Rajesh Power BSE SME IPO review (Apply)

•    The company is engaged in providing all sort of services for renewable and non-renewable energy power sector. 
•    It marked quantum jump in its top and bottom lines from FY24 onwards.
•    Based on FY25 annualized super earnings, the issue appears reasonably priced.
•    As of the date of filing this RHP, it had an order book worth Rs. 2358.17 cr. 
•    Investors may park funds for medium to long term.

ABOUT COMPANY:
Rajesh Power Services Ltd. (RPSL) is offering 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 basis 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. The company 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. RPSL also provides services Consultancy Services with regard to designing of power substations and cable system. Its clients include Government and private companies which are into Power generation, transmission and distribution of power. As of October 31, 2024, it had 1030 employees on its payroll. Its top five customers contributed average around 65% in its revenue for the reported periods. As of the date of filing this RHP, the company has an order book worth Rs. 2358.17 cr.

According to the management, their EPC contracting business linked to providing power connectivity related all kind of services and thus, they enjoy good margins. Central and State government's thrust for power sector and mega spending plans augurs well for them. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden combo book building route IPO of 4790000 equity shares of Rs. 10 each to mobilize Rs. 160.47 cr. (at the upper cap). The company has announced the price band of Rs. 320** - Rs. 335 per share. IPO constitutes of 2790000 fresh equity shares (worth Rs. 93.47 cr. at the upper cap), and an Offer for Sale (OFS) of 2000000 shares worth Rs. 67.00 cr. (at the upper cap). The issue opens for subscription on November 25, 2024, and will close on November 27, 2024. The minimum number of shares to be applied is for 400 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.60% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, the company will utilize Rs. 17.95 cr. for capex on testing equipments, Rs. 4.16 cr. for setting up of DC Solar power plant, Rs. 3.00 cr. for green hydrogen production expertise, and Rs. 30.00 cr. for working capital and the rest for general corporate purposes. (The company revised its floor price from Rs. 320.00 to Rs. 319.00 per share. Investors across are surprised for such moves that spreads wrong signals).

The IPO is solely lead managed by ISK Advisors Pvt. Ltd., and KFin Technologies Ltd. is the registrar to the issue. Sunflower Broking Pvt. Ltd., is the Market Maker for the company. The issue is underwritten 94.91% by ISK Advisors and 5.09% by Sunflower Broking. 

Having issued initial equity shares at par value, the company issued further equity shares at a fixed price of Rs. 46 per share in March 2018. It has also issued bonus shares in the ratio of 1 for 1 in March 2018. The average cost of acquisition of shares by the promoters is Rs. Negligible, Rs. 3.36, Rs. 3.77, and Rs. 4.24 per share.

Post-IPO, company's current paid-up equity capital of Rs. 15.22 cr. will stand enhanced to Rs. 18.01 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 603.25 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 149.37 cr. / Rs. 3.45 cr. (FY22), Rs. 211.18 cr. / Rs. 6.75 cr. (FY23), and Rs. 295.06 cr. / Rs. 26.02 cr. (FY24). For H1 of FY25 ended on September 30, 2024, it earned a net profit of Rs. 27.68 cr. on a total income of Rs. 317.85 cr. 

On a consolidated basis, for H1 of FY25 ended on September 30, 2024, it earned a net profit of Rs. 37.43 cr. on a total income of Rs. 321.85 cr. 

For the last three fiscals, the company has reported an average EPS of Rs. 10.41 and an average RoNW of 20.37%. The issue is priced at a P/BV of 4.55 based on its NAV of Rs. 73.66 as of September 30, 2024 (on a consolidated basis), and at a P/BV of 2.93 based on its post-IPO NAV of Rs. 114.15 per share (at the upper cap). 

If we attribute FY25 annualized super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 10.89, and based on FY24 earnings, the P/E stands at 23.18. Based on consolidated FY25 annualized earnings, the P/E stands at 10.56. The issue relatively appears fully priced.  

For the reported periods, the company has posted PAT margins of 2.35% (FY22), 3.26 % (FY23), 9.13% (FY24), 8.84% (H1-FY25), and RoCE margins of 11.32%, 15.15%, 29.99%, 25.61%, respectively for the referred periods. 

DIVIDEND POLICY:
The company has dividends of 2.50% for FY22, 2.50% FY24, and 5% for FY24. It will adopt a prudent dividend policy post listing, based on its financial performance and future prospects. 

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown Advait Infra, Kay Cee Energy, and Viviana Power, as their listed peers. They are trading at a P/E of 59.9, 34.7, and 61.3 (as of November 19, 2024). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 9th mandate from ISK Advisors in the last five fiscals.  Out of the 8 listings so far, 1 opened at discount, and the rest opened with premiums ranging from 0.11% to 49.21% on the listing date.