What you must know about Rishabh Instruments IPO

Rishabh Instruments Ltd was incorporated in 1982 to manufacture, design and develop instruments for testing and measuring as well as the manufacture of Industrial Control Products (ICP). Basically, Rishabh Instruments offers cost-effective methods to measure, control, record, analyse, and optimize energy and processes. In addition, Rishabh Instruments also provides complete aluminium high-pressure die-casting solutions for customers in need of close tolerance fabrication. This finds applications in areas like automotive compressor manufacturing and automation high precision flow meters. These products are also used in machining, and finishing of precision components. Today, Rishabh Instruments Ltd also has a strong footprint in Europe, thanks to the acquisition of Lumel Alucast in 2011. Lumel Alucast is a European non-ferrous pressure casting company which specializes in the manufacture and supply of low-voltage current transformers.

The company also offers the manufacturing of certain manufacturing processes. This includes the manufacturing services like mould design and manufacturing, EMI and EMC testing services, Electronic Manufacturing Services (EMS), and very customized software solutions to enhance the performance of products. Broadly, in terms of business segments, Rishabh Instruments Ltd has 4 key verticals. These verticals include Electrical automation devices, Metering, control, and protection devices, Portable test and measuring instruments, and solar string inverters. Currently, the company has 3 manufacturing plants located in India and it services its local and international clients with the support of over 150 dealers in India and another 270 dealers spread across 70 international locations. The issue will be lead managed by DAM Capital Advisors (formerly IDFC Securities), Motilal Oswal Investment Advisors and Mirae Asset Capital Markets. KFIN Technologies Ltd (formerly Karvy Computershare Ltd) will be the registrar to the issue.

Highlights of the IPO issue of Rishabh Instruments Ltd

Here are some of the key highlights to the public issue of Rishabh Instruments IPO.

• The stock of Rishabh Instruments Ltd has a face value of ₹10 per share while the price band for the book building IPO has been set in the band of ₹418 to ₹441. The final price will be discovered within this band through the process of book building.
   
• The IPO of Rishabh Instruments Ltd will be a combination of a fresh issue and an offer for sale (OFS). The fresh issue portion comprises the issue of 17,00,680 shares (17.01 lakh shares approximately), which at the upper price band of ₹441 per share will translate into fresh issue size of ₹75 crore.
   
• The offer for sale (OFS) portion of the IPO comprises the issue of 94,28,178 shares (94.28 lakh shares approximately), which at the upper price band of ₹441 per share will translate into an offer for sale (OFS) size of ₹415.78 crore.
   
• Therefore, the overall IPO portion will comprise of the issue of 1,11,28,858 shares (111.29 lakh shares approximately), which at the upper price band of ₹441 per share will translate into a total IPO issue size of ₹490.78 crore.

While the fresh issue will be capital and EPS dilutive, the offer for sale portion will only result in transfer of ownership. There will 4 holders offering the 94.28 lakh shares under the OFS portion. The proceeds of the fresh issue portion will be used to finance the cost of the expansion of the manufacturing facility at Nashik Plant and for general corporate purposes. Here are the key shareholders offering their part of their holdings in the OFS.

Promoter holdings and investor quota allocation quota

The company was promoted by Narendra Joharimal Goliya. Currently the promoters hold 80.67% of the company, which will get diluted post the IPO to 70.68%. As per the terms of the offer, 50% of the net offer is reserved for the qualified institutional buyers (QIBs), while 35% of the total issue size is reserved for the retail investors. The residual 15% is kept aside for the HNI / NII investors . The stock of Rishabh Instruments Ltd will be listed on the NSE and on the BSE. The table below captures the gist of the allocation to various categories.

Lot sizes for investing in the IPO of Rishabh Instruments Ltd

Lot size is the minimum number of shares that the investor has to put in as part of the IPO application. The lot size only applies for the IPO and once it is listed then it can be even traded in multiples of 1 shares since it is a mainboard issue. Investors in the IPO can only invest in minimum lot size and in multiples thereof. In the case of Rishabh Instruments Ltd, the minimum lot size is 34 shares with upper band indicative value of ₹14,994. The table below captures the minimum and maximum lots sizes applicable for different categories of investors in the IPO of Rishabh Instruments Ltd.

It may be noted here that for the B-HNI category and for the QIB (qualified institutional buyer) category, there are no upper limits applicable.

Key dates for Rishabh Instruments Ltd IPO and how to apply?

The issue opens for subscription on 30th August 2023 and closes for subscription on 01st September 2023 (both days inclusive). The basis of allotment will be finalized on 06th September 2023 and the refunds will be initiated on 07th September 2023. In addition, the demat credits are expected to happen on 08th September 2023 and the stock will list on 11th September 2023 on the NSE and the BSE. Rishabh Instruments Ltd offers a very unique combination. It has an established and tested business model; it is into an industry that is considered to be in a state of flux with the capacity to leverage technology substantially. Let us now turn to the practical issue of how to apply for the IPO of Rishabh Instruments Ltd.

Investors can apply either through their existing trading account or the ASBA application can be directly logged through the internet banking account. This can only be done through the authorized list of self-certified syndicate banks (SCSB). In an ASBA application, the requisite amount is only blocked at the time of application and the necessary amount is debited only on allotment. Investors can apply in the retail quote (up to ₹2 lakh per application) or in the HNI / NII quota (above ₹2 lakh). Minimum lot sizes will be known after pricing.

Financial highlights of Rishabh Instruments Ltd

The table below captures the key financials of Rishabh Instruments Ltd for the last 3 completed financial years.

Data Source: Company RHP filed with SEBI (All ₹ figures are in crores)

There are few key takeaways from the financials of Rishabh Instruments Ltd which can be enumerated as under

1. In the last 2 years, the revenues growth has been robust and also consistent at around 20%. The area of precision testing instruments is also gaining ground in recent years. Purely on the strength of the prospects of the sector and the past performance of the group, the pricing does look like it has left something on the table for investors. With weighted average EPS of ₹12.3, the valuations are closer to the range of 30-33 times P/E ratio. Can that be justified by the margins reported?
    
2. The PAT margins have been consistent in the range of 8.5% to 10%. That is a good level for a capital intensive business that Rishabh runs. But, that also means that the ROE of the company is around 12% to 14%, which would make it tough to justify the P/E of over 30 times earnings. That is also substantially higher than the growth of 20%.
    
3. The company has maintained moderately high rate of sweating assets as is evident from the asset turnover ratio. It has consistently averaged above 0.8X, which is a good sign for a capital intensive business. However, this ratio has to go above 1 to be actually able to positively influence the ROE.

While pricing of the IPO does matter here, what is more critical is the eventual PAT margins that will sustain and the ROE that will hold in the future. For now, the signals are good. The company has emerged as a global testing solutions provider and that speaks of the quality of products as it reaches out to over 70 countries. This segment is likely to be one of the big beneficiaries of rapid industrial growth. Investors can look at this company as a good long term option. The holding period has to be longer to factor in the higher risks of valuation!