Rishabh Instruments IPO opens today: Should you subscribe to the issue?

The Rs 491 crore-initial public offering of Rishabh Instruments kicks-off bidding on Wednesday, August 30. The company will be looking to sell its shares in the range of Rs 418-441 apiece with a lot size of 34 equity shares and its multiples thereof. The three-day bidding process will conclude on Friday, September 1.

Incorporated in 1982, Rishabh Instruments is engaged in the business of manufacturing, design, and development of test and measuring instruments and industrial control products. The company provides cost-effective solutions to measure, control, record, analyze, and optimize energy and processes through an array of products.

The company is looking to raise Rs 75 crore via fresh issue and existing promoters and investors will offload 94,28,178 equity shares via offer-for-sale (OFS) aggregating up to Rs 415.78 crore.  The net proceeds from the fresh equity sale are said to be utilized towards financing the cost towards the expansion of Nashik manufacturing facility, and general corporate purposes.

A day before its IPO, Rishabh Instruments raised Rs 147.2 crore via 16 anchor investors by allocatiing  33,38,656 equity shares at a price of Rs 441 apiece, said the company. HDFC Mutual Fund, Nippon Life, Sundaram Mutual Fund, Bandhan Mutual Fund, Aditya Birla Sun Life Insurance, Quant Mutual Fund, Tata Multicap Fund, and 3P India Equity Fund I participated in the anchor book.

Rishabh Instruments has four segments: electrical automation devices; metering, control, and protection devices; portable test and measuring instruments; and solar string inverters. The company has manufacturing units and more than 270 dealers across the globe, reaching more than 70 countries and over 150 dealers across India covering every state.

In 2011, Rishabh Instruments acquired Lumel Alucast, a non-ferrous pressure casting company in Europe, which helped the company establish a strong foot in manufacturing and supply of low-voltage current transformers. It also provides complete aluminum high-pressure die-casting solutions.

For the year ended on March 31, 2023, the company had reported a net profit of Rs 49.69 crore with a tota revenue of Rs 579.78 crore. The company had clocked a net profit at Rs 49.65 crore with a total revenue oat Rs 479.92 crore in the previous financial year.

Majority of the brokerage firms are positive on the issue citing the niche products, global presence, rising industrialization, strong return ratio and robust balance sheet. However, a few have suggested to give it a skip on the back of expensive valuations and dependence of exports amid sluggish macroeconomic outlook.

"The company is a global engineering solution provider operating in large addressable markets and can benefit from industrialization trends. At the upper price band, the company is valuing at P/E of 34.3 times FY23 earnings with a market cap of Rs 1,674 crore post issue of equity shares and return on net worth of 11.67 per cent, said Anand Rathi Shares & Stock Brokers with a 'subscribe' tag.

The company has a track record of sustained Revenue, EBITDA and PAT growth which grew at a CAGR of 20.85 per cent, 11.02 per cent and 17.58 per cent during the FY 21-23 period, respectively. On the upper price band, the issue is valued at a P/E of 34.6 times based on FY2023 earnings which we feel is richly valued, said StoxBox by BP Equities.

Moreover, with exports forming a major part of revenues, we would prefer to be on the sidelines against the backdrop of a weakening global macroeconomic scenario. We, therefore, recommend an 'avoid' rating for the issue. However, we would reassess the company on improvement in financial metrics over a sustained period.

The company has reserved 50 per cent of the net offer for the qualified institutional bidders (QIBs), while non-institutional investors (NIIs) will get 15 per cent of the shares. Retail investors will get the remaining 35 per cent of the net offering.

Dam Capital Advisors, Motilal Oswal Investment Advisors and Mirae Asset Capital Markets (India) are the lead managers to the issue, while Kfin Technologies has been appointed as the registrar to the issue. Shares of the company will be listed on both BSE and NSE.

With the virtually intergated operations; backed by strong manufacturing capabilities, diversified product portfolio, wide customer base, and strong financials, said Hensex Securities which suggested to subscribe to the issue. The brokerage is positive on its strong financials, revenue from operations and global presence.

However, Hensex has flagged dependence of subsidiaries for a greater share of revenue and exports as the key risks for the business. "Fluctuation in the foreign exchange, demand of products and economic cycle, may impact the business," it said.

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