Quality Power likely to see flat debut on Feb 24 but experts advise holding the stock given strong outlook

Quality Power

Quality Power Electrical Equipments, the high-voltage electrical equipment and solutions provider, is likely to see flat debut on February 24 considering the muted subscription numbers, but experts advised holding the IPO shares given the strong outlook for the sector.

The Rs 859-crore initial share sale managed to sail through during February 14-18. The issue was subscribed 1.29 times due to muted market sentiment following sharp selling pressure in the broader markets. The parts set aside for all categories of investors were fully booked with qualified institutional buyers buying 1.03 times, non-institutional investors 1.45 times, and retail investors 1.83 times.

The IPO was a combination of fresh issuance of equity shares worth Rs 225 crore and an offer-for-sale of 1.49 crore shares worth Rs 633.7 crore by promoter Chitra Pandyan. The price band for the offer was Rs 401-425 per share.

"Considering the muted market trend and low interest in the offer demand, we are expecting a very flat listing on its issue price," Prashanth Tapse, Senior VP Research – Research Analyst at Mehta Equities said.

According to Palak Devadiga, research analyst at StoxBox, Quality Power is expected to have a premium of 1 percent above the upper band price.

Even investors in the grey market seem to be not ready to give any major premium to Quality Power IPO wherein according to the market observers, shares trading at around 1 percent premium to the IPO price.

The Maharashtra-based company is a technology-driven company specialising in power products and solutions across the power generation, transmission, distribution, and automation sectors. It provides high-voltage electrical equipment and solutions for electrical grid connectivity and energy transition.

The energy transition equipment and power technologies market is poised for significant growth in the coming decades. The company’s large customer base in different segments and its comprehensive product portfolio reinforce its position in an industry characterized by high trade barriers, said Palak Devadiga.

Quality Power is going to utilise fresh issue proceeds for the acquisition of Mehru Electrical and Mechanical Engineers, and purchase of plant and machinery. Further, the funds will also be used for funding inorganic growth through unidentified acquisitions, and general corporate purposes.

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On the financial front, Quality Power recorded healthy operational revenue and profit in the past financial years. Profit in the year ended March 2024 grew by 39 percent to Rs 55.5 crore and revenue increased by 18.7 percent to Rs 300.6 crore compared to previous year. Profit for the six months period ended September 2024 stood at Rs 50 crore on revenue of Rs 155.7 crore.

The company is valued at a PE ratio of 81.9x on the upper price band based on FY24 earnings, which is lower than its peers, according to Palak.

Hold IPO Shares

Experts recommended holding the stock for medium to long term, given its strong financial growth, diverse product portfolio and global customer base, the company is well-positioned to achieve sustained growth within the sector.

"We suggest that investors who have received shares consider maintaining their positions with this outlook in mind," Palak Devadiga said.

Prashanth Tapse also believes Quality Power is a long term investment opportunity to invest in the rapidly growing energy transition and power infrastructure sector.

And with strong global presence, specialized expertise in HVDC (high voltage direct current)) and FACTS (flexible alternating current transmission systems) technologies, and a diversified high-voltage equipment portfolio position it as a key player in grid modernization and renewable energy integration, he said.

Hence, with all attributes he recommended allotted investors to hold the Quality Power for long term.

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