High quality Energy Electrical Equipments (QPEE), an organization specialising in energy equipments and options throughout transmission and distribution (T&D), is out with its IPO which is open till February 18. The IPO is a mixture of contemporary challenge and supply on the market to the tune of ₹225 crore and ₹633.7 crore respectively, totalling to ₹858.7 crore. The IPO stands subscribed 62 per cent as on the finish of day one.
Promoter stake reduces from 100 per cent to 73.9 per cent post-IPO.
Of the contemporary funds raised, ₹117 crore would fund the acquisition (51 per cent stake) of Mehru Electrical and Mechanical Engineers, a notable participant in instrument transformers, ₹27.2 crore in direction of capex and the remaining to fund inorganic development and different common company functions.
QPEE is among the few world producers of high-voltage vital gear that goes into energy transmission and energy automation.
Whereas on the face of it, QPEE is valued at 33 occasions (31 occasions together with Mehru financials) its annualised FY25 earnings; this features a excessive ‘different earnings’ element in its internet earnings. Nonetheless, contemplating adjusted earnings, after excluding non-operating earnings, PE stands at an costly 46 occasions (43 occasions together with Mehru financials).
Closest opponents — GE T&D India, Transformers & Rectifiers (India) and Siemens, are buying and selling at 68.5 occasions, 62.4 occasions and 60.8 occasions respectively, their FY25 earnings. Hitachi Vitality is buying and selling at 152.5 occasions its CY24 earnings. Whereas this would possibly make QPEE’s valuation comparatively cheaper, it stays costly on an absolute foundation.
Whereas QPEE seems to be cash-rich and the explanation for IPO, as quoted by the administration, is the higher visibility that itemizing brings in, absolute valuation is on the costly facet, particularly given the cyclical nature of its enterprise. Trade tailwinds, give attention to R&D and world footprint work in favour. However given the valuation, buyers can provide the IPO a miss, and wait and look ahead to now.
The enterprise
The demand for energy gear going into Excessive Voltage Direct Present (HVDC) and Versatile AC Transmission Programs (FACTS) is predicted to develop at a CAGR of 75 per cent globally and 60 per cent in India throughout FY24-28 (per a Care Edge Analysis Report). This is able to assist regulate the stress on the ability grid owing to rising contribution from renewable vitality and management transmission losses with increasing cross-border and elongated transmission strains.
QPEE matches proper right here with product choices comparable to energy reactors, transformers, line traps, instrument transformers, capacitor banks, converters, harmonic filters, reactive energy compensation techniques, STATCOM and static VAR compensator techniques (SVC), largely catering to HVDC and FACTS applied sciences.
The corporate has two manufacturing amenities in India and one in Turkey.
Abroad to home enterprise combine is at 75:25 for the corporate, and it’s anticipated to stay the identical within the near-to-medium time period. QPEE has footprint in over 100 nations throughout Asia, West Asia, North America, South America, Australia and Europe.
Clientele disclosed contains GE T&D, Hitachi Vitality and Kalpataru Initiatives Worldwide. A couple of firms characteristic within the listing of each clients and opponents, and QPEE provides and competes with them throughout numerous product segments and geographies.
The highest-three clients contribute round 30 per cent of the gross sales whereas the highest 10 contribute round 55 per cent, which means buyer focus reduces past the highest three.
The corporate has acquired three firms since 2011 to develop its product choices and the proposed acquisition would add to the listing. Mehru’s (primarily based out of Rajasthan) specialisation in instrument transformers and robust presence in South-East Asia and Africa is quoted to be the rationale for the acquisition.
Monetary metrics
Income / EBITDA / PAT have grown at 28 per cent / 28 per cent / 15 per cent CAGR over FY22-24 organically.
PAT margins have exceeded EBITDA margins since FY22, due to non-operating earnings contributing to greater than half of PAT. Curiously, non-operating earnings contributed to greater than 50 per cent of the PAT for all of the reported durations. Though adjusting for a similar, core PAT has additionally been on an rising development.
H1 FY25 noticed income, EBITDA and PAT at 52 per cent, 82 per cent and 94 per cent respectively of FY24’s annual figures. Revenue margins have been rising sequentially on account of working leverage arising from cross-selling and beneficial demand state of affairs as noticed with opponents too.
Analysis and improvement (R&D) expenditure has been constantly rising, and the identical as a share of income has risen from 2.4 per cent in FY22 to five.8 per cent in FY24, regardless of the rise in income. This might support in the long term by serving to in each enhancing the prevailing product profile and including new merchandise. QPEE can be one of many only a few gamers having its personal check and analysis lab, licensed by NABL (Nationwide Accreditation Board for Testing and Calibration Laboratories), which helps with the profile whereas sourcing new clients.
Buyer stickiness on account of the confirmed observe file, contemplating the criticality of the merchandise, is one other issue that clicks. With confirmed observe file throughout nations and enterprise in India particularly choosing up after regulatory clearances from PowerGrid Company of India, QPEE seems to be well-placed to draw extra orders.
Key monitorable
The corporate has money and financial institution balances (present and non-current) to the tune of ₹77.4 crore, round 19 per cent of the full belongings, as of September 2024 and traditionally too, stability sheet has been loaded with idle money. Therefore, curiosity earnings contributes to 30 per cent of PBT.
This idle money additionally provides as much as greater than the worth of fastened belongings within the books throughout all of the reported durations. Although the online money place is beneficial and the administration said that the money will likely be utilised for future R&D, capex and war-chest for future acquisitions, utilisation of this money will likely be a key monitorable.
