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Sahasra Electronic Solutions

• Sahasra Electronic Solutions is coming out with an initial public offering (IPO) of 65,78,000 equity shares in a price band Rs 269-283 per equity share.
• The issue will open on September 26, 2024 and will close on September 30, 2024.
• The shares will be listed on SME Platform of NSE.
• The face value of the share is Rs 10 and is priced 26.90 times of its face value on the lower side and 28.30 times on the higher side.
• Book running lead manager to the issue is HEM Securities.
• Compliance Officer for the issue is Neha Tahir.

Profile of the company

Sahasra Electronic Solutions is an EN 9100:2018 (equivalent to AS 9100D and JISQ 9100:2016, including ISO 9001:2015) certified company, which is engaged in the business of providing solutions towards electronics system design and manufacturing (ESDM) services at its manufacturing plant located in Gautam Buddha Nagar, Noida, Uttar Pradesh -, which is equipped with four high speed SMT lines having a total capacity of around 1800000 units. It provides product and solutions right from printed circuit board (PCB) assembly, Box Build, LED lighting. Memory, IT accessories, computer and IT hardware. It has made export of over 80% of its products and solutions during the FY 2024 to certain global manufacturers located in countries like United States of America, Rwanda, Tunisia, United Kingdom, Germany, Canada, Austria & Belgium.

The company operates through its manufacturing facility situated at NSEZ, Noida, Uttar Pradesh, which is located in a Special Economic Zone. Its manufacturing facilities include engineered layout with process controls and necessary automations for quality and productivity. This allows it to keep its core competencies within the company, allowing it to ensure strict quality control and safety at each step of its manufacturing process. The company’s manufacturing facilities comprises of four SMT lines equipped with machines including RMTS high speed clip machine, surface mount technology (SMT) machines, lead free wave soldering machine, PCBA router, high speed compact modular mounter, reflow oven and surface cleaning machines. Additionally, it has also installed quality inspection machines such as high speed PWB inspection, PWB Visual inspection and X-Ray inspection machines to ensure the high standards of product quality. Its manufacturing facility is staffed with a workforce of approximately 160 employees, as of March 31, 2024 which includes a team of around 35 engineers dedicated to enhancing its operational efficiency.

Proceed is being used for:

• Funding Capital Expenditure towards installation of additional plant and machinery at new manufacturing facility situated at Bhiwadi, Rajasthan
• Investment in its Subsidiary, Sahasra Semiconductors Private Limited for financing its capital expenditure requirements in relation towards installation of additional plant and machinery
• Meeting working capital requirements
• General corporate purposes

Industry Overview

The electronics industry is one of the largest and fastest growing industries in the world. Electronic products continue to impact and shape lifestyle prominently in today’s digital era. With the world being more connected than ever and the digital push induced by COVID-19 pandemic; the demand for electronic devices is expected to grow steadily and continue to be a major economic driver across the globe. The global electronics industry is estimated at $2.9 trillion in 2020. For comparison, the global value of electronics industry is almost equal to the economy size of India, which currently stands at $2.9 trillion. On an overall basis, electronics manufacturing had grown from $37.1 billion in 2015-16 to $67.3 billion in 2020-21. However, COVID-19 related disruptions impacted the growth trajectory in 2020-21 and led to a decline in the manufacturing output to $67.3 billion.

Technology is the key driver of all industries and influences all spheres of lives. Accordingly, India continues to strive to emerge as a leader in the segment by capturing a sizable pie of the electronics manufacturing ecosystem that propels the technology sector. For India to be the global electronics manufacturing hub of the future, there needs to be a clear long-term vision which must be achieved by means of the short-term goals. In order to become a $5 trillion economy by 2025-26, (or 2027-28 considering allowance for the two-year loss on account of the pandemic), India shall strive to be a $1 trillion digital economy given its omnipresence across all spectrums of life. Moreover, a special emphasis shall be laid on exports to achieve this objective.

Further, PCBA is the core of every electronic device such as mobile phones, tablets, computers, routers, televisions, washing machines, refrigerators, air conditioners etc. The average contribution of PCBA to the Bill of Materials (BoM) is at around 40% and presents a $600 billion global PCBA market28. Given that PCBA is a critical piece of electronics manufacturing and is omnipresent in electronic products, it is crucial for India to gain a significant foothold in the manufacturing of PCBA as well as serving the demand for global markets. The growing scale, inter alia, of mobile phones and IT hardware manufacturing shall act as a catalyst in undertaking manufacturing of PCBAs by the industry.

Pros and strengths

Dedicated solutions for ESDM services: With a focus on its customers’ needs, the company offers well diversified solutions comprising PCB assembly, box build assemblies and design solutions. Its services include PCB assembly, wire harness, box build solutions, IT hardware products, with manufacturing lines that cater to high end enterprise solutions. Further, it focuses on continually expanding its technological expertise in manufacturing for diverse industries, integrating its services, and thereby enhancing its capability to serve multiple industry verticals. Its capability to manufacture and supply quality products ensures customer satisfaction, fosters customer loyalty and generates repeat business. 

