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An Indian EPC firm specializing in power T&D

Salient features of the IPO:

* Transrail Lighting Ltd. (TLL), is an EPC company which is primarily focuses on power transmission and distribution business and integrated manufacturing facilities for lattice structures, conductors, and monopoles, is coming up with an IPO to raise around Rs. 816.6 - 838.9cr, which opens on 19th Dec. and closes on 23rd Dec. 2024. The price band is Rs. 410 - 432 per share.

* The IPO is a combination of fresh issue (Rs. 400cr) and OFS portion of (Rs. 416.6 - 438.9cr). From the fresh issue net proceeds, the company will be utilizing Rs. 250cr for funding incremental working capital requirements and Rs. 90.72cr for funding capital expenditure. Residual proceeds will be used for general corporate purposes.

* Few of the promoter & promoter group (P&PG) entities are participating in the OFS and offloading 1.016cr shares. Consequently, post-IPO, the P&PG and public shareholders will have 71.12% and 28.88% stake in the company, respectively.

Key competitive strengths:

* Good Track record of established presence and growth in power T&D vertical through implementation and execution skills

* Established manufacturing facilities

* Strong and diversified Order Book

* Strong in-house designing and engineering

* Experienced promoter(s) with strong management team

* Quality assurance

* Strong and consistent financial performance

Risk and concerns:

* General slowdown in the global economic activities

* Substantially dependent on tenders being floated by government authorities, public sector undertakings and utilities

* Exposed to foreign currency fluctuation risks

* 29% of the revenue is from clients in Bangladesh, Mali and Niger

* Dependent on the revenue from top ten clients

* Rely on third party logistics providers

* Competition

Below are the key highlights of the company:

* India's per capita electricity consumption rose from 1,010 kWh in FY15 to 1,331 kWh in FY23, growing at a 3.5% CAGR, driven by large capacity additions and improvements in the transmission and distribution (T&D) network. Energy requirement also grew at a 4.4% CAGR from 1,069 BUs to 1,512 BUs during this period.

* From FY24 to FY29, India's per capita electricity consumption is expected to grow at a 5-7% CAGR, reaching 1,600-1,650 kWh by FY29. This growth will be fueled by improved access to electricity, rising income levels, increasing EV penetration, rural electrification, and greater consumer durables usage, though factors like energy efficiency, T&D loss reduction, and sustainability targets may limit growth.

* Incorporated in February, 2008, at Mumbai, Maharashtra. TLL is an Indian EPC firm specializing in power transmission and distribution, with integrated manufacturing of lattice structures, conductors, and monopoles. With over four decades of experience, it has completed 200+ projects globally, primarily in Asia and Africa. The company offers turnkey solutions, backed by strong execution capabilities in manpower, material supply, and world-class machinery.

* As of June 30, 2024, TLL has undertaken the EPC of 34,654 circuit kilometers (CKM) of transmission lines and 30,000 CKM of distribution lines, both domestically and internationally, and provides EPC services for substations up to 765 kV, with a strong presence in the high voltage (HV) and extra high voltage (EHV) segments of power transmission and distribution, which accounts for 83.83% of its total revenue.

* In addition to its core power transmission and distribution business, TLL operates in several other verticals, contributing to its diversified revenue streams. The civil construction segment accounts for 9.33% of revenue. The poles and lighting division, contributing 4.4%. TLL's railway vertical, which makes up 2.43% of revenue.

* Civil construction, include the design and execution of bridges, tunnels, elevated roads, and cooling towers, with notable projects like the Kosi bridge and tall natural draft cooling towers in India. In the poles and lighting segment, TLL manufactures and supplies a wide range of products such as high masts, street poles, and solar streetlights, with notable installations in landmark projects across India and select international markets. TLL also offers railway services, including overhead electrification, signaling, and track linking, primarily operating in India and serving government and railway corporations.

