IPO Note : Quadrant Future Tek Ltd. By Geojit Financial Services Ltd
Venturing into Train control systems….
Quadrant Future Tek Ltd. (QFTL) manufactures specialty cables for railway rolling stock and the naval (defence) industry, focusing on Electron Beam Irradiated Cables for high-performance, fire safety, and lightweight applications. Founded in 2015 and headquartered in Mohali, Punjab, QFTL recently expanded to develop Automatic Train Protection System using RFID technology to prevent train collisions, under the RDSO's Kavach project.
* In CY24, the domestic specialty cables market was valued at USD 589mn, and is projected to grow at s CAGR of 9.8% (CY24E-CY30). The Indian Train Control System market, valued at USD 208mn in CY24, is expected to grow at a CAGR of 12.7% (CY24E-CY30E).
* QFTL’s revenue grew from Rs.104.3cr in FY22 to Rs.151.8cr in FY24 (CAGR 20.6%), while PAT rose from Rs.1.9cr to Rs.14.7cr (CAGR 175%).
* QFTL has an EBITDA margin of 24.1% and PAT Margin of 9.7%, and the RoE of 33.4%,in FY24 indicating strong financial stability.
* It has one manufacturing facility situated in Basma (Mohali, Punjab) and caters to Specialty Cables Division and Train Control & Signalling Division. As of March 31, 2024, Speciality Cable division had an installed capacity of 1,887.60 metric tonnes, utilized at 49.42%.
* On 1st May, 2024, the company signed a MoU with RailTel Corporation, making it eligible to supply and implement KAVACH equipment as an OEM for RailTel's projects in India and abroad.
* The company received a purchase order on December 12, 2024, from Chittaranjan Locomotive Works (CLW) for the supply and installation of On-board Kavach equipment for 1,200 locomotives, valued at Rs 978.6cr to be delivered with in one year.
* After the warranty period, QFTL will receive an annual maintenance charge of 3% of the total capital cost of Onboard Kavach equipment for 11 years.
* At the upper price band of Rs.290,QFTL is available at a P/E of 78.8x (FY24), which appears expensive compared to peers. However, company’s entry into Train Control Systems, and government support for railway modernization are positives. Despite concerns over negative PAT and limited experience in Train Control Systems, we recommend subscribe on a short term basis for high risk investors.
Purpose of IPO
The IPO includes only fresh issue of Rs.290cr. Proceeds from fresh issue will fund longterm working capital requirements for Specialty cable division (Rs.149.7cr), capital expenditure(Rs.24.4cr), repayment of loans (Rs.23.6cr) and cover general corporate purposes.
Key Risks
* A significant portion of the revenue comes from Indian railways (47% in FY24).
* Small company entering into Train Control Systems, and has limited experience.
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