Transrail Lighting is all set to hit the market with its IPO, scheduled to open between 19 – 23 December 2024, with shares expected to list on 27 December 2024. The company is looking to rake in about INR 839 crore, split between a fresh issue of INR 400 crore and an Offer for Sale (OFS) worth INR 439 crore by the promoters.
The money from the fresh issue is used for working capital and spending some cash on capital expenditure. The OFS, on the other hand, will see the promoters’ stake drop from a hefty 86% down to 73%. Here, we’re going to take a closer look at Transrail’s financials, growth outlook, and hear what some top analysts have to say.
The Business Model and Market Expansion
Transrail Lighting isn’t just another player in the EPC space; the company is deep into power transmission and distribution (T&D), with four manufacturing plants in India. The company is poised to tap into a T&D market that’s worth INR 9.2 trillion according to India’s National Electricity Plan.
Transrail Lighting’s order book is nothing short of impressive, with a good chunk coming from international contracts, which not only boosts their revenue forecast but also showcases their capability to cater to the escalating demand for power infrastructure.
Financials at a Glance
- IPO Size: INR 839 crore
- Fresh Issue: INR 400 crore
- OFS: INR 439 crore
- Price Band: INR 410 – 432 per share
- Market Cap: INR 5,800 crore
- IPO Dates: 19 – 23 December 2024
- Listing Date: 27 December 2024
Transrail Lighting Analyst Views
Ninad Sarpotdar, Aditya Birla Money
Ninad Sarpotdar, Analyst at Aditya Birla Money, highlights the immense growth potential for Transrail within the transmission and distribution (T&D) sector. He notes that the INR 9.2 trillion market opportunity under India’s National Electricity Plan, coupled with an even larger cumulative global market, positions the company favourably.
With full backward integration in tower and conductor manufacturing, Transrail is well-prepared to capitalize on these opportunities. Additionally, the company’s order book, valued at over 2.2x its revenue, offers strong visibility, with approximately 90% of orders stemming from the T&D sector, predominantly in foreign markets. At the upper price band of INR 432, the IPO is priced at a P/E ratio of ~25 times, significantly lower than the 50-60 times average of listed peers, suggesting the potential for listing gains.
Anubhuti Mishra, Swastika Investmart
Ms. Anubhuti Mishra, Analyst at Swastika Investmart underscores the unique positioning of Transrail Lighting IPO as an engineering and construction company with a strong foothold in the transmission and distribution (T&D) sector. With its extensive experience and robust global presence, Transrail has consistently demonstrated growth in revenue and profitability, underlining its operational excellence.
According to her, the IPO’s pricing is attractive, offering a fair valuation based on its PE ratio, which aligns well with the company’s strong fundamentals. However, she notes a potential challenge with multiple IPOs launching on the same date, including Mamata Machinery, DAM Capital, and others, which might divide investor attention and impact initial demand. Despite this, Transrail Lighting’s solid market position and growth prospects in the infrastructure and power transmission sectors make it a compelling choice for long-term investors.
Mishra advises investors to be mindful of the crowded listing window but believes the IPO holds significant appeal for those seeking value-driven opportunities.
The following analyst insights highlight the common trends in brokerage house recommendations for the upcoming IPO. Here’s a more extensive list of broker suggestions:
Aditya Birla Capital – Subscribe
Elite Wealth – Apply
Jainam Broking – Subscribe for long-term
Systemix – Not rated
Samco Securities – Subscribe for long-term
SMC Global – 2.5/5
Swastika Investmart – Subscribe
Geetanjali Kedia, SPTulsian Investment Advisers
Geetanjali Kedia of SPTulsian Investment Advisers emphasises that Transrail’s order book is robust, standing at INR 10,200 crore as of 30 June 2024, with an additional INR 3,221 crore where the company is the lowest bidder. This reflects a healthy book-to-bill ratio of 3.4x on FY24 revenue, surpassing peers like KEC (2.1x), Kalpataru (3x), Skipper (2.3x), and Bajel (3x). The company plans to execute its orders within 24 months, signalling a strong revenue outlook. Financially, Transrail’s 22% return on equity (RoE) in FY24 is significantly higher than the peer average of 8-10%, while its debt-to-equity ratio remains comfortable at 0.3:1.
Valuation-wise, Transrail’s FY24 EPS stood at INR 20, with Q1 FY25 EPS at INR 4.2. Based on an estimated FY25 EPS of INR 25, the IPO is priced at a PE multiple of 17.5x, which is attractive compared to the peer average of 40-55x, especially given its superior margins. Interestingly, the IPO price is offered at an 11% discount to the INR 484 per share price of a pre-IPO placement conducted in September 2024. These factors make Transrail Lighting’s IPO an appealing opportunity for investors, particularly those seeking a well-established player with strong financials and growth potential.
Navigating the Risks
But it’s not all roses. There are whispers of caution too. The IPO market is crowded, which might split investor attention. Plus, there are sector-specific risks and execution hiccups that could throw a wrench in the works post-listing. Investors might want to tread carefully, keeping an eye on these elements given the competitive nature of power transmission.
Conclusion
Transrail Lighting comes with strong fundamentals, a valuation that’s easy on the eyes, and a business model that’s running like a well-oiled machine. Analysts are generally upbeat, pushing for subscriptions due to potential listing gains and the company’s growth trajectory.
With a solid order book, margin improvements, and a strategic spot in a booming market, Transrail Lighting isn’t just another IPO; it’s a chance to invest in India’s growing power infrastructure. However, with the IPO market bustling and specific sector challenges, it’s worth doing your homework. But if you’re looking for a company with a strong presence and a promising future, Transrail Lighting might just be your ticket. Additionally, robust grey market premium in this IPO should act as confidence booster for investors.
