Quadrant Future Tek (QFTL) is engaged in manufacture of specialty cables used in railways rolling stock and naval (defence) industry. It specializes in manufacturing a wide range of Electron Beam Irradiated Cables for industrial usage and applications where fire and safety, light weight and long-term performance are of utmost importance. The company has also recently expanded its operations to build an indigenously developed Automatic Train Protection System that uses radio frequency identification to detect and stop a possible train collision under the Kavach project developed by the Research Designs & Standards Organisation (RDSO).

The product portfolio of the company is wide and includes railways rolling stock cables, naval defence, marine cables, solar PV cables, automotive cables, and connectors & junction boxes. It also provides end-to-end solutions for electrical connectors and wiring harnesses, with the complex arrangement of various wires and cables as per the demand of the client.

The company is one of few manufacturers in India approved by RDSO, DGQA and Indian Register of Shipping with in-house capabilities of manufacturing and supply of Single Core / multi core Control & Power Cables, Signalling Cables for use in Railway Coaches, Locomotives & EMU‘s and for the supply of Single Core/Multi Core, Screened/Un-Screened & Power Cables for Naval Ships.

The company has dedicated Railway Signalling & Embedded System Design centre for the development of Train Control Products & Solutions and is working towards development of Train Collision Avoidance System and Electronic Interlocking System under KAVACH as a means of Automatic Train Protection System to enable safety and capacity augmentation in Indian Railways. It has built this indigenously developed Train Collision Avoidance System that uses radio transmission & support LTE technology meeting the Safety Critical standards as per SIL-4 requirements, interoperability with other competing product & systems and to detect and stop a possible train collision under the KAVACH project developed by the Research Designs & Standards Organisation (RDSO) under the Ministry of Railways. On March 23, 2023, the company received the technical clearance for field trial of its Kavach product from RDSO. There is no validity for such product approval. However, RDSO may, from time to time, require such modifications or upgradations to be undertaken, as may be required for operational efficiency of Indian Railways.

The company was incorporated with the collaboration of four independent business groups, comprising of technocrats and entrepreneurs i.e. (i) Mohit Vohra and Amit Dhawan (collectively, “MV Group”); (ii) Rupinder Singh, Aikjot Singh and Parminder Kaur (collectively, “NEC Group”); (iii) Amrit Singh Randhawa, Rajbir Singh Randhawa, Swinder Kaur and Navneet Kaur (collectively, “ISG Group”); and (iv) Mohan Krishan Abrol, Vivek Abrol, Vishesh Abrol and Vipin Abrol (collectively, “Abrol Group”). All the four promoter groups have equal stake in the company.

For the half year ended September 2024, 91.29% revenue came from supply of W&C (Railways); 2.86% from W&C (Defence), 4.14% from Train Control & Signalling division and 1.72% others. For FY24, 77.02% revenue came from supply of W&C (Railways); 22.24% from W&C (Defence), 0% from Train Control & Signalling division and 0.75% from others.

The company entered entered into a Memorandum of Understanding (MOU) with the President of India acting through Executive Director (Tele-II) of RDSO for development of the KAVACH equipment and system. Under the terms of the said MOU, the technical specification and domain knowledge has been provided by RDSO and the company has conducted research and developed said technology. The company developed the Train Collision Avoidance System in strict compliance with the SIL-4 standards and the specifications provided by RDSO. It works closely with RDSO to incorporate their requirements into its system for TCAS.

The company have invested a significant amount towards capital expenditure aggregating to Rs 59.441 crore till date in developing its platform for Automatic Train Protection system, including TCAS and intend to continue investing in upgradation of the said system including addition of newer technologies to enhance its design and development capabilities, particularly with a view to expand its operations.

The Train Collision Avoidance System (KAVACH equipment) developed by the company has received proto-type approval by Indian Railways / RDSO and further technical clearance for deployment of its systems on a stretch of 43.6 km at “Moula-Ali (Excluding) - Raghunathapalli section of the South Central Railway - Reach 2” covering 5 stations and 10 train sets. The said order is for an aggregate value of Rs 16.86 crore.

