Quality Power Electrical Equipments Ltd. IPO: Key Details

Quality Power Electrical Equipments

• Quality Power Electrical Equipments is coming out with a 100% book building; initial public offering (IPO) of 2,05,21,400 shares of Rs 10 each in a price band Rs 401-425 per equity share.
• Not more than 75% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 10% for the retail investors. 
• The issue will open for subscription on February 14, 2025 and will close on February 18, 2025.
• The shares will be listed on BSE as well as NSE.
• The face value of the share is Rs 10 and is priced 40.10 times of its face value on the lower side and 42.50 times on the higher side.
• Book running lead manager to the issue is Pantomath Capital Advisors.
• Compliance Officer for the issue is Deepak Ramchandra Suryavanshi.

Profile of the company

Quality Power Electrical Equipments is an Indian player serving global clients in critical energy transition equipment and power technologies. It provides high voltage electrical equipment and solutions for electrical grid connectivity and energy transition. It is a technology-driven company specializing in the provision of power products and solutions across power generation, transmission, distribution, and automation sectors. Additionally, it offers equipment and solutions tailored for emerging applications such as large-scale renewables. Its manufacturing facilities adhere to the quality standards required by its global conglomerate clientele, including those listed on the Fortune 500. Additionally, the company’s Test & Research Lab in Sangli holds ISO 17025:2017 accreditation from the National Accreditation Board for Testing and Calibration Laboratories (NABL), certifying it as an independent test laboratory that complies with both Indian and international standards for systems up to 765kV. 

The company is among the few global manufacturers of critical high voltage equipment for High Voltage Direct Current (HVDC) and Flexible AC Transmission Systems (FACTS) networks. These equipment and networks form key components for energy transition from renewable sources to traditional power grids. With over two decades of experience in the energy transition space, it provides an extensive range of products crucial for effective power transmission and advanced power automation. Its offerings include reactors, transformers, line traps, instrument transformers, capacitor banks, converters, harmonic filters, and reactive power compensation systems. Additionally, its grid interconnection solutions feature technologies such as STATCOM and static var compensator systems (SVC). Its domestic and global footprint allows it to cater to both Indian and global customer bases.

The company’s portfolio of high voltage products and solutions is critical for advancing and modernizing electrical networks. Its technologies are designed to enhance grid reliability and performance by providing critical support for power grid management and overall network stability. Engineered to meet the demanding requirements of contemporary electrical infrastructure, these products ensure optimal efficiency and resilience. The company’s high voltage solutions help to maintain and improve network performance, offering advanced capabilities to address the complexities of modern energy systems and assist operators in effectively managing power quality and operational reliability. 

Proceed is being used for:

• Payment of the purchase consideration for the acquisition of Mehru Electrical and Mechanical Engineers
• Funding capital expenditure requirements of the company for purchase plant and machinery
• Funding inorganic growth through unidentified acquisitions and other strategic initiatives and general corporate purposes

Industry Overview

The global energy landscape is undergoing a significant transformation, often referred to as the Energy Transition & Power Technologies industry. This Energy Transition & Power Technologies marks a shift from traditional, carbonintensive energy sources like coal, oil, and natural gas to cleaner, more sustainable energy sources such as solar, wind, and hydrogen. At the core of this transition is the adoption of energy transition equipment & power technologies, which encompasses a broad range of novel methods, advanced equipment, innovative technologies and devices designed to facilitate the generation, storage, distribution, and efficient use of renewable energy. The Energy Transition & Power Technologies market is growing rapidly, driven by the global need to combat climate change, reduce greenhouse gas emissions, and increase energy efficiency. Countries around the world are implementing policies to promote the adoption of clean energy technologies, including renewable energy targets, carbon pricing mechanisms, and subsidies for green technology. These policies, combined with the declining cost of renewable energy technologies, are creating a favorable environment for the energy transition equipment market to expand.