Established manufacturing capabilities: The company currently operates through its manufacturing facility located at NSEZ, Noida, Uttar Pradesh, that is supported by around 160 permanent employees (as on March 31, 2024). Its manufacturing facility is located in a special economic zone, which allow it to avail certain tax and other benefits in respect of the products manufactured and exported out of these facilities. It has established ERP platform which will result in better control and centralised databases for components, vendors, quality and supply chain, which will lead to productivity improvements and efficient management. For the manufacturing of its PCBA products, its manufacturing facilities are equipped with modern and high-speed equipment that can handle surface mount components and through hole components. These machineries and equipments allow it to reduce manual intervention in the manufacturing process, thereby improving the product quality.

Quality Assurance: The company is dedicated towards quality of its products, processes and input materials and components. It is accredited with EN 9100:2018 (equivalent to AS 9100D and JISQ 9100:2016, including ISO 9001:2015) compliances at its manufacturing plants located at NSEZ, Noida, Uttar Pradesh. It has established ERP platform at its manufacturing facility with a view to adhere to quality standards as prescribed by its customers and to meet the desired requirements. Delivering Quality products on time is one of its prime objectives. It has dedicated its resources for quality assurance to ensure that quality norms are continually met. It also has quality control checks before any consignment of material or components are accepted since it has a direct impact on the quality of Finished Product. The ability to consistently deliver high-quality products to customers is critical to the business. 

Risks and concerns  

Maximum revenue comes from limited customers: The company’s business is dependent on certain key customers for sale of its products which includes both domestic and international entities. For the fiscals 2024, 2023 and 2022, its top ten customers contributed to 95.78%, 89.15% and 99.74% of its revenue from operations. The loss of any of these customers or a loss of revenue contributed by these customers may materially affect its business, financial condition, results of operations and cash flows. Further, there can be circumstances where its customers may vary their material sourcing strategies which may affect its sales with those customers. Also, it cannot assure that it will be able to significantly reduce its dependence on few of these key customers in the future.

Significantly dependent on revenue from sale of PCBA: The revenue from the sale of PCBA contribute to a significant portion of its revenue from operations and it is thus significantly dependent on the sale of PCBA. Its sale of PCBA, which represented 87.18%, 97.24% and 75.00% of its revenue from operations for the fiscal year 2024, 2023 and 2022 respectively. It cannot assure that it will increase its market share in the future for these products. Demand for these products depends primarily on the orders received from its customers. Further, the products may be substituted by product up gradation and the company may be unable to upgrade these products. It may not be able to introduce new product that are in faster-growing and more profitable categories. Any of these factors could have a material adverse impact on its financial condition and the results of operations.

Limited operating history: The company was incorporated as a limited company under the Companies Act, 2023 with Registrar of Companies, dated February 22, 2023. The company has takeover the running business along with the assets and liabilities of the proprietorship concern of its Promoter namely M/s. Sahasra Electronic Solutions, thus it has limited operating history as a company from which one can evaluate its business, future prospects and viability. Its future business operation and financial position may not be comparable with that of the proprietorship concern and difficult to estimate and could fluctuate significantly and as a result the price of its Equity Shares may remain volatile. Further, the transfer of assets and liabilities have been undertaken based on the MOU entered between the promoter of the company and the owner of the proprietorship firm based on the consideration mutually decided between them pursuant to the agreement dated February 22, 2023. In case of any dispute between the parties with regards to the MOU for transfer of assets and liabilities between the proprietorship and the company may have an adverse effect on the business and financial position of the company.

Outlook

Sahasra Electronic Solutions is an Electronic System Design and Manufacturing company that provides ESDM services at its Noida plant. The company’s PCBAs are utilized in products manufactured in the automotive, medical, industrial, IT, and consumer products industries. This includes box-build products such as laptops and tablets. The company is certified under 9100:2018 (equivalent to AS 9100D and JISQ 9100:2016, including ISO 9001:2015) for Quality Management Systems for manufacturing PCB assemblies. On the concern side, the company’s business is dependent on the sale of its products to certain key customers which also includes some of its Group Companies. The loss of any of these customers or loss of revenue from sales to these customers could have a material adverse effect on its business, financial condition, results of operations and cash flows. Moreover, the company is significantly dependent on revenue from sale of PCBA. Any inability to anticipate or adapt to evolving up gradation of the required products or inability to ensure product quality or reduction in the demand of these products may adversely impact its revenue from operations and growth prospects. 

The company is coming out with a maiden IPO of 65,78,000 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 269-283 per equity share. The aggregate size of the offer is around Rs 176.95 crore to Rs 186.16 crore based on lower and upper price band respectively. On performance front, during the financial year 2023-24 the net revenue from operation of the company increased to Rs 10115.27 lakh as against Rs 6908.33 lakh in the Financial Year 2022-23 representing an increase of 46.42%. The main reason of increase was due to increase in the demand from both the export market and the domestic market. The company’s profit after tax for the year increased to net profit of Rs 3262.77 lakh in financial year 2023-24 from profit after tax of Rs 2025.11 lakh in financial year 2022-23. Meanwhile, the company has continuously sought to diversify its product portfolio which could cater to customers across various end-use industries and geographies. Accordingly, while it seeks to continue to strengthen its existing product portfolio, it also intends to further diversify into products with prospects for increased growth and profitability by leveraging its R&D capabilities. It also plans to continue to increase offerings in its current business segments as well as diversify into new products by tapping into segments which in the view of its management have attractive growth prospects. Further, looking towards the opportunities in the laptop and tablet market, it is intending to expand its market share in the IT hardware and equipment sectors with added focus towards laptop and tablets.