Quality Power Electrical Equipment (QPEEL) offers a range of technology-driven products, comprehensive system solutions, and professional services tailored for the power sector. It is among the few global manufacturers of critical high voltage equipment for High Voltage Direct Current ("HVDC”) and Flexible AC Transmission Systems (“FACTS”) networks.

The company specializes in grid interconnection equipment, which addresses infrastructure and devices needed to connect multiple power grids or electrical systems. These equipments are crucial for facilitating the smooth transfer of energy between various stages: from generation to transmission, and from transmission to distribution, ensuring that energy flows throughout the power system, promoting integration and consistent operation.

Its portfolio of high voltage products and solutions is critical for advancing and modernizing electrical networks. Its technologies are designed to enhance grid reliability and performance by providing critical support for power grid management and overall network stability.

The product portfolio is wide and is broadly grouped into power products and power quality products. Within power products portfolio comprising coil products [such as reactors (air core, iron core, oil filled reactors); line traps and line tuners]; transformers [earthling transformers, special application transformers and dry type transformers]; instrument transformers and composites (Edison composites). Its power quality products portfolio comprises passive systems (such as capacitor banks, harmonic filter, shunt reactors); hybrid systems (such as magnetic controller reactors, thyristor-controlled transformers, thyristor switched capacitors) and active systems (such as static VAR compensators, STATCOMS, metal enclosed capacitor banks). Its product portfolio contributes to advancing decarburization efforts, sustainability, and green energy initiatives.

Of the FY24 total revenue from operations, about 41.2% came from power products, 55.77% from the power quality systems, and 3.03% from others. In H1FY25, the mix was 44.82% from power products, 53.58% from power quality systems and balance 1.60% from others.

The customers include (i) power transmission, providing effective transfer of electricity over distances, (ii) power distribution, ensuring the delivery of electricity to end users, and (iii) power automation, integrating advanced technologies for efficient power management.

The company has presence in domestic and international markets. With supplies across 100 countries, it caters to various industries like automobiles, oil and gas industries, cement, chemical, renewables, traction & locomotives, steel & metal industries, power utilities in different markets spanning across 6 continents, thereby enabling it to be a global player. As of September 30, 2024, it had 143 customers. Its end customers include power utilities, power industries, and renewable energy entities. Revenue from international markets accounted for 80.68% in FY24 and 75.77% in H1FY25.

Its manufacturing operations in India are spread across two locations, including Sangli, Maharashtra, and Aluva, Kerala. In 2011, the company acquired 51% stake in Endoks Enerji Anonim Sirketi (“Endoks”), which has its design, operation, assembly, project management, and delivery facilities in Ankara, Turkey, as part of its global expansion strategy. Pursuant to this acquisition, Endoks became its indirect subsidiary.

Endoks focuses on industries, renewable energy integration, and grid modernization, and has developed systems that improve energy efficiency and ensure the stable operation of power networks. The Endoks product portfolio includes solutions for energy monitoring, automation, and real-time control, addressing the needs of utilities, industrial plants, and commercial enterprises. Endoks utilizes technology and maintains a customer-focused approach to meet the global demand for energy and works to enhance grid stability and energy efficiency.

The Issue and Object of the Issue

The issue comprises of both Offer for Sale (OFS) and fresh issue of equity shares. The OFS comprises sales of equity shares of 14910500 equity shares by Chitra Pandyan, one of its Promoters. The fresh issue comprises issue of fresh equity shares, aggregating to Rs 225 crore.

Of the net proceeds from the fresh issue, about Rs 117 crore will be utilized for payment of the purchase consideration for the acquisition of Mehru Electrical and Mechanical Engineers; Rs 27.217 crore for funding capital expenditure (purchase of P&M) of the company; balance towards funding inorganic growth through unidentified acquisitions and other strategic initiatives as well as general corporate purposes.

Strengths

Offers an extensive range of products crucial for effective power transmission and advanced power automation.

Over two decades of experience in the energy transition space

Demonstrated track record of strategic acquisitions, to further enhance its capabilities, asset base, customer reach, product offerings and expanding market reach.

Major beneficiary of global shift towards decarbonisation and adoption of renewable energy.

Diversified customer base of global businesses with long lasting relationships.

Weaknesses

Top 3/5/10 customers accounted for 27.15%/39.62%/58.17% of the revenue from operations in FY24 and about 32.63%/40.83%/55.36% in H1FY25.

Slowdown in investment in power sector especially in HVDC and FACTS and renewable energy.

Any shortages, delays or disruption in the supply of the raw materials used by the company in its operating process will have an adverse effect on the business of the company.

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

Valuation

Consolidated re-stated revenue stood higher by 19% to Rs 300.60 crore in FY 2024. But with OPM contracting by a marginal 10 bps to 12.6%, the operating profit was up 18% to Rs 37.84 crore. Eventually, Pat after MI stood higher by 39% to Rs 55.47 crore.

For the half year ending September 2024, the net profit was Rs 50.08 crore on sales of Rs 155.74 crore.

At the upper price band, the PE works out to 59.9 times of its FY24 EPS. And the P/BV works out to 7.1 times and EV/Sales works out to 10.8 times.

Though not apple to apple comparable peers, companies that caters to power T&D sector including HVDC projects such as CG Power, GE Vernova, Hitachi Energy and TRIL quotes at a PE of 63.5 times, 216.8 times, 302.9 times and 279.2 times respectively. On H1FY25 annualized EPS, the PE of CG Power, GE Vernova, Hitachi Energy and TRIL were 95.4 times, 70.4 times, 396.2 times and 94.5 times compared to 32.7 times of the company.