Rishabh Instruments

Measures well

Technology-driven engineering company manufacturing electrical and electronic products

Rishabh Instruments, promoted by Narendra Joharimal Goliya in 1982, is a global energy efficiency solution company focused on electrical automation, metering and measurement, precision engineered products, et al. with diverse applications across industries including power, automotive and industrial sectors.

Rishabh is a technology-driven engineering company engaged in the global manufacturing of electrical and electronic products and aluminium high pressure die castings (manufactured through its subsidiary, Lumel Alucast,catering to a variety of industries. The company also provides certain manufacturing services which include mould design and manufacturing, EMI/EMC testing services, EMS, and software solutions (e.g., MARC). It provides comprehensive solutions to its customers looking for cost-effective ways to measure, control, record, analyse and optimize energy and processes through its array of products.

The company, anchored by its 40-year market presence in India, has strategically expanded its operations to overseas markets and have acquired and/or established seven foreign subsidiaries: three in Poland, one in the United Kingdom, one in the United States of America, one in China and one in Cyprus. Its inorganic growth strategy has not only resulted in the addition of new products, but also added new technical capabilities. Acquisition of Lubuskie Zaklady Aparatów Elektrycznych `Lumel’ Spólkaakcyjnain Poland, which together with Lumel has a 70-year operating history, provided the company a platform for further penetration particularly in Central and Eastern European markets. Its Chinese acquisition in FY2020 gave it access to environmental TMI products portfolio and, subsequently, the acquisition of Sifam UK, a business division of Relpol SA in 2021 supplemented its medium voltage relay offering.

Now the company is a global leader in manufacturing and supply of analog panel meters and is among the leading global companies in terms of manufacturing and supply of low voltage current transformers. Lumel is the most popular brand in Poland for meters, controllers, and recorders and Lumel Alucast is one of the leading non-ferrous pressure casting players in Europe.

The company is vertically integrated and is involved in designing, developing, manufacturing, and supplying electrical automation devices; metering, control and protection devices; portable test and measuring instruments; and solar string inverters.

It supplies a wide range of electrical measurement and process optimization equipment, and are engaged in designing, developing and manufacturing, and sale of devices significantly under its own brand across several sectors.

Rishabh provides a wide range of products in each of the following product segments: Electrical Automation; Metering, Control, and Protection Devices; Portable Test and Measurement, Solar String Inverters, High Pressure Aluminum Die Casting. The High-pressure Aluminium die casting business from Lumel also helps the company to bring new customers for the electronic and electrical products.

Electrical automation products include energy management software, transducers and isolators, paperless recorders (chartless) and dataloggers, temperature and humidity recorders, I/O converters, and temperature controllers among others.

Metering, control and protection devices consist of analog panel meters, rotary cam switches, current transformers, shunts, digital panel meters, multifunction meters, multi-load monitoring meters, power quality meters, power quality analyzers, power factor controllers, LV and MV relays, genset controllers, synchronizing units, power supply and battery chargers among others.

Under portable test and measuring instruments portfolio, it manufactures various categories of digital multimeters, digital clamp meters, digital insulation testers, digital earth testers and environmental products such as ultrasonic level/thickness meter, digital luxmeter, non-contact tachometers, DB meter, submarine cable fault locator among others. It also manufactures solar string inverters in India designed for use in photovoltaic installations connected to the grid. In terms of aluminium high pressure die castings, it serves global automation, automotive and other industries with its inhouse designed tools (which include die casting moulds and CNC fixtures) and various post casting processes such as high precision machining, surface treatment and heat treatment.

The company is well diversified in terms of end users of its products, serving industrial (FMCG, pharmaceutical, cement, steel, railways), power (generation, transmission and distribution, renewable energy, oil and gas), OEM industries (transformer, motor, cable and special machine manufacturers) and new applications (data centre, laboratories, semiconductors, consumer electronics, and building automation).

As aluminum die castings are mainly used by big automotive, automation and other industrial customers, it eventually opens business doors for products from the other segments thus building synergy between the two business units.

