Transrail Lighting IPO

1. About the company..

• Transrail Lightning is an Indian engineering, procurement, and construction (EPC) company focused on power transmission and distribution. The company operates integrated manufacturing facilities for lattice structures, conductors, and monopoles and has presense across all segments of power transmission and distribution, particularly in high voltage(HV) and extra high voltage (EHV) systems. In addition to its core power transmission business, Transrail lighting has diversified into other areas, including civil constructions, poles and lighting, and railway infrastructure.

2. Strengths

1. Transrail lighting has completed over 200 projects in the power transmission and distribution sector. The company claims to possesses extensive project execution capabilities, including skilled manpower, material supply (featuring self-manufactured products), and advanced machinery, both domestically and internationally.

2. The company has established a presence in 58 countries, including Bangladesh, Kenya, Tanzania, Niger, Nigeria, Mali, Cameroon, Finland, Poland, and Nicaragua, through turnkey EPC projects and supply based ventures.

3. As of June 30, 2024, Transrail lighting has executed EPC contracts for 34,654 circuit kilometers(CKM) of transmission lines and 30,000 CKM of transmission lines across domestic and international markets. The company also provides EPC services for substation with capacities of up to 765 kilovolts (KV).

4. Transrail lighting's facilities are ISO 9001:2015 certified for quality management systems, ISO 14001:2015 certified for environment management systems, ISO 27001:13 certified for communication security systems and ISO 45001:2018 certified for occupational health and safety management systems.

5. The company claims that the manufacturing facilities are equipped with advanced technology, including CNC machines, Plasma gas cutting machines, shearing machines, welding systems, large galvanizing baths, wire drawing machines, and furnaces. As of June 30,2024, the company has supplied 1.3 million metric tonnes (MMT) of towers, 194,534 kilometers of conductors, and 458,705 poles.

6. The company also claims to operate a state of the art tower testing facility capable of testing towers up to 85 meter in height and up to 1200 Kv. By June 30,2024, it had tested 486 towers inhouse , totaling approximately 12,500 metric tonnes(MT), These tests included self support towers, guyed towers, monopoles, railway portals, and telecom masts. Over half of these towers were for international clients from countries such as Canada, Mexico, Malaysia, the Philippines, Korea, Oman, Chile, Italy, Botswana, Nigeria, Ethiopia, Mozambique, Bangladesh, Cameroon, and Liberia.

7. The company's tower manufacturing and testing facility in deoli, Maharashtra, and its pole manufacturing unit in Silvassa, Dadra and Nagar Haveli, are CE certified, while all in house facilities are NABL-accredited.

8. The company has seen a consistent increase in revenue from operations and profit after tax (PAT). Revenue from operations increased from Rs.2284.14 crore in FY22 to Rs.3,086.14 crore in FY23 to Rs.4,009.23 crore in FY24. PAT increased from Rs.64.71 crore in FY22 to Rs.107.57 crore in FY23 to Rs.233.20 crore in FY24.

3. Risks

1. Transrail Lighting project management and turnkey EPC contracts, including those in the power transmission and distribution sectors, involve long execution periods. Any delays and time overrun can lead to deviation in estimated costs and revenues, which could negatively impact the company's financial condition and operations.

2. The company's business depends on tenders issued by government authorities, public sector undertakings, and utilities, which account for a significant part of the revenue from operations. Government clients contributed Rs.624.27 crore(69.60%) for the three months ended June 30, 2024, and Rs. 3,313.95 crore(82.66%), Rs.2,541.46 crore (82.35%), and Rs.1,850.97 crore.

3. (81.04%) in FY24, FY23, and FY22, respectively. Any delays or absence of tenders from these entities could not materially impact the company's operations and financial results.

4. Transrail lighting was previously a subsidiary of Gammon India Limited(GIL) and is therefore responsible for any pending legal proceedings. Any adverse judgement in these proceedings against GIL could harm the company's reputation, adversely affecting its business.

5. The company is involved in a First Information Report(FIR) filed by the central bureau of investigation (CBI), Anti-Corruption Bureau, Lucknow, Uttar Pradesh, concerning the Gomati River project. Any adverse developments or judgements in this matter could harm the company's prospects and reputation.

6. The company is dependent on its manufacturing facilities for smooth operations. Any disruption, breakdowns or shutdowns of its manufacturing facilities could severely affect its business operations and financial performance.

7. The company, its promoters, directors, subsidiaries, and group entities are involved in certain legal proceedings. Any adverse judgement in any of the cases could be detrimental to the company's business prospects.

8. A substantial portion of the company's revenue comes from international clients, especially from Bangladesh, Mali, and Niger, Which contributed 29% to the revenue from operation for the three months ended July 30,2024. Apart from this, in total foreign clients contributed Rs. 447.44 crore (49.89%) of revenues for the three months ended June 30,2024, and Rs.2,347.31 crore (58.55%), Rs. 1,647.30 crore(53.38%), and Rs. 867.11 crore (37.96%) in FY24, FY23, and FY22, respectively. Any challenges in managing risks associated with foreign operations could negatively affect its business, client relationships, and assets in these countries.

9. The company relies heavily on a few key customers for its revenue. The top 10 customers contributed Rs. 605.05 crore (67.46%) for the three months ended June 30,2024, and Rs. 3,122.85 crore(77.89%), Rs.2,695.58 crore(87.34%), and Rs.1,904.93 crore(83.40%) in FY24, FY23, and FY22, respectively. Any loss of any of these customers or a decline in demand from them could adversely affect the company's operations and financial performance.

10. As of September 30, 2024, the company's total outstanding borrowings amounted to Rs.5,768.93 crore. Any inability to repay or service these loans could adversely affect the company's financial position.

4. About the financials..

1. Net Profit - Profit of the company is increasing significantly year on year. Company profit was Rs.90 crore in Mar2022, and Rs.147 crore in Mar2023, and Rs.316 crore in Mar2024.

2. Reserves - Reserves of the company was Rs. 640 crore in Mar2022 and in Rs.749 crore in Mar2023 and Rs.1,114 crore in Mar2024.

   • The company's reserves grew steadily over the three years, with a moderate increase of 17.03% in the first year and a more substantial rise of 48.78% in the second year, indicating a strong financial performance and accumulation of reserves.

3. Borrowings - Borrowings of the company was Rs. 477 crore in Mar2022 and in Rs.605 crore in Mar2023 and Rs.643 crore in Mar2024.

   • The company's borrowings increased by 26.85% from March 2022 to March 2023, followed by a more modest increase of 6.28% from March 2023 to March 2024. This suggests that while borrowing levels have risen, the pace of increase slowed down in the second year, indicating potentially improved financial management or a shift in funding strategy.

4. Trade Payable - Trade Payable of the company was Rs. 1,071 crore in Mar2022 and in Rs.1,308 crore in Mar2023 and Rs.1,662 crore in Mar2024.

   • The company's trade payables have consistently increased, with a rise of 22.14% in the first year and 27.08% in the second year. This indicates a growing reliance on credit or delayed payments to suppliers, which could be a sign of expansion or working capital management strategies. However, the increasing trend should be monitored for potential liquidity or payment-related concerns.

5. Advance from customers - Advance from Customers of the company was Rs. 426 crore in Mar2022 and in Rs.505 crore in Mar2023 and Rs.875 crore in Mar2024.

   • The company experienced a steady increase in advances from customers, with a moderate rise of 18.55% in the first year and a significant jump of 73.17% in the second year. This suggests a notable growth in customer orders or upfront payments, indicating strong demand for the company's products or services. The sharp increase in 2024 may reflect a shift in business dynamics or improved sales performance.

6. Other Liability Items - Other liability of the company was Rs. 205 crore in Mar2022 and in Rs.257 crore in Mar2023 and Rs.301 crore in Mar2024.

   • The company's other liabilities have grown steadily, with a 25.37% increase in the first year and a 17.12% increase in the second year. This reflects an ongoing rise in obligations, which could be linked to various factors such as accrued expenses, taxes, or provisions. The growth rate has slightly slowed down in the second year, indicating a potential stabilization of liability accumulation.

7. Fixed Assets - Fixed Assets of the company was Rs. 334 crore in Mar2022 and in Rs.379 crore in Mar2023 and Rs.374 crore in Mar2024.

   • The company's fixed assets grew by 13.46% in the first year, but experienced a slight decrease of 1.32% in the second year. This suggests that the company made investments in fixed assets in 2023 but did not significantly increase or possibly disposed of some assets in 2024. Overall, the fixed asset base has remained relatively stable.

8. Inventories - Inventories of the company was Rs. 278 crore in Mar2022 and in Rs.311 crore in Mar2023 and Rs.378 crore in Mar2024.

   • The company's inventories have increased steadily, with a moderate rise of 11.88% in the first year and a more significant increase of 21.55% in the second year. This indicates that the company may have accumulated more stock, possibly due to higher production, anticipation of future demand, or changes in inventory management strategy. The larger increase in 2024 may reflect preparation for growth or anticipated demand.

9. Trade receivables - Trade Receivable of the company was Rs. 640 crore in Mar2022 and in Rs. 645 crore in Mar2023 and Rs.1,026 crore in Mar2024.

   • The company’s trade receivables increased slightly by 0.78% in the first year but saw a significant rise of 59.08% in the second year. This sharp growth could indicate a higher volume of sales on credit or longer credit terms extended to customers. It may reflect increased business activity, but the large rise in 2024 should be monitored for potential risks related to collection or cash flow management.

10. Cash Equivalents - Cash Equivalents of the company was Rs. 111 crore in Mar2022 and in Rs. 198 crore in Mar2023 and Rs.224 crore in Mar2024.

    • The company experienced a significant increase of 78.38% in cash equivalents from March 2022 to March 2023, followed by a more moderate increase of 13.13% in the next year. This indicates improved liquidity and cash flow, with a large jump in 2023 possibly reflecting better cash generation or working capital management. The smaller increase in 2024 suggests stabilization of cash reserves.

11. Loans and Advances - Loans and Advance of the company was Rs. 73 crore in Mar2022 and in Rs. 214 crore in Mar2023 and Rs.420 crore in Mar2024.

    • The company's loans and advances increased substantially, with a sharp rise of 192.47% in 2023, followed by a slightly slower but still significant increase of 96.26% in 2024. This indicates a rapid expansion in the amount of loans or advances provided, possibly due to strategic lending or investments. The large increases should be assessed for potential risks associated with the quality and recoverability of these advances.

12. Other Asset Items