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Chamunda Electrical

• Chamunda Electrical is coming out with an initial public offering (IPO) of 29,19,000 equity shares in a price band Rs 47-50 per equity share.
• The issue will open on February 4, 2025 and will close on February 6, 2025.
• The shares will be listed on SME Platform of NSE.
• The face value of the share is Rs 10 and is priced 4.70 times of its face value on the lower side and 5.00 times on the higher side.
• Book running lead manager to the issue is GYR Capital Advisors.
• Compliance Officer for the issue is Asha Sharma. 

Profile of the company

The company is engaged in the business of providing specialized services of operation and maintenance of substation up to 66 KV (kilovolt), testing and commissioning of electrical substation up to 220 KV (kilovolt) and solar power generation park of 1.5 MW (Megawatts) capacity, and within its scope, it includes erection of EHV class equipments, structures and equipments, earthing, control cable works and other associated works for substations up to 220 KV (D Class). Over the years, it has built deep expertise to develop solutions and service offerings across its business verticals.

The company’s range of customised service offerings and its ability to develop solutions to the specific needs of clients have enabled it to garner prominent clients across industries. Its constant endeavour is to nurture every client relationship to ensure that it translates into a long-term association. It also continually engages with its customers to understand their requirements better to be able to provide more holistic services and to identify new areas where it can engage with them.

Looking to the potential growth of renewable energy specifically solar energy in India, the company has set-up a solar power-generation at Survey no. 1085, Village-Bhatib, Taluka-Dhanera, District-Banaskantha, Gujarat which has a capacity of 1.5 MW in which the company has signed a 25-years Purchase Power Agreement with Uttar Gujarat Vij Company.

Proceed is being used for:

• Meeting out the capital expenditure for purchase of new testing kit and equipment’s
• Funding the working capital requirements of the company
• Repayment of term loans and cash credit
• Meeting out the general corporate purposes
• Meeting out the issue expenses

Industry Overview

Power is among the most critical components of infrastructure, crucial for the economic growth and welfare of nations. The existence and development of adequate power infrastructure is essential for sustained growth of the Indian economy. The fundamental principle of India’s power industry has been to provide universal access to affordable power in a sustainable way. The Ministry of Power has made significant efforts over the past few years to turn the country from one with a power shortage to one with a surplus by establishing a single national grid, fortifying the distribution network, and achieving universal household electrification. India’s power sector is one of the most diversified in the world. With a generation capacity of 442.85 GW, India is the third-largest producer and consumer of electricity in the world. Although power generation has grown more than 100-fold since independence, growth in demand has been even higher due to accelerating economic activity. India's energy firms have made significant progress in the global energy sector.

India's energy demand is expected to increase more than that of any other country in the coming decades due to its sheer size and enormous potential for growth and development. Therefore, most of this new energy demand must be met by low-carbon, renewable sources. India's announcement India that it intends to achieve net zero carbon emissions by 2070 and to meet 50% of its electricity needs from renewable sources by 2030 marks a historic point in the global effort to combat climate change. India was ranked fourth in wind power capacity and solar power capacity, and fourth in renewable energy installed capacity, as of 2023. Installed renewable power generation capacity has increased at a fast pace over the past few years, posting a CAGR of 15.4% between FY16 and FY23. India has 125.15 GW of renewable energy capacity in FY23. India is the market with the fastest growth in renewable electricity, and by 2026, new capacity additions are expected to double.

Furthermore, India has hydroelectric power projects with a total capacity of 15 GW under construction, which will increase the country's total hydro capacity from 42 GW to 67 GW by 2031-32, supported by IMD's prediction of higher rainfall and the government's proactive stance towards accelerated hydropower development. India has generated 75.57 BU of solar power in the first eleven months of FY24. Power generation from renewable energy sources (not including hydro) stood at 22.41 billion units (BU) in January 2024, down from 25.79 BU in January 2023. India added a record 18.48 GW of renewable energy capacity in 2023-24, a 21% increase over the previous year. Power generation from renewable energy sources stood at 309.66 billion units (BU) between April-January 2024, down from 316.75 BU in the same period in the previous year. With a potential capacity of 363 GW and with policies focused on the renewable energy sector, Northern India is expected to become the hub for renewable energy in India.

Pros and strengths

More than a decade long years of industry experience with strong execution capabilities: The company has leveraged over a decade of industry experience to establish itself as a reliable and competent player in the market. With proven track record of strong execution capabilities, the company has consistently delivered high-quality services and solutions across various projects. This extensive experience has equipped the company with the technical expertise, project management skills, and industry insights necessary to complex projects, particularly in its industry. The company has built a robust reputation over more than a decade of delivering excellence in the power sector.

Advanced testing and commissioning equipment and strong workforce to ensure precision and reliability: The company is equipped with advanced and modern equipment specifically designed for the testing and commissioning of substations and other power-related projects. This advanced technology ensures that all systems are thoroughly tested, verified, and commissioned according to the highest standards, enabling reliable and efficient power delivery.

Scalable business model with strong work order book: The company has developed a scalable business model that emphasizes its expertise in the operation & maintenance (O&M) and testing of 77 sub-stations. This strategic focus not only demonstrates the company’s technical prowess and deep industry knowledge but also provides it with a competitive advantage in its industry. By efficiently managing and maintaining a significant number of substations, the company ensures reliability and optimal performance, which are critical for uninterrupted power supply. The company’s ability to scale its operation & maintenance and testing services across multiple locations reflects its operational strength and capacity to handle complex, large-scale projects. This scalability coupled with a strong track record in substation testing, positions the company as a trusted partner for clients seeking dependable and high-quality electrical solutions.

Risks and concerns

Maximum revenue comes from limited customers: The company’s top ten customers have contributed 100% of its revenues for the period ended December 31, 2024, for the year ended March 31, 2024, March 31, 2023 and March 31, 2022 based on Restated Financial Statements. However, its top customers may vary from period to period depending on the demand and thus the composition and revenue generated from these customers might change as it continues to add new customers in normal course of business. Since its business is concentrated among relatively few significant customers, it could experience a reduction in its results of operations, cash flows and liquidity if it loses one or more of these customers or the amount of business, it obtains from them is reduced for any reason, including but not limited on account of any dispute or disqualification. It cannot assure that it shall generate the same quantum of business, or any business at all, from these customers, and loss of business from one or more of them may adversely affect its revenues and profitability.

Geographical constrain: The company derives majority of revenue from State of Gujarat. State of Gujarat contribute 84.97%, 85.64%, 86.64% and 100% of its total regional revenue for the period ended December 31, 2024, for financial year ended on March 31, 2024, 2023 and 2022, respectively. If there is change in policy by Government of Gujarat regarding operation, maintenance, testing and commissioning of electrical sub-stations or economic conditions of State of Gujarat become volatile or uncertain or the conditions in the financial market were to deteriorate, or if there are any changes in laws applicable to its industry or if any restrictive conditions are imposed on it or its business, there will be a severe impact on the financial condition of its business. Furthermore, there have been no such instance occurred during the past three years.

Huge working capital requirement: The operation, maintenance, testing and commissioning of electrical sub-stations activity carried on by the company is working capital intensive. There is always an amount of risk involved due to longer execution period, fluctuation in material & equipment prices, cost overrun and salary of employees due to delay in project completion on account of non-availability of clearances, etc. Clearances are generally in the client’s scope and the company will be awarded extension of time in completion of project for any delay on account of clearances. Further, the company has a robust project review mechanism to identify and address the factors affecting timely project completion. 

Outlook

Chamunda Electrical specializes in operating and maintaining up to 66 KV substations, testing and commissioning for up to 220 KV substations, and 1.5 MW solar power generation. The company's services include erecting EHV class equipment, structures, earthing, control cable works, and other associated tasks for up to 220 KV (D Class) substations. The company has advanced equipment & skilled workforce for precision. It also has scalable business model with a strong work order book. On the concern side, the company’s top ten customers contribute 100% of its revenues from operations. Any loss of business from one or more of them may adversely affect its revenues and profitability. The company’s revenues largely depended on acceptance of the bids submitted to the Government and other agencies. Its performance could be affected in case majority of the bids are not accepted / awarded.

The company is coming out with a maiden IPO of 29,19,000 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 47-50 per equity share. The aggregate size of the offer is around Rs 13.72 crore to Rs 14.60 crore based on lower and upper price band respectively. On performance front, the revenue from operations of the company for fiscal year 2024 was Rs 1,994.93 lakh against Rs 1,394.24 lakh total income for Fiscal year 2023. An increase of 43.08% in revenue from operations. This increase was due to rise in number of projects and tenders received during the year. Profit after tax for the Fiscal 2024 were at Rs 243.63 lakh against profit after tax of Rs 31.21 lakh in fiscal 2023, an increase of 680.62%.

The company is intensifying its focus on EHV (Extra High Voltage) Erection, Testing, and Commissioning, recognizing the growing demand for advanced electrical infrastructure. By venturing into this specialized segment, the company aims to tap into new market opportunities, particularly in large-scale industrial and utility projects that require robust and reliable high-voltage systems. As part of its business strategy for expansion, the company is investing in the acquisition of advanced equipment which is imported from an MNC manufacturer of industrial test, measurement, and mainly electronic test equipment to establish a NABL-certified lab at its Surat branch office. This strategic move is designed to enhance the company’s testing and certification capabilities, ensuring compliance with the highest industry standards. By having an in-house NABL-certified lab, it will not only streamline its quality assurance processes but also increase its competitiveness in the market.