Quality Power IPO: Price Band, Allotment, Listing Date, Financials, Risks And More — DRChoksey's Analysis

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Deven Choksey Report

Quality Power Electrical Equipments Ltd. will launch its initial public offering on February 14 and the offer closes for subscription on Feb. 18. The global manufacturer of high-voltage electrical equipment and power technologies has set the price band in the range of Rs 401 to Rs 425 per share.

The Rs 859 crore IPO comprises of fresh issue of equity shares aggregating up to Rs 225 crore and an offer-for-sale of 1.5 crore equity shares valued Rs 634 crore at the upper-end of the price band.

The allotment for the Quality Power IPO is expected to be finalized on Feb 19.

The shares of Quality Power will be listed on both the National Stock Exchange and the BSE on Feb. 21.

Objects of the Offer

1. Acquisition of Mehru Electrical and Mechanical Engineers

2. Funding capital expenditure requirements

3. Funding inorganic growth and general corporate purposes.

Outlook and Valuation:

Quality Power Electrical Equipments is a global manufacturer of high-voltage electrical equipment, specializing in HVDC and FACTS technology, with a strong presence in power products and power quality systems.

Its revenue/ Ebitda/adjusted profit after tax have grown by 28%/28%/54% from FY22 to FY24. For FY24, ROE stood at 28% and ROCE at 18%. The IPO is being issued at a P/E multiple of 88x (FY24), while margins and growth have accelerated in H1 FY25, we believe the issue is fully priced.

While the company is well-positioned in the energy transition sector, its export dependency, customer concentration, and competitive pressures pose significant risks. Given these factors, we assign a “Neutral” rating.

Risks:

• Dependence on international markets: The company earns over 74% of its revenue from international markets and plans further global expansion. However, this strategy introduces significant risks that could negatively impact its financial and operational outcomes.

• Reliance on the HVDC and FACTS market: The company's dependence on the HVDC and FACTS markets, which are subject to social, economic, and regulatory changes beyond its control, means adverse trends could significantly affect its business and financial performance.

• Lack of long-term customer agreements: The company lacks long-term customer agreements and heavily relies on maintaining good relationships with customers to succeed. There is no guarantee that these relationships can be sustained on favorable commercial terms.

• Dependence on top customers: The company's top 10 customers account for over 52.66% of its total revenue, making it highly vulnerable to the loss of any of these customers or a significant reduction in their purchases, which could adversely affect the business.

• Covenants in financing agreements: The company's financing agreement with Axis Bank includes restrictive covenants that could lead to accelerated repayments and potential financial instability if breached.

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