Rishabh Instruments riding on industry tailwinds, inorganic growth to scale faster

Rishabh Instruments IPO

Rishabh Instruments, whose IPO opened this week, expects to surf industry tailwinds and tap both organic and inorganic growth opportunities in a bid to scale its revenue faster than the last three years. The company plans to work on product localisation, and innovation, and expand into new customer segments and geographies, Chairman Narendra Goliya said in a pre-IPO interview with Moneycontrol.

Rishabh Instruments has set a target to clock Rs 1,000 crore, along with an enhanced margin of 20 percent, in the next two years, by FY25-26. Goliya explained that since the company's fixed costs account for 30 percent of the overall expenses and revenue grows further, margins will only grow further.

The electric instrument maker’s revenue grew 20 percent year-on-year (YoY) in FY22-23. The company's EBITDA margin growth has held steady at 17 percent for FY22 and FY23 respectively.

Rishabh Instruments plans to explore inorganic growth in larger markets such as the US, Brazil, and Turkey. The company plans to grow inorganically through strategic acquisitions and alliances, which would grant access to improved infrastructure, industry expertise, technological proficiency, and broader geographical coverage. These moves would also facilitate the diversification and expansion of the product lineup.

In terms of offerings, the company already has products under five segments — (a) electrical automation; (b) metering, control, and protection devices (which, along with electrical automation, comprises industrial panel devices); (c) portable test and measuring instruments; (d) solar string inverters (that convert DC power to AC); and (e) aluminium high-pressure die casting products.

Industry Overview

According to Goliya, the global electrical automation market was worth $147.5 billion in 2022 and is anticipated to expand at a Compound Annual Growth Rate (CAGR) of 7.8 percent, reaching $215.1 billion by 2027. India is predicted to experience the swiftest growth, propelled by its industrial end-users, he claimed.

There has been a steady growth of automation in the Indian market, leading to an increased demand for electrical automation components like sensors, transmitters, field instruments, and human-machine interfaces. This is attributed to manufacturers adopting automation to produce goods of international standards. The Indian electrical automation market, valued at $6.37 billion in 2022, is projected to achieve a CAGR of 9 percent, according to the company’s red herring prospectus (RHP). The growth rate is 2 percent higher than in America and other emerging markets. With China facing economic challenges and its ongoing trade disputes, India has the opportunity to advance its cutting-edge technologies, adds the RHP.

Given these circumstances and the Indian government's Aatmanirbhar Bharat programme, the industry holds significant growth potential. The Aatmanirbhar Bharat initiative offers various incentives to encourage local manufacturing.

OFS led IPO:

Eighty-five percent of the issue is an offer-for-sale (OFS), valued at Rs 415.78 crore. This gives the private equity fund Global Environment Funds, which had invested in the company in 2013, a chance to exit their investment.

SACEF Holdings II will also divest its complete 19.3 percent stake through the OFS. SACEF Holdings II is a subsidiary of the South Asia Clean Energy Fund, a private equity fund focused on clean energy investments in India.

The decision for the private equity funds’ exit aligns with the promoter’s desire to avoid much equity dilution, thereby adhering to SEBI's minimum shareholding requirement of 25%. Post the issue, promoter shareholding in the company may go down to 70.6% from 80.6%

IPO subscribed 2.5 times on Day 2

On August 30, the first day of bidding, the company received a decent response from investors to its maiden Rs 491-crore public issue. This picked up on the second day when it was subscribed 2.46 times.

The non-institutional investor component was subscribed 4.65 times, the retail portion was subscribed 2.79 times, and the qualified institutional buyer portion was subscribed 0.22 times. The issue closes on Friday, September 1, 2023.

A day prior to the opening of the issue, Rishabh Instruments raised Rs 147 crore from anchor investors. The foreign investors and domestic institutions who participated in the anchor book were HDFC Mutual Fund, Nippon India Mutual Fund, Sundaram Mutual Fund, Bandhan Mutual Fund, Quant Mutual Fund, Tata Mutual Fund, Ashoka India Equity Investment Trust PLC, Aditya Birla Sun Life Insurance Company, and 3P India Equity Fund 1.

Valuations:

At the upper price band, the company is valued at 33.7x FY23 PE multiple and 3.5x FY23 P/BV on post-issue capital. The company doesn’t have any directly listed peers in India.