CLN Energy Ltd. IPO: Key Details

CLN Energy

• CLN Energy is coming out with an initial public offering (IPO) of 28,92,000 equity shares in a price band Rs 235-250 per equity share.
• The issue will open on January 23, 2025 and will close on January 27, 2025.
• The shares will be listed on SME Platform of BSE.
• The face value of the share is Rs 10 and is priced 23.50 times of its face value on the lower side and 25.00 times on the higher side.
• Book running lead manager to the issue is Aryaman Financial Services.
• Compliance Officer for the issue is Sonal Jhanwar. 

Profile of the company

CLN Energy has been incorporated on October 01, 2019 with a vision to manufacture products that reduces the carbon emission and commits to sustainability. The company is engaged in the manufacturing of customized Lithium-ion Batteries, motors and deals in powertrain components of electric vehicles such as controllers, throttles, DC-DC converters, display, differential etc. The company offers B2B solutions for both mobility applications such as electric two, three and four wheelers, including traction application as well as stationary applications such as solar, ESS, and telecommunications, the company also offers unique and customised solutions for various applications wherein lithium-ion battery packs are used. It sells Lithium-ion Battery Packs, motors and powertrain components under the “CLN Energy” brand.

Presently, the company operates two manufacturing facilities, one located in Noida, Uttar Pradesh, and the other in Pune, Maharashtra. The company’s facilities in Noida and Pune span 42,000 sq. ft and 21,000 sq. ft, respectively, and are equipped with the latest technology. It manufactures lithium-ion battery packs for both mobility and stationary applications. The company’s current installed manufacturing setup has a Cell Grading Capacity of 168 MWH per annum, Cell Sorting capacity of 358 MWH per annum, manufacturing capacity of 130 MWH per annum, and Battery testing capacity of 72 MWH per annum for two-wheeler batteries, which is the combined capacity of both Noida and Pune facilities. For batteries other than two-wheelers, its facility has a Cell Grading Capacity of 41 MWH per annum, Cell Sorting capacity of 110 MWH per annum, manufacturing capacity of 115 MWH per annum, and Battery testing capacity of 41 MWH per annum. Additionally, its Noida facility has an installed capacity of 60,000 motors per annum.

The company has in-house R&D capabilities to design and integrate the various powertrain and power systems to offer the complete solution for mobility and energy storage application like UPS, Telecom etc. With the use of lithium-ion batteries along with high efficiency DC power systems, intelligent energy management, remote operation and management, it can help its customers to achieve cost savings, reduced carbon emission for green environment and better insights of their product. The company provides critical business solution for the customers who wants to use lithium-ion batteries with a specific power capacity as required for their application. The company also sells the design and prototype solutions to the customers who further use them to manufactures products basis on these designs.

Proceed is being used for:

• Purchase of machinery and equipment
• Funding working capital requirements
• General corporate purpose

Industry Overview

Energy storage technologies are predicted to play a major part in the decarbonization of the electricity and transport sectors, which accounted for 49% of India's total greenhouse gas emissions (CO2 equivalent) in 2016. Among the several energy storage technologies available, lithium-ion batteries are anticipated to dominate the market during the upcoming decade (2021 onwards). Peak electricity demand would rise to 334 gigawatts (GW) by fiscal year 2030, with a total electricity generating need of 2,229 Billing units (BU). Thus, decarbonization of the electricity and transport industries is crucial to combating climate change. 

India unveiled its ambitious national goals for 2030 at the COP 26 UN Climate Change Conference, which include increasing its non-fossil energy capacity to 500 GW by 2030, obtaining 50% of its electricity needs from renewable sources by 2030, limiting projected carbon emissions by one billion tonnes, and lowering its economy's carbon intensity of its economy by less than 45% by 2030. In India, the lithium-ion battery business is anticipated to experience exponential growth over the next five years (2022 onwards), and the recycling market of these batteries is estimated to be nearly 22-23 GWh in 2030. The lithium-ion battery industry in India is predicted to grow from 2.9 gigawatt hour (GWh) in 2018 to about 132 GWh by 2030 (at a CAGR of 35.5%).

There is a limited supply of lithium, nickel, cobalt, and manganese precursors, which are all key raw elements needed in the synthesis of active cathode materials for lithium-ion batteries. By 2030, India's LIB cell manufacturing industry will require 193 thousand tonnes of cathode active material, 98 thousand tonnes of anode active material, 91 thousand tonnes of aluminium, 41 thousand tonnes of copper, and 8 thousand tonnes of LiPF6 electrolyte material to produce 100 GWh of batteries. With almost non-existent infrastructure throughout the supply chain and minimal deployment expertise, India must establish greater control over the lithium-ion battery supply chain. Energy storage systems are expected to play a major part in global decarbonization, resulting in an exponential growth in demand. India should make an effort to become a manufacturing powerhouse in addition to trying to satisfy home demand through domestic production. The availability of minerals at reasonable rates will be important to global competitiveness. India's foreign policy must adapt to changing trends and prioritise strategic initiatives in key regions. A concentrated effort on R&D, process optimisation, and recycling can help to lessen the requirement to import cell components from other nations. Academia must immediately begin developing courses and curricula to satisfy the expanding employment demands.