Rishabh is an emerging player in one of the fastest growing EMS business segments, providing future growth opportunities for the company.

Rishabh Instruments is currently operating 5 manufacturing facilities (of which 2 are in Nasik, India) spread across 3 countries: India, Poland, and China. All facilities are vertically integrated with end-to-end product development capabilities from concept design to bulk manufacturing, with dedicated R&D units. In addition, it has 2 modification centers: one each in UKand USA.

The Lumel Alucast factory melts 20 tons of aluminium per day and produce 35,000 castings per day. European car production is 9.9 million units/annum and Lumel produces 3 million aluminum cast housing for the car compressor makes it one of the leading die-cast players in Europe. Lumel provide complete aluminium high pressure die casting solutions for customers requiring close tolerance fabrication (such as automotive compressor manufacturers and automation high precision flow meters manufacturers), machining and finishing of precision components.

Rishabh brands Rishabh and Lumel are well-known and established in multiple countries with registration for `Rishabh’ for over 40 years and `Lumel’ for over 69 years. Lumel has brand recognition in both electronic files as well as Aluminum Die Casting fields with major Industrial Users and OEMs. Lumel is a leading player in non-ferrous pressure casting in Europe and is the most popular brand in Poland for meters, controllers, and recorders. ‘Sifam’ and ‘Tinsley’ are the other two major brands of the company (owned through Sifam Tinsley Inc. a subsidiary of the company) which are very strong in the markets of US and UK. While ‘Sifam’ is a 75-year-old brand, ‘Tinsley’ is over 118 years.

The company primarily follows a business-to-business model, which is purchase order based for all its segments except portable test and measuring instruments, which are also sold on a merchant basis.

The Issue, Objects of the issue

The current initial public offer comprises a fresh Issue aggregating to Rs 75 crore and an Offer for Sale of up to 9428178 equity shares. The OFS is made by Promoter Selling Shareholders and Investor Selling Shareholder [i.e., SACEF Holdings II 7010678 equity shares]. The investor selling share holder will have zero holding post the issue. Of the Promoter Selling Shareholders, post issue the Narendra Rishabh Goliya HUF will have zero holding but that of Asha Narendra Goliya and Rishabh N Goliya will have 7.9% and 0.92% of the post-issue expanded equity.

Of the net proceeds from the fresh issue, an amount of Rs 62.886 crore will be used to finance the cost of expansion of Nashik Manufacturing Facility I and balance for general corporate purposes.

The expansion project of Nashik Manufacturing Facility I looks to augment the production capacity of analog panel meters, digital panel meters, multimeters, current transformers, electrical transducers, moulds, and solar inverters.

Outstanding borrowings of the company was Rs 96.294 crore as end of May 31, 2023.

Strengths

Rishabh is a global leader in manufacturing and supply of analog panel meters and is among the leading global companies in terms of manufacturing and supply low voltage current transformers with established brands, i.e., ‘Rishabh’, ‘Lumel’, ‘Sifam’ and ‘Tinsley’. Lumel is one of the leading non-ferrous pressure casting players in Europe. Rishabh is the number 1 players in Electrical Transducers and Split Core Current Transformers in India and is number 2 in Portable Test & Measurement (multimeter and clamp meter) as well as number 3 player in Digital Panel Meters in India. It is the first company in India to Design, Develop & Manufacture Solar String Inverters end to end.

A diversified product portfolio (over 145 product lines, 0.13 million product SKUs and 0.24 million total SKUs including spares) with a wide customer base (of over 3000 customers globally).The diversified product portfolio helps Rishabh to retain its customers and strengthen cross-selling efforts across product portfolios.The Top 10/20/30 customers accounted for 31.92%/42.70%/49.28% of its FY2023 revenue.

Some of its marquee customers include ABB India, Siemens, Pronutec S.A, Gossen Metrawatt GmBH, Inox Solar Energy, Saicon Power System and Endress+Hauser Flowtec AG, Gama Electrical Trading, Pronutec S.A., Lucas-Nulle GmbH, Hitachi Energy India, OMEGA Electric Machinery, Scheider Electric India, Dash Controls Systems, Lucy Electric India, and Perel OY.

Global engineering solution provider operating in large addressable markets and well positioned to benefit from mega industrialisation trends.Globally it has served customers in over 100 countries through five sales and marketing offices and a strong global network of 339 authorized distributors/stockists as of May 31, 2023. In FY 2023 about 65.74% of its revenue came from its overseas operations and balance 34.26% from India operations. In terms of geography of the FY2023 sales about 17.4% is from India, 21.29% from Poland, 5.11% from USA, 2.64% from UK, 1.42% from UAE, 0.90% from France and 51.24% from rest of India. In terms of continents of the FY2023 sales, about 70.24% is from Europe, 22.41% from Asia, 6.09% from Americas, 0.83% from Australia and 0.44% from Africa.

Vertically integrated operations with 99% of manufacturing operations done in house and only 1% of the total turnover comes from the outsourcing process.

Manufacturing footprint across the globe provides it the flexibility to seamlessly migrate production processes from different facilities in case of emergencies.

Ability to drive technology and innovation through advanced research and development capabilities.

Track record of successful integration of acquired businesses or entities across geographies.

Weakness

Poland Manufacturing Facility II requires natural gas for the aluminium high-pressure die casting business. Any shutdown/cutdown of gas supply by Russia due to sanction imposed by Poland in relation with Russia Ukraine War will make domestic gas extremely expensive could lead to slowdown or shutdown of its operations or underutilization of its Poland units impacting financials of the company.

Shortages in the supply of semiconductors have had, and may continue to have, a material adverse effect on results of operations and financial condition.

Any cancelation of orders, changes/delay in production orders or change their sourcing by customers will affect the performance of the company.

Failure to execute its strategies to expand existing customer accounts and geographical footprint effectively may adversely affect its business growth.

Two of the immediate relatives of the Promoters (i.e., Surendra Goliya and Mangala Rajendra Mehta, who are brother and sister-in-law of the promoter), who are deemed to be a part of the Promoter Group under SEBI regulations have not provided consent to be part of the promoter group. But due to SEBI order on the request by the company to exclude them from the promoter group, it has included both of them as part of promoter group and information pertaining to them in the RHO is only to the extent available and accessible to thecompany.

Poland manufacturing facility I (that of Lumel SA) operated at a capacity utilization of about 20% in FY2023. Capacity utilization in FY2021 and FY2022 was about 23% and 19%, respectively.

Foreign exchange fluctuations may adversely affect earnings and profitability.

One of its Group Companies, namely Shanti Instruments, is engaged in a similar business. Therefore, there may be conflict of interest in allocating business opportunities between the company and its group company.

The demand for its products in foreign countries is subject to international market conditions and regulatory risks that could adversely affect its business and the results of the operations. Moreover, commercial success depends on the success of its products and its customer’s products with end consumers. Any decline in the demand for its products or its customers’ products would adversely impact the demand for its products.

Valuation

Consolidated sales of the company for the fiscal ended March 2023 (FY 2023), were up 21% to Rs 569.54 crore. With the operating profit margin contract by 210 bps to 13.4%, operating profit was up 4% to Rs 76.08 crore. The PAT was flat at Rs 49.69 crore. But eventually, the net profit after MI was down by marginal 1% to Rs 46.82 crore.

On post-issue equity (on the upper price band) the EPS for FY2023 was Rs 12.3 and the P/E works out to 35.9 times. ThePrice/BV on the upper price band works out to 3.5 times. There is no comparable peers with a similar line of business, but Endurance Technologies and Sandhar Technologies, which manufactures aluminum die-casting, quote at a PE of 48.5 times and 31.1 times. The not comparable on orange-to- orange basis, the MNC electrical automation/products major ABB India, which is a customer as well as a competitor in certain products, quotes at a PE of 113.7 times. Salzer Electronics that supplies switchgears, MCBs and dry transformers to OEMs such as Schneider Electric etc quotes at a PE of 18.7 times.