Transrail Lighting (TLL), promoted by Digambar Chunnilal Bagde, is an Indian engineering, procurement and construction (“EPC”) company, with primary focuson power transmission and distribution business and integrated manufacturing facilities for lattice structures, conductors, and monopoles.

The company operates as EPC service providers and as a supplier of engineered products in the power transmission and distribution segment. It has completed more than 200 projects in power transmission and distribution vertical since its inception, along with comprehensive and extensive project execution capabilities in terms of manpower, supply of materials (including self-manufactured products) and availability of world class machinery, both in India and internationally (majorly across Asia and Africa). It has power T&D project execution footprint in 58 countries like Bangladesh, Kenya, Tanzania, Niger, Nigeria, Mali, Cameroon, Finland, Poland, Nicaragua etc. including turnkey EPCs or supply projects.

As of June 30, 2024, it had undertaken EPC of 34,654 circuit kilometers (“CKM”) transmission lines and 30,000 CKM distribution lines, domestically and internationally. It also provided EPC services in relation to substations (both air and gas insulated) up to 765 kilovolts (“kV”). It has presence in all the power transmission and distribution segments and majorly in high voltage (“HV”) and extra high voltage (“EHV”) segments.

In civil construction business vertical, it provides EPC services including design in relation to bridges, tunnels, elevated roads and cooling towers. The company have been awarded with the Kosi bridge project and constructing some of the tallest natural draft cooling towers (NDCT) in India. Civil construction services are majorly provided domestically.

In poles & lighting business vertical it operates as both manufacturers (of high masts, street poles, luminaries, power transmission and distribution monopoles, stadium lighting, derrick structures, road gantries and signages, flag masts, solar streetlights, and decorative poles) as well as supply, installation, testing and commissioning service providers in the poles and lighting. The poles and lighting vertical of the company primarily operates in the Indian markets with select projects internationally.

The railways business of the company provides several services including overhead electrification, signaling and telecommunication services, earthwork, track linking and other composite works in relation to railways. Its manufacturing units have supplied railway portals and overhead contact rods. The railways vertical of the company currently has operations only in India. It has also completed more than 396 track kilometers (“TKM”) of overhead electrification, 128 TKM of track laying and 35 locations in relation to signaling and telecommunications for railway projects in India.

Of the FY24 revenue from operation, about 83.83% is from power T&D business, 9.33% from civil construction, 2.43% from railways and 4.4% from poles & lighting. In terms of geography, of the FY24 operating revenue, about 41.45% came from India and 58.55% from outside India.

Over a period, it steadily invested into backward integration by adding manufacturing units for towers, conductors and poles and have developed the ability to provide comprehensive solutions including designing, manufacturing, procuring, testing and supplying of conductors, towers etc. for its EPC projects and towards direct supplies. Generally, these products and services cover a substantial part of the EPC value in a typical transmission line/lighting project, which reduces its dependency on third-party suppliers. Currently it hasthree operational manufacturing facilities at Vadodara, Gujarat (for galvanized lattice steel tower), Deoli, Maharashtra (for galvanized steel towers) and Silvasa, UT of D&N (for conductors & poles). In addition, it has one in-house tower testing facility located in Deoli, Maharashtra.

Over the next few years, the company will continue to focus on existing projects while seeking opportunities to expand its portfolio into other allied/ancillary infrastructure sectors. It is proposing to acquire BH business of Gammon Engineers and Contractors, to expand its scope to hydro power projects as well. Further, it is also planning to expand its footprint in the solar EPC industry by including turnkey projects in relation to installation of solar rooftops, solar streetlights, ground mounted solar projects etc. It intends to draw on its experience, asset base, market position and ability to execute and manage multiple projects across various geographies to further grow its portfolio of EPC projects.

The Issue, Object of the Issue

The Initial Public Offer comprisesa fresh issue of equity shares of Rs 40 crore, and an offer for sale of up to 10160000 equity shares of Rs 2 face value each.

The entire portion of OFS is by promoters, i.e.,Ajanma Holdings.

Of the net proceeds from the fresh issue of equity shares, about Rs 250 crore will be used to meet working capital requirement, Rs 90.725 crore for funding capital expenditure and balance for general corporate purposes.

Strengths

TLL have a track record of four decades in providing comprehensive solutions in the power transmission and distribution sector, on a turnkey basis globally and have been a trusted and longstanding partner.

The order book of the company as end of June 30, 2024, is strong at Rs 10213.066 crore, which translates into about 2.5 times of its FY24 revenue. The OB is well diversified with 35.53% of its being India orders and 64.47% being international orders. Further of the OB, about 90.58% is power T&D, 7.23% is civil construction, 1.55% railways and 0.64 % is poles & lighting.

Strong in-house designing and engineering

Weakness

Project management and turnkey EPC contracts (including those for power transmission and distribution), have long execution periods and time overruns as well as other associated risks such as delay in getting ROW project, financial closure of PPP projects.

Substantially dependent on tenders being floated by government authorities, public sector undertakings and utilities and thus any delays in tenders released or no tenders released by such entities may have a material adverse effect on thebusiness and results of operations. Government clients accounted for 82.66% and 82.35% of FY24 and FY23 revenue.

Exposed to foreign currency fluctuation risks, particularly in relation to import of raw materials, receivables from its foreign projects and trade receivables.

The company was a subsidiary of Gammon India Limited (“GIL”) in the past and GIL ceased to be a holding company in FY16. Any action taken against GIL pursuant to the proceedings outstanding against GIL, may have an adverse impact on the reputation and business. As on the date of this RHP, GIL holds 389,770 Equity Shares aggregating to 0.29% of post IPO expanded equity capital.

In the past, its books of accounts have been inspected by the Ministry of Corporate Affairs (“MCA”) and certain non-compliances have been found by the MCA in books of accounts.

Have an outstanding FIR filed by the Central Bureau of Investigation, Anti-Corruption Bureau, Lucknow, Uttar Pradesh (“CBI”) for the Gomti River Project. Similarly in the past, the company has received a show cause notice from RBI for FEMA non-compliance. Any adverse developments in this matter may have a material adverse effect on the business, financial condition, results of operations and cash flows.

Foreign portfolio registration certificate of Global Axe Investment Fund (formerly known as Aviator Global Investments Fund) (“GAIF”), one of Promoter Group entities, and Great International Tusker Fund (“GITF”) has been rendered invalid by SEBI. GAIF and GITF have also invested in the promoter, Ajanma Holdings Private Limited, through the FDI route. Any further regulatory actions against GAIF and GITF may affect their investment in the promoter, which may in turn adversely affect the reputation of the company.

The company along with its promoter, Ajanma Holdings, are proposing to acquire a part of the business of Gammon Engineers and Contractors Private Limited (“GECPL”) which is facing restructuring by its lenders. The acquisition will be funded through the internal cash accruals of the company.

Has in the past entered related party transactions and may continue to do so in the future.

There have been certain instances of delays in payment of statutory dues by the company in the past.

Face certain competitive pressures from the existing competitors and new entrants in both public and private sector. Increased competition and aggressive bidding by such competitors are expected to make the company procure business in future more uncertain, which may adversely affect the business.

Projects undertaken through a joint venture may be delayed on account of the performance of the joint venture partner.

Valuation

Consolidated re-stated revenue for the fiscal ended March 2024 stood higher by 29% to Rs 4076.52 crore. With OPM expanded by 240 bps to 11.7%, the growth atoperating profit was 62% to Rs 475.25 crore. Finally, the net profit was up by 117% to Rs 233.21 crore.

For the quarter ended Jun 2024, the net profit was Rs 51.74 crore on sales of Rs 915.78 crore.

The EPS for FY2024 on expanded equity (on the upper price band) was Rs 17.4. The PE on upper price band works out to 24.8 times and P/BV stood at 3.6 times.

In comparison, KEC International, Kalpataru Projects, Techno Electric and Skipper quotes at a PE of 89.5 times, 42.5 times, 64.7 times and 79.4 times their FY24 EPS respectively. The Bajel Projects quotes at a PE of 639.5 times. Patel Engineering quotes on a PE of 21.3 times.