Pros and strengths

State of art manufacturing facilities: The company has two manufacturing facilities one at Noida and another at Pune. Its manufacturing facility is equipped with in house R&D lab, Laser Welding Machine, Automatic welding, Cell grading machine and End of Line testing. Its both manufacturing facilities are recognised by the Customs Department under MOOWR Scheme as Custom Bonded Warehouse facilities. Its facilities in Noida and Pune span 42,000 sq. ft and 21,000 sq. ft, respectively, and are equipped with the latest technology and has state of the art machinery, Research & Development department, testing and validation facilities. At these facilities, it manufactures lithium-ion battery packs and motor. Its current installed manufacturing setup has an installed capacity of Cell Grading Capacity of 168 MWH per annum, Cell Sorting capacity of 358 MWH per annum, manufacturing capacity of 130 MWH per annum, and Battery testing capacity of 72 MWH per annum for two-wheeler batteries, which is the combined capacity of both Noida and Pune facilities.

In-house research and development team: Being an innovation-focused company, the company has invested significantly in R&D over the years, with the objective of developing innovative solutions, and implementing incremental improvements to existing products and customization to the specifications of its customers, seeking overall to improve its product performance and differentiate itself from its competition. Its operations are supported by its in-house Research and Development at its registered office Noida, with a team of 15 employees as on September 30, 2024 working in areas of, system engineering design and development (including mechanical, electrical and validation team) for battery and motor.

Providing critical business solution and manufacturing customised products: The company provides critical business solution for the customers who wants to use lithium-ion batteries with a specific power capacity as required for their application. Any customer requirement goes through the process of research and development to deriving solution that can fulfil the specific need of the customer. For this design along with the prototype and validation plan is prepared as per customer’s specific requirement. The company also manufactures the product after the designed is approved by the customers. The company also sells the design and prototype solutions to the customers who further use them to manufactures products basis on these designs. The company also manufactures motor with customised design, prototype and features as per the requirement of the Application.

Risks and concerns

Significantly dependent on few customers for its revenue: The company has garnered 73.56%, 52.78% and 43.91% of its total revenue from top 10 customers in FY24, Fy23 and FY22 respectively. Its top customers may vary from period to period depending on the demand and thus the composition and revenue generated from these customers might change as it continues to add new customers in normal course of business. Since its business is dependent among few significant customers, it could experience a reduction in its results of operations, cash flows and liquidity if it loses one or more of these customers or the amount of business it obtains from them is reduced for any reason.

Maximum revenue comes from few states: Majority of revenue contribution comes from the Delhi, Maharashtra, Uttar Pradesh and Haryana which contributed 79.57%, 77.49%, 75.69% and 79.93% of its revenue from products in for the period ended September 30, 2024 and Fiscal 2024, 2023 and 2022, respectively. Its operations are susceptible to local and regional factors, such as accidents, political factors, economic and weather conditions, natural disasters, and demographic and population changes, the outbreak of infectious diseases and other unforeseen events and circumstances. Further, the company has not entered into any agreement with its customers for long term sales. The company has also generated export income in the recent periods but it cannot assure that it will be able to generate income through this channel in the future. Any change in governmental policies or occurrence of natural disasters in any of this states/ union territory may impact its impact on its business, results of operations and cash flows.

Dependent on a few suppliers for supply of raw materials: The company is dependent on a few suppliers for procuring the raw materials for manufacturing of its products. For the period ended September 30, 2024 and financial year ended March 31, 2024, March 31, 2023 and March 31, 2022, its top ten suppliers accounted for around 84.08%, 78.92%, 88.09% and 96.56% of its total purchases. The company has entered into agreement with few suppliers which are subject to renewal each year. Few suppliers on whom the company is dependent are from China. Any failure of the supplier to deliver the raw materials in the necessary quantities or to adhere to delivery schedules or specified quality standards and technical specifications would adversely affect its business operations and its ability to deliver orders on time and at the desired level of quality. As a result, it may lose customers and incur liabilities for failure to execute orders, which could have a material adverse effect on its business financial condition and results of operations. 

Outlook

CLN Energy manufactures customized lithium-ion batteries and motors, and it deals in powertrain components for electric vehicles, including controllers, throttles, DC-DC converters, displays, and differentials. The company has state of art manufacturing facilities at Pune and Noida. Providing critical business solutions and manufacturing customised products. On the concern side, the company is significantly dependent on few customers for its revenue in a particular financial year. The loss of any one or more of such customers may have a material effect on its business operations and profitability. Moreover, the company derives a significant portion of its revenue from the sale of batteries, cells and motor and controller and any reduction in demand or in the manufacturing of such products could have an adverse effect on its business, results of operations and financial condition.

The company is coming out with a maiden IPO of 28,92,000 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 235-250 per equity share. The aggregate size of the offer is around Rs 67.96 crore to Rs 72.30 crore based on lower and upper price band respectively. On performance front, revenue from operation has increased by 3.02% to Rs 13,270.87 lakh in Fiscal 2024 from Rs 12,881.94 lakh in Fiscal 2023. Such increase was primarily attributable to an increase in sale of its manufactured products. Moreover, the company’s profit for the year increased to Rs 978.85 lakh in Fiscal 2024 from Rs 72.87 lakh in Fiscal 2023. The profit for these two years is not comparable because the Company had faced a major fire accident in its manufacturing unit at Noida and has booked an exceptional loss of Rs 669.61 lakh during the year 2022-23.

In order to effectively expand its product portfolio, business reach and also grow in research and development, along with effectively utilizing its existing facilities the company needs to have access to a larger amount of liquid funds and sufficient working capital. It wants to give more credit period to its debtors to increase its sales and simultaneously it wants to reduce its credit period to get better pricing to increase its profitability. Further there is growing demand for Lithium-ion batteries for electric vehicles, stationary application, traction, tractors etc. The company is well positioned to take advantage of such growing demands in the lithium-ion battery industry.