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Shera Energy

• Shera Energy  is coming out with a 100% book building; initial public offering (IPO) of 61,76,000 shares of Rs 10 each in a price band Rs 55-57 per equity share.

• The issue will open on February 07, 2023 and will close on February 09, 2023

• The shares will be listed on NSE Emerge Platform.

• The face value of the share is Rs 10 and is priced 5.50 times of its face value on the lower side and 5.70 times on the higher side.

• Book running lead manager to the issue is Holani Consultants.

• Compliance Officer for the issue is Jyoti Goyal.

Profile of the company

The company is primarily engaged in the business of manufacturing of winding wires and strips made of non-ferrous metals primarily Copper and Aluminium. It also manufactures wire rods, wires and tubes of Copper and Brass. These wires, tubes and rods are manufactured in various shapes and sizes as per the requirement of the customers and / or demand in the market. Its product range includes paper covered wires, enamel and fibre covered wires, round wires, rectangular wires, bunched wires, tubes, rods, strips, etc.

The company has also commenced manufacturing special grade brass rods through Cold Extrusion process suitable to make bullet shells for defence applications. The company has successfully done the requisite trials and tests on this with customers. This product has been recently developed by the company on account of demand in the ammunition industry in country. Over the past couple of years, the company has outgrown itself into a distinguished large-scale organization specializing in wires, tubes and rods of various shapes, sizes and in various on-ferrous metals having plentiful applications. Its experience of more than a decade has enabled it to build an effective business model that gives it control over its processes from raw material procurement, manufacturing and marketing to sales through its network.

Proceed is being used for:

• Funding the Working capital requirements of the Company.

• General corporate purposes.

Industry Overview

The electrical equipment industry’s performance has a massive bearing on the course of the country’s economic growth. Countries with a strong manufacturing base and effective government policies for equipment industry have traditionally outperformed others in terms of growth and prosperity. Apart from being the backbone of the industrial growth, it is one of the major sources of employment. The total domestic electrical equipment industry size exceeds Rs 1.20 lakhs crore ($ 25 billion), comprising 24% from BTG equipment and 76% from T&D sector. Exports from electrical equipment were approximately $ 4.6 billion in 2011-12. The industry provides direct and indirect employment to around 1.5 million persons. The generation equipment segment is targeted to reach a size of Rs 125,000 crore ($ 25 billion) and the T&D equipment segment is targeted to reach a size of Rs 375,000 crore ($ 75 billion) by 2022. The electrical equipment industry, comprising these two segments, is targeted to reach a size of Rs 500,000 crore ($ 100 billion) by 2022.

The size of Indian copper industry (consumption of refined copper per annum) is around 6.6 lakhs tonnes, which as percentage of world copper market is only three percent. Sterlite Industries (Vedanta), Hindalco Industries and Hindustan Copper are major producers of refined copper in India. Production in India has declined significantly due to the permanent closure order issued to Vedanta’s smelter/ refinery plant by Government of Tamil Nadu in May, 2018. The world production of Aluminium Metal during January-March, 2022 was about 16.58 million tones against world consumption of 16.63 million tonnes, resulting in a market deficit of 0.05 million tonnes. It is estimated that during April-June, 2022, world consumption of Aluminium Metal would be 17.89 million tonnes against world production of around 16.87 million tonnes, implying a slight deficit of 1.02 million tonnes. The share of India in the world production was 6.29% during January-March, 2022.

There are a number of producers of Winding Wires in India, many in SSI Sector. The capacity is fragmented. Winding Wires are extensively used in the Electrical and Electronic Equipment Industry comprising of Motors, Transformers, Pumpsets (both Industrial & Agricultural) Switchgears, Fans, Airconditioners, Refrigerators, Hand Tools, Domestic Appliances, Televisions, Watches, Computer Peripherals etc. In the Indian context Winding Wires are predominantly Copper based. For the production of Winding Wires/Insulated Strips, which are entirely and totally used in the Electrical Equipments, only Electrolytic Refined Copper can be used. Besides the large Original Equipment Manufacturers, there are thousands of small manufacturing units, repairers of various Electrical Equipment and this segment consumes huge quantities of Winding Wires.

Pros and strengths

Long standing relationships with leading clientele: The company focus on building sustained and long-term client relationship with its clients and constantly try to cater customer needs with products in demand. Its top 10 customers contributed to 43.17%, 39.56%, 43.82%, and 42.95% of its total revenue from operations for the period ended on September 30, 2022, FY 2021-22, FY 2020-21 and FY 2019-20, respectively, as per its Restated Standalone Financial Statements. The average age of its relationship with its top five customer groups spans more than a decade. Its long-term relationships with customers are indicative of its quality consciousness and its designing and tooling capabilities. Its expertise in automated production facilities, focus on research and development, coupled with technologically advanced, quality consistency on time delivery and cost competitive manufacturing technology processes has resulted in repeat orders from its key customer groups. In addition, its customer-centric approach and continuous effort on transparent dealings has allowed it to enter into long term relationship.

Focus on Quality and Safety: The company in qualitative manufacturing and adheres to various qualitative standards and parameters associated with the product. Its products undergo quality check at various levels of production to ensure that any quality defects or product errors are rectified on real time basis. It also has an in-house laboratory for conducting various tests and monitoring to ensure the requisite quality is achieved. It generates repetitive orders from its buyers, as it is capable of meeting their quality standards, which enables it to maintain and enhance its brand image in the market.

Established Manufacturing facility:  The company’s registered office and the manufacturing facilities are located at renowned industrial areas of Jaipur city. Its both manufacturing units are equipped and capable to carry out end to end manufacturing activities. Its years of experience in precision engineering, strategically located production facilities, focus on design, coupled with technologically advanced and cost competitive manufacturing technology processes has enabled it to meet its customers’ bespoke and stringent requirements. It has full-service capabilities across the product cycle including product design and development, material sourcing, designing, testing and measurement infrastructure, all under one roof for meeting the requirement of its global customers.

Risks and concerns

Requires significant amounts of working capital: The company’s business is working capital intensive and requires a significant amount of working capital for smooth functioning. It meets its requirement for working capital requirements majorly through banking facilities, net worth and internal accruals. In future, its inability, if any, to meet its working capital requirements or inability to renew its existing working capital limits through banking arrangements, can adversely impact its business operations and financial position. Further, it intends to continue growing by expanding its business operations. This may result in increase in the quantum of current assets particularly trade receivables and inventories. The results of operations of its business are dependent on its ability to effectively manage its inventory and receivables.

Highly dependent upon limited number of suppliers for key raw material: The availability of copper and aluminium raw materials, essential for manufacturing its products is through short term supply contracts. The company purchases all these raw materials on a need basis primarily through the spot market purchase mechanism and seek to source such raw materials from diverse suppliers. There can be no assurance that the current procurement efforts will be successful in ensuring an adequate supply of raw materials at viable prices to meet its production requirements. If it is unable to meet customer demand for its products or if its products are only available at a higher price because of a shortage of raw materials, it could lose customers, market share and revenue.

Face competition: The market for the company’s products is competitive on account of both the organized and unorganized players. Players in this industry generally compete with each other on key attributes such as technical competence, quality of products, various products line, customer base, pricing and timely delivery. Some of its competitors may have longer industry experience and greater financial, technical and other resources, which may enable them to react faster in changing market scenario and remain competitive. Moreover, the unorganized sector offers their products at highly competitive prices which may not be matched by it and consequently affect its volume of sales and growth prospects. Growing competition may result in a decline in its market share and may affect its margins which may adversely affect its business operations and financial condition.

Outlook

Incorporated in 2009, Shera Energy is engaged in the business of manufacturing. The company manufactures winding wires and strips made of non-ferrous metals primarily Copper and Aluminium. Alongside, they also process products like wire rods, wires, and tubes of Copper and Brass. They undertake the manufacturing based on the requirements of the customers, therefore they are customized to suit their customers. It is an ISO 9001:2015, ISO 14001:2015, and ISO 45001:2018 certified company. It has received Vendor Approval Validation from Power Grid Corporation of India for various products. All of the products designed and manufactured by the entity are tested and certified by the National Test House and Electrical Research and Development Association on various parameters to ensure supreme quality. On the concern side, the company’s operations carry inherent risks of personal injury and loss of life, damage to or destruction of property, plant and machinery and damage to the environment, and are subject to various risks such as fire, theft, flood, earthquakes and terrorism. Besides, the company is dependent on third party transportation providers for transportation of raw materials and finished goods. Accordingly, any increase in transportation costs or unavailability of transportation services for its products or transportation strikes may have an adverse effect on its business.

The company is coming out with an IPO of 61,76,000 equity shares of face value of Rs 10 each. The issue has been offered in a price band of Rs 55-57 per equity share. The aggregate size of the offer is around Rs 33.97 crore to Rs 35.20 crore based on lower and upper price band respectively. On performance front, the company’s total revenue has increased by 24.10% to Rs 52,458.21 lakh for financial year 2021-22 from Rs 42,271.92 lakh for financial year 2020-21 bifurcated into revenue from operations and other income. The company’s profit after tax for the financial year 2021-22 stood at Rs 699.50 lakh as compared to Rs 502.67 lakh in 2020-21, showing increase of 39.16%. Net Profit has increased due to increase in revenues and improved margins. Meanwhile, the company intends to cater to the increasing demand of its existing customers by enhancing the distribution reach of its products. Enhancing its presence in additional regions will enable it to reach out to a larger market. It intends to use a variety of other manufacturing strategies, sourcing strategies and cost reduction strategies to continue to improve its operational efficiencies.