Rishabh Instruments Ltd IPO (Avoid)

Highlights

Rishabh Instruments Limited is a vertically integrated player incorporated in 1982, involved in designing, developing, manufacturing and supplying (a) Electrical Automation Devices; (b) Metering, Control and Protection Devices; (c) Portable test and measuring instruments; and (d) Solar string inverters. It is also into manufacturing and supplying aluminium high-pressure Die Casting through its Subsidiary, Lumel Alucast. Certain manufacturing services which include mould design and manufacturing, EMI/EMC testing services, Electronic Manufacturing Services, and software solutions (e.g. MARC) are also provided by the company.

The Company follows a B2B business model which is based on purchase order for all segments except portable test and measuring instruments which is also sold on a merchant basis. The Company has an extensive network of 175 authorized distributors/stockists across 81 districts in India. It has over 164 authorized distributors/stockists globally, catering to international customers across 70 countries including Germany, the United States, the United Kingdom, Australia, the Middle East, etc.

The product portfolio of the company comprises over 145 product lines & 0.13 mn stock-keeping units as of May 31, 2023. The company manufactured 16.21 mn units, 14.02 mn units and 13.35 mn units of products, respectively, across our product lines in fiscal 2023, 2022 and 2021. More than 100 Countries have served the customers during the last three financial years. 

The end users of the company’s products are diverse, including industrial (FMCG, pharmaceuticals, cement, steel, and railways), power (generation, transmission, and distribution, renewable energy, oil, and gas), OEM industries (manufacturers of transformers, motors, cables, and special machines), and new applications (data centres, labs, semiconductors, consumer electronics, and building automation).

The company owned Five production facilities—two in China, two in Poland, and two in India. The company manufacture all of its products internally. With the exception of Poland Manufacturing Facility II, all of their manufacturing facilities’ products are tested and certified by testing labs for accreditations like Conformité Européenne (CE), Restriction of (the use of certain) Hazardous Substances (ROHS), UK Conformity Assessment UKCA, etc.

Key Highlights

• By 2027 CAGR of The Electrical automation market is expected to grow at 7.8 pct globally and 9 pct in India. The Metering, control and protection devices segment is expected to grow at 4.8 pct globally & 5.5 pct in India. Portable test and Measuring instruments segment is expected to grow at 5.1 pct globally and 6.9 pct in India, Solar string inverters segment is expected to grow at 9.1 pct globally and 10.6 pct in India. The aluminium high-pressure die-casting segment is expected to grow at 6.1 pct globally and 8.4 pct in India. Looking at the CAGR of the business segments company has huge room to grow.

• The company is recognised as a Global leader in the manufacturing & supply of Analog panel meters and is a leading global company in terms of manufacturing & supply of low voltage current transformers. The Company is the most popular brand in Poland for meters a leading player in non-ferrous pressure castings in Europe. The Company is also the No. 1 player in Electrical transducers and split core current transformers in India. Rishabh is the first company in India to design, develop & manufacture solar string inverters.

• During the last three years company has acquired many businesses. In 2010 company acquired the Polish business, in 2012 company acquired Lumel, in 2016 it acquired Lumel Alucast, In 2019 company acquired china China-based V & A company. In 2020 the company acquired Relpol S.A. company. 

• In FY23, Electrical business sales from the company’s top 10 international clients accounted for 31.92 pct of the total sales.  From the company’s international clients, the revenue from our top 20 international clients accounted for 42.70 pct, and the revenue from our top 30 international clients accounted for 49.28 pct.

• The majority of the Company’s sales came from exports. Indian operations contributed 34.26 pct, 32.14 pct, and 32.25 pct, respectively, of the total sales from operations in the FY23, FY22, and FY21. The sales from international operations were 65.74 pct, 67.86 pct, and 67.75 pct of the total revenue from operations in the fiscal years 2023, 2022, and 2021, respectively.

• Some of the products of the Company are white labelled by the Siemens Company.

• The company sold its products in India at premium pricing. In Germany Company sells their products at 20 pct lower and in Poland other company sells their product at competitive pricing.

• The product life cycle of the company products is short. With its 5 R&D facility company make 6-12 product every year.

• The Company spent approximately 2 million Euros per year on Capex in Poland. The normal capex spent in India is Rs.30 mn – 40 mn per year. This year Rs. 440 mn capex is expected to be spent on new business in India. The company spent 2 mn Euros per year on the aluminium Die-casting business.

Key Risks

• The company is dependent on Poland Manufacturing Facilities because 79% of units are produced in Poland Manufacturing Facilities, Any disruption, slowdown, or shutdown of Poland Manufacturing Facilities may restrict operations, and adversely affect the company’s business, financial condition, and results of operations.
• Some of the components required for the company’s products are exclusively available from one manufacturer. In some circumstances, supply shortages will significantly reduce the output of a specific component, such as semiconductors. A supply shortfall may cause a company’s costs to rise if it is compelled to pay higher prices for components, raw materials, or both.
• For the last 5 years company has stopped taking patents of their products. Because of that company might lose market share and potential earnings from those products.

Valuation

Rishabh Instruments Limited is a global leader in energy efficiency solutions and precision engineering products. The company has huge potential in upcoming newer segments like solar power, electrical automation, and electronic manufacturing services. The Company doesn’t have any listed peers in India or overseas. At the upper price band, the company is valued at a PE of 33.7x FY23 earnings and 3.5x FY23 P/BV on post-issue capital. Taking into consideration weak cash flows and low return ratios, the valuations are slightly stretched. Listing gains are likely to remain tepid. One can avoid this Issue.

Also Read: New-Age Investment Options For New-Age Investors

Disclaimer: The views expressed in the blog are purely based on our research and personal opinion. Although we do not condone misinformation, we do not intend to be regarded as a source of advice or guarantee. Kindly consult an expert before making any decision based on the insights we have provided.