* TLL operates multiple manufacturing facilities across India, including in Vadodara (1994), Deoli (2009), and Silvassa (2007-2010), producing galvanized lattice steel towers, conductors, and poles. The company has supplied 1.3 mn metric tons of towers, 194,534 km of conductors, and 458,705 poles. Its advanced facilities are equipped with CNC machines, welding equipment, galvanizing baths, and furnaces. Additionally, TLL has an in-house tower testing facility in Deoli, Maharashtra, capable of testing towers up to 85 meters and 1,200 kV, having tested 486 towers, many for international clients.

* TLL's manufacturing operations also include producing railway masts, copper rods, and advanced HTLS/HTC conductors. Its Deoli and Silvassa units are CE certified, and all testing facilities are NABL accredited. The company focuses on backward integration to reduce reliance on third-party suppliers. TLL owns specialized EPC equipment like stringing machines, cranes, and piling rigs, with a workshop in Nagpur for equipment maintenance, minimizing downtime and supporting efficient operations.

* TLL operates several facilities across India. The Vadodara Facility in Gujarat, established in 1994, has a 30,000 MTPA capacity for galvanized steel towers. The Deoli Facility in Maharashtra, operational since 2010, produces galvanized lattice towers and tests UHV towers, with a 50,000 MTPA capacity. The Silvassa Facilities include the Conductor Facility (since 2007) with a 28,000 MTPA capacity for conductors and the Pole Facility (since 2010) with a 12,000 MTPA capacity for poles. All facilities source power from local distribution companies and water from government authorities.

* TLL's Order Book maintains a healthy balance of international and domestic clients and has consistently grown over the past few years. The company primarily focuses on the quality of its products and services, which has helped build strong, long-lasting relationships with clients. As of now, TLL's total confirmed unexecuted order book stands at Rs. 10,213.07cr, with 156 total orders. Of these, 90.58% are in power transmission and distribution, 7.23% in civil construction, 1.55% in railways, and 0.64% in poles and lighting. Additionally, 35.53% of these orders are domestic, while 64.47% are international

Key highlights of the company (Contd…):

* In the FY22, FY23, and FY24, government clients constituted the majority of the client base, with their share being 81.04% in FY22, 82.35% in FY23, and 82.66% in FY24. However, as of June 2024, the percentage of government clients dropped to 69.60%. The remaining clients, who account for the difference, are non-government clients.

* TLL undertakes its EPC business in an integrated manner, with key competencies and resources developed in-house to deliver projects from conceptualization to completion. The company has an experienced team of 114 designers and engineers, specializing in each business segment, with a total cumulative experience of over 17,000 man months. TLL also utilizes industry-leading design and engineering software, including PLS Tower, PLS Poles, I Tower, Bocad, Staad Pro, PLS Star, PLS CAAD, PLS Lit, DiLux, AGI 32, AutoCAD 3D, SolidWorks, and others.

Peer comparison and valuation:

TLL is one of the leading Indian EPC companies, ranked 4th in the power transmission and distribution sector for FY24 according to RHP. With over 40 years of experience, TLL provide turnkey solutions globally, having completed 200+ projects across Asia, Africa, and other regions. Their expertise includes integrated manufacturing of lattice structures, conductors, and monopoles. The company operate in 58 countries and have successfully undertaken EPC projects for 34,654 CKM of transmission lines and 30,000 CKM of distribution lines, including substations up to 765 kV. At the higher price range, TLL is seeking an EV/Sales ratio of 1.5x, which is at a discount to its peer average. As of June 30th 2024, the company’s order book stands at at Rs. 10,213.07cr which is 2.5x to its FY24 revenue. This shows the company’s medium term visibility. With its growing presence, the company has increased its top line and bottom line. We believe TLL has a strong growth potential, supported by government initiatives and the overall positive outlook for the industry. Thus, we recommend a “SUBSCRIBE” rating for this issue.

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SEBI Registration no.: INZ 000160131