dependency on government contracts: 82.7% of revenue comes from government clients.
- Customer concentration: Revenue from the top five customers constitutes 64% of total revenue.
- Exposure to forex fluctuations: Foreign currency fluctuations may affect cash flow.
Despite these risks, Transrail’s strong order book and diversified revenue streams offer resilience.
Should you subscribe to Transrail Lighting Limited IPO?
Considering the company’s strong financial performance, robust order book, diverse business model, and potential development outlook, the Transrail Lighting Limited IPO is a compelling investment opportunity. The company’s EBITDA margins are higher than those of its peers, and its valuation is reasonable at 24.9x P/E. Furthermore, the planned use of IPO proceeds for working capital, capital expenditures, and corporate objectives is intended to improve operational capacity and financial stability.
However, investors should be aware of some concerns, such as reliance on government contracts and customer concentration. Given the company’s development potential, competitive positioning, and good sector outlook, subscribing to this IPO may be a suitable alternative for long-term growth investors.
Before investing in the Transrail Lighting Limited IPO, consider the potential risks and rewards. This blog provides a full overview of the primary advantages and potential drawbacks of investing in this IPO.
StockEdge’s expert panel has rated the Transrail Lighting Limited IPO as “Average”, reflecting a cautious but balanced outlook. To provide more clarity, we’ve prepared a Transrail Lighting Limited IPO Note, which offers a detailed analysis of the company’s financial position and a SWOT assessment, giving you a deeper understanding of its growth prospects.
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