TransRail Lighting IPO review (Apply)

•    The company is an Indian EPC contractor mainly focusing on Power Transmission and Distribution, and also manufactures related products.
•    It has also diversified into rail infra and civil construction activities.
•    The company posted steady growth in its top and bottom lines from FY22 to FY24.
•    It had order book worth Rs. 10213 cr. as of June 30, 2024.
•    Based on recent financial performance, the issue appears reasonably priced.
•    Investors may park funds for medium to long term.

PREFACE:
Despite humble urge from the regulator for non-clubbing/bunching of more than 2 IPOs a day for opening for subscription, we are set to mark bunching of five mainboard IPOs that are opening on December 19, 2024, and here again very short time was spared for analysts to understand the pros and cons for the IPOs. Well, this is the first IPO from the set of 5 IPOs that are scheduled to mark opening on December 19, 2024, others to follow are TransRail Lighting, DAM Capital, Sanathan Textiles, Concord Enviro. We have one more set of 3 mainboard IPOs lined up for opening on December 20, 2024, and they are Ventive Hospitality, Senores Pharma, and Carraro India. No doubt, this provided an ample choice of selection for investment, it also makes it difficult to manage funding. Let us hope that the regulator is definably turns strict on this matter and brings some amicable solution.

ABOUT COMPANY:
TransRail Lighting Ltd. (TLL) 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. The company has completed more than 200 projects in power transmission and distribution vertical since 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). Its position in the power transmission and distribution sector is owing to the factors like: Having a footprint in 58 countries like Bangladesh, Kenya, Tanzania, Niger, Nigeria, Mali, Cameroon, Finland, Poland, Nicaragua etc. including turnkey EPCs or supply projects.

As of June 30, 2024, it has undertaken EPC of 34,654 circuit kilometers (“CKM”) transmission lines and 30,000 CKM distribution lines, domestically and internationally. It provides EPC services in relation to substations up to 765 kilovolts (“kV”). The Company has presence in all the power transmission and distribution segments and majorly in high voltage (“HV”) and extra high voltage (“EHV”) segments. 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 extensive experience in the sector. Its in-house tower testing facility has tested more than 486 towers of various configurations. It has constructed India’s first 1200 kV transmission lines that are currently charged at 400 kV. Further, the company has also constructed distribution networks of 30,000 CKM including projects in India and Africa. The Company has built substations of up to 400kV. It has also completed more than 396 track kilometers (“TKM”) of overhead electrification, 128 TKM of track laying and 35 locations in relation to signaling and telecommunications for railway projects in India.

The company generates over 83% gross revenues from power transmission and distribution, over 10% from Civil constructions, around 2% from railways and the rest from Poles and lighting. Government’s thrust on the revamped distribution sector scheme augurs well for the company. As of June 30, 2024, it had 1761 employees on its payroll and an additional 340 contract workers in various departments. As of the same date, its order book was Rs. 10213 cr. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route combo IPO of 19419259 equity shares (worth Rs. 838.91 cr. at the upper cap). The company has announced a price band of Rs. 410 – Rs. 432 per equity shares of Rs. 2 each. The issue consists of fresh equity issue worth Rs. 400.00 cr.  (of approx.  9259259 shares at the upper cap), and an offer for sale (OFS) of 10160000 shares (worth Rs. 438.91 cr. at the upper cap). The issue opens for subscription on December 19, 2024, and will close on December 23, 2024. The minimum application to be made is for 34 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 14.46% of the post-IPO paid-up equity capital. From the net proceeds of the IPO, it will utilize Rs. 250.00 cr. for working capital, Rs. 90.73 cr. for capex funding of the company, and the rest for general corporate purposes.

The company did a pre-IPO placement of Rs. 50 cr. (not exceeding 20% of the fresh issue) at a price of Rs. 484 per share and the fresh issue size is reduced to that extent in the IPO. The company has reserved equity shares worth Rs. 19.00 cr. (approx. 439814 shares at the upper cap) for its eligible employees and from the rest it has allocated not more than 50% for QIBs, not less than 15% for HNIs and not less than 35% for retail investors. 

The four joint Book Running Lead Managers (BRLMs) to this issue are Inga Ventures Pvt. Ltd., Axis Capital Ltd., HDFC Bank Ltd., and IDBI Capital Markets & Securities Ltd., while Link Intime India Pvt. Ltd., is the registrar to the issue. HDFC Securities Ltd., and Greshma Shares and Stocks Ltd. Are the syndicate members.

Having issued/converged initial equity shares at par value, the company issued further equity shares in the price range of Rs. 10 – Rs. 484 (based on Rs. 2 FV) between October 2017, and September 2024. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 10.50, Rs. 20.82, and Rs. 148.76 per share. 

Post-IPO, its current paid-up equity capital of Rs. 25.00 cr. will stand enhanced to Rs. 26.85 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 5799.86 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit of Rs. 2357.20 cr. / Rs. 64.71 cr. (FY22), Rs. 3172.03 cr. / Rs. 107.57 cr. (FY23), and Rs. 4130.00 cr. / Rs. 233.21 cr. (FY24). For Q1 of FY25 ended on June 30 2024, it earned a net profit of Rs. 51.74 cr. on a total income of Rs. 929.70 cr. 

For the last three fiscals, the company has posted an average EPS of Rs. 14.88 (on a restated consolidates basis) and an average RoNW of 17.69 %. The issue is priced at a P/BV of 4.70 based on its NAV of Rs. 92.02 as of June 30, 2024, and at a P/BV of 3.65, based on its post-IPO NAV of Rs. 118.48 per share (at the upper cap).

If we attribute FY25 annualized earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 28.02, and based on FY24 earnings, the P/E stands at 24.87. The issue appears reasonably priced on the basis of its recent earnings. 

According to the management, annualizing performance on the basis of Q1 number will mislead, as its historical data shows around 35-40% of annual performance is achieved in first half and second half always remains good. Based on encouraging trends, the management is confident of maintaining/improving the growth in its annual performances going forward.
 
For the reported periods, the company has posted PAT margins of 2.75% (FY22), 3.39% (FY23), 5.65% (FY24), 5.57% (Q1-FY25), and the RoCE margins of 14.94%, 18.27%, 24.33%, 6.02 % for the referred periods respectively. 

DIVIDEND POLICY:
The company paid a dividend of 75% for FY25 till filing of this offer document. It has adopted a dividend policy in August 2023, based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown KEC Intl., Kalpataru Projects, Skippers Ltd., Patel Engg., and Bajel Projects, as their listed peers. They are trading at a P/E of 73.5, 42.2, 60.6, 17.7, and 128 (as of December 17, 2024). However, they are not truly comparable on an apple-to-apple basis.

MERCHANT BANKER’S TRACK RECORD:
The four BRLMs associated with the offer have handled 53 pubic issues in the past three fiscals, out of which 14 issues closed below the offer price on the listing date.