Subsequently, on December 12, 2024, it received a purchase order from Chitaranjan Loco Works (CLW) for the supply, installation, testing, and commissioning of On-board Kavach equipment in 1,200 locomotives for an aggregate value of Rs 978.606 crore (including taxes). But before the supply of material under the said order, the company should obtain the final approval from RDSO for Ver 4.0 of Kavach System after ISA (Independent Safety Assessment) Certificate. Further, after completion of the warranty period under the said purchase order, the company will receive a maintenance charge equivalent to a sum of 3% per annum of the total capital cost of onboard Kavach equipment supplied by it for the maintenance period of 11 years thereafter.

On May 01, 2024, it entered into a Memorandum of Understanding with RailTel Corporation of India (“RailTel”), a Government of India undertaking, to define a framework of inter-se co-operation to (i) establish high level understanding of intended opportunities to pursue within the said MoU, (ii) KAVACH as a means of Automatic Train Protection System for Railways in India and abroad, and (iii) to re-align and broaden the above targeted scope as per the opportunities within other countries and their Railway System. This MOU has made it eligible to supply KAVACH equipment as an OEM to RailTel for the projects awarded to RailTel, and includes the component of implementation of KAVACH too, in India and abroad.

It has one manufacturing facility situated in Basma (Mohali, Punjab) and this caters to both the business divisions of the company i.e. Specialty Cables Division and Train Control & Signalling Division. This facility is equipped with advanced equipment, modern technology and an automated PCB assembly line. This facility has installed a 2.5 MeV Electron Beam Industrial Accelerator for cable manufacturing plant which helps it to offer Specialty cables with improved mechanical properties, abrasion and thermal resistance, flame propagation resistance and deformation resistance properties without producing heat and an increased life as compared to chemically cross-linked cables. For the specialty cable division, it had an installed capacity of 1,887.60 metric tonnes as on September 30, 2024. This facility also possesses end-to-end infrastructure capabilities for production of Solar & EV Cables. It has vertically integrated manufacturing operations for the hardware and software required for Train Control and Signalling Division which allow it to manage manufacturing processes in-house, from design and development to manufacturing and delivery. For the Train Control & Signalling division, it had an installed capacity of 4492 Station TCAS, 2264 Locomotive TCAS and 3744 Remote Interface Unit, based on the estimated speed of the SMT machine installed at its factory at Basma, Mohali.

Additionally, it has two Railway Signalling & Embedded System Design centre based at Bengaluru, Karnataka and Hyderabad, Telangana.

The Issue, Object of the Issue

The Initial Public Offer comprises only fresh issue of equity shares of Rs 290 crore.

Of the net proceeds from the fresh issue of equity shares, about Rs 149.722 crore is towards funding long-term working capital requirements of thecompany; Rs 24.375 crore towards capital expenditure for development for Electronic Interlocking System; Rs 23.619 crore towards prepayment or repayment of all or a portion of outstanding working capital term loan availed by the company; andthe balance towards general corporate purposes.

As of September 30, 2024, it had total borrowings (inclusive of fund based and non-fund based, but excluding unsecured loan from Promoter and Promoter Group) of Rs 98.011 crore.

Strengths

Unique technology for the manufacture of cables that meets the stringent requirements for multiple industries, namely Railways, Naval Defence, Renewable Energy & Electric Vehicle sectors

In-house design and product development capabilities powering its Rail Signalling Products & Solutions including Automatic Train Protection Systems.

Entered an exclusive MoU with RailTel for delivering the specific targeted opportunities related to KAVACH in Indian Railways and other Countries Railways.

Advanced manufacturing facilities with a diverse range of power and control cables with focus on innovation and cost competitiveness

One of few manufacturers in India approved by RDSO, DGQA and Indian Register of Shipping with in-house capabilities of manufacturing and supply of Single Core / multi core Control & Power Cables, Signalling Cables.

Global emergence of market for Specialty cables in renewable energy and electric vehicles and supply of such Specialty cables to OEMs with high global market penetration

Strong growing opportunity for Automatic Train Protection systems such as Train Collision Avoidance System in the country to prevent dangerous train collisions.

Weakness

Present business operations and revenues comprising of specialty cables and the proposed business operations under Train Control Products and Solutions are substantially dependent on Railways (particularly Indian Railways) and Naval (Defence) manufacturing units with former account for 77% of FY24 revenue and latter 22.24%.