There has been a significant shift globally in the generation capacity mix due to the growing concerns towards the environment and climate change. India is an active participant and has taken initiatives towards sustainable development and cleaner environment including significant additions of renewable energy generation capacity. As per REN21 Renewables 2022 Global Status Report, India currently ranks 4th globally in total renewable energy installed capacity, wind power capacity and solar power capacity with generation from non-fossil fuel sources being 43% of the total installed generation capacity in 2024. The total potential of renewable power in India is estimated to be 1,639 GW as compared to installed capacity of 191 GW as on March 2024. The installed capacity of renewable energy has grown by 123 GW over FY19-FY24, implying a CAGR of around 9%.

The global HVDC market witnessed significant growth in the past decade, driven by large-scale projects in regions like Europe, Asia-Pacific, and North America. The development of intercontinental HVDC links and submarine cables contributed to market expansion. Whereas the increasing share of renewable energy in power generation and the growing need for efficient transmission are expected to drive the demand for HVDC transmission lines. In addition, the need for grid resilience against disturbances and fluctuations is expected to increase the adoption of FACTS devices to stabilize voltage and improve power quality. The Global HVDC and FACTS market is expected to grow at a CAGR of 75-80% from $23,791 million in 2024 to $2,49,744 million in 2028.

Pros and strengths

Global energy transition and power technology player catering to diverse industry segments: The company is a technology-driven company specializing in the provision of high voltage electrical equipment and solutions for electrical grid connectivity and energy transition across power generation, transmission, transition, distribution and automation areas. Besides, it offers equipment and solutions tailored for emerging applications such as large-scale renewables. It is among the few global manufacturers of critical high voltage equipment for HVDC and FACTS networks. These equipment and networks form key components for energy transition from renewable sources to traditional power grids. With supplies across 100 countries, it caters to various industries like automobiles, oil and gas industries, cement, chemical, renewables, traction & locomotives, steel & metal industries, power utilities in different markets spanning across 6 continents, thereby enabling it to be a global player. It offers equipment and solutions tailored for emerging applications such as largescale renewables. Its product portfolio contributes to advancing decarbonization efforts, sustainability, and green energy initiatives.

Diversified customer base of global businesses with long lasting relationships: Since its inception, the company has ensured delivery of high-quality high voltage electrical equipment and solutions for electrical grid connectivity and energy transition and services. As of September 30, 2024, it had 143 customers. Its end customers include power utilities, renewable energy players and industries like automobiles, oil and gas industries, cement, chemical, renewables, traction & locomotives, steel & metal industries, power utilities. Its customers have specific pre-approval criteria based on past experiences, test qualifications, and brand preferences. These factors significantly influence their purchase decisions, guiding them towards products and services that meet their standards and expectations. Its customers include large business conglomerates listed in Fortune 500 category.

Comprehensive product portfolio in the energy transition equipment and power technologies sector: The company began its operations by manufacturing reactors and transformers, and gradually expanded its portfolio in high voltage electrical equipment and solutions for electrical grid connectivity and energy transition. With over two decades of experience, it now provides a wide range of products, including reactors, transformers, line traps, composites, capacitor banks, harmonic filters, SVC Systems and reactive power compensation systems. It specialises in high voltage electrical equipment products and solutions across power generation, transmission, transition, distribution, and automation sectors. Its current product portfolio is divided into two categories, being, (i) power products and (ii) power quality equipments.

Demonstrated record of strategic acquisitions along with an enhanced order book contributing to growth: The company has demonstrated a record of strategic acquisitions, to further enhancing its capabilities, asset base, customer reach, product offerings and expanding its reach in key markets. These strategic acquisitions significantly bolster its position in energy transmission sector, enabling it to offer more comprehensive solutions to its clients. As it integrated these businesses and assets into its operations, they have contributed to its growth trajectory, enhancing its capabilities and solidifying its market presence. It has successfully integrated the acquired businesses and assets in its operations which has helped it to improve its position in the energy transition value chain.

Risks and concerns

Maximum revenue comes from limited clients: The company derived more than 52.66% of its total revenue from operations from the sale of products to its top 10 customers during the six-month period ended September 30, 2024 and in Fiscal 2024, Fiscal 2023, and Fiscal 2022. It depends and expects to continue to depend on its top 10 customers for a substantial portion of its total revenue from operations. The loss of any of its top 10 customers (in particular its largest customer) for any reason (including due to loss of, or failure of its customers to win orders / contracts from their customers to renew its existing arrangements with its customers; limitation to meet any change in quality specification, change in technology; disputes with a customer; adverse changes in the financial condition of its customers, such as possible bankruptcy or liquidation or other financial hardship) could have a material adverse effect on its business, results of operations and financial condition.

Maximum revenue comes from international markets: The company derived majority of its revenue from international markets, which contributed to more than 74.00% of its total revenue during the six-month period ended September 30, 2024 and in each of the last three Fiscals. A substantial portion of its revenue is earned from overseas operations, which includes revenue generated from one of its subsidiaries i.e. Endoks which is based in Turkey. Any adverse events or circumstances in Turkey or in any other countries in which it operates, including a market slow down, economic crisis, epidemic, political unrest, or other factors affecting the power transmission industries, may have a material adverse effect on its business, financial condition, results of operations and cash flows.

No long term agreements with customers: The company does not have long-term agreements with any of its customers and manufacture and sell its products through purchase orders with certain customers within India and abroad. The success of its business is accordingly significantly dependent on it maintaining cordial relationships with its customers. There can be no assurance that it can continue to maintain its networks of customers on commercially favorable terms or at all. The success of its business depends on maintaining good relationships with customers and ensuring that these customers find its products to be commercially remunerative and have continuing demand on the market. In addition, its growth as a business depends on its ability to attract additional customers. Furthermore, it has limited ability to manage the activities of independent third party suppliers and it cannot assure that they will, at all times, strictly adhere to the terms and conditions of its arrangements with them.

Highly dependent on skilled personnel for day-to-day operations: The company’s success in expanding its business will also depend, in part, on its ability to attract, retain and motivate skilled personnel. Competition for skilled personnel in its industry is intense. Its competitors may offer compensation and remuneration packages beyond what it is offering to its employees. It may also be required to increase its levels of employee compensation more rapidly than in the past to remain competitive in attracting employees that its business requires. Because of these factors, there is no assurance that it can effectively attract and retain sufficient number of skilled personnel to sustain its expansion plans, which would have a material adverse impact on its business, results of operations, financial position and cash flows.

Outlook

Quality Power Electrical Equipments is engaged in the business of energy transition equipment and power technologies. The company provides high-voltage electrical equipment and solutions for grid connectivity and energy transition, specializing in power products across generation, transmission, distribution, and automation sectors. The company has comprehensive product portfolio in the energy transition equipment and power technologies sector in India and abroad with high trade barriers. It has demonstrated record of strategic acquisitions along with enhanced order book contributing to growth. On the concern side, the company is dependent on its top 10 customers who contribute to more than 52.66% of its total revenue from operations during the six-month period ended September 30, 2024 and in each of the last three Fiscals and the loss of any of these customers or a significant reduction in purchases by any of them could adversely affect its business, results of operations and financial condition.

The company is coming out with a maiden IPO of 2,05,21,400 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 401-425 per equity share. The aggregate size of the offer is around Rs 822.91 crore to Rs 872.16 crore based on lower and upper price band respectively. On performance front, the company’s revenue from contracts with customers in India by sale of products decreased by 5.33% to Rs 489.87 million for Fiscal 2024 from Rs 517.44 million for Fiscal 2023, primarily due to higher focus on exports and lower domestic sales for its products. The company’s profit after tax for the period increased by 39.06% to Rs 554.74 million for Fiscal 2024 from Rs 398.92 million for Fiscal 2023.

The company’s growth strategy focuses on strategic acquisitions and expanding into new markets, both domestically and internationally. It will continue to actively look for and evaluate acquisition opportunities which can complement, supplement or enhance its product offerings and add to its customer base and market reach. These acquisitions have helped it to establish and expand its control on the value chain of energy transition & power technologies. The company’s emphasis on inorganic growth & acquisitions is targeted towards adding capabilities, value chain enlargement, spreading product bouquet and de-risking its business model.