Top 1/5/10 customers accounted for 41.23%/82.27%/95.66% and 47.36%/72.99%/86.20% of the revenue in H1FY25 and FY24, respectively.

Capacity utilization of specialty cables in FY24 and FY23 stood at 49.42% and 54.26%, respectively.

Do business with its customers on purchaseorder or through tenders issued by them from time to time and do not have long-term contracts with most of them.

Expanded its operations into Train Control Systems only recently and it may be difficult to predict and evaluate its performance and prospects. Moreover, the Promoters do not have significant background or experience in the train control systems segment under the railways industry.

Do not have a product or process patent for the Train Collision Avoidance System.

Entered and will continue to enter related party transactions that may involve conflict of interest. About 20.08%, 19.38% and 43.66% of total income of the company in FY23, FY25 and H1FY25 come from sales transaction with related parties.

Experienced negative cash flows from operating activities in FY22 and H1FY25.

Passed through incidence of litigation among four independent promoter groups in removing one group nominees from Board of directors for carrying out certain competing activities was escalated to NCLT but was subsequently settled among promoters 4 promoter groups.

Certain of its Promoter and Promoter Group shareholders have sold in aggregate 2000000 equity shares of face value Rs 10 each at a consideration of Rs 240 per Equity Shares on October 25, 2024.

Aikjot Singh, one of the promoters and Non-Executive Director on the Board of the company is party to a criminal litigation relating to accidental death of two persons from the car driven by Aikjot Singh.

Certain group companies are involved or authorized to undertake business similar to its business activities, which could create conflicts of interest

Significant shortages of, or delay or disruption in the supply of raw materials for Train Collision Avoidance could impact timely implementation of the orders.

Subject to risks associated with the performance of contractors, subcontractors and consultants being involved in its projects relating to Train Control & Signalling division.

There are instances of delayed filings and lapses in various regulatory filings made with the concerned Registrar of Companies and other regulatory authorities under the provisions of the Companies Act.

There are certain defaults / delays in payment of statutory dues such as PF, ESI, and TDS.

Audit Report for the Fiscal 2022 has a qualified opinion.

One Company, along with Vivek Abrol, Promoter & Director of the company and Mohan Krishan Abrol have filed a settlement application under Securities and Exchange Board of India (Settlement Proceedings) Regulations, 2018 for delayed compliance under Regulation 54 of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018. Any adverse outcome in relation to such a settlement application may impact its reputation.

Valuation

Consolidated re-stated revenue for the fiscal ended March 2024 stood lower by 1% to Rs 151.76 crore. With OPM expanded by 680 bps to 24.1%, the growth at operating profit was up by 39% to Rs 36.60 crore. Finally, the net profit was up by 6% to Rs 14.71 crore.

For the half year ended Sep 2024, the sales were up 6% to Rs 65.14 crore but at net level it was a loss of Rs 12.10 crore against a profit of Rs 14.89 crore. The loss in H1FY25 is on account of expenses for Train Control & Signalling division now being charged to profit and loss account since the capitalization of intangible asset created for development of Kavach System. The development phase of Kavach system was concluded by the management as completed in Fiscal 2024 and the amount incurred towards capital expenditure on the same was capitalized on October 18, 2023. However, the operations of the wires and cable division are positive at EBITDA and PBT level.For the TTM period ended Sep 2024, the sales were Rs 155.36 crore, and the net loss was Rs 12.29 crore.

The EPS for FY2024 on expanded equity (on the upper price band) was Rs 2.9. The PE on upper price band works out to 100 times of its FY24 EPS. The company quotes at a P/BV of 3.6.

There are no listed companies that exclusively undertake the manufacturing of Specialty cables and Train Controls and Signalling business for comparison. However, in comparison, Apar Industries, which also manufactures Electron Beam Irradiated Cables along with conductors and transformer oil quotes at P/BV of 10.3. Cords Cables, which manufactures cables for industrial usage, quotes at a P/BV of 1.6. HBL Engineering that is also into TCAS, quotes at a P/BV of 12.7. Kernex Microsystems quotes at P/BV of 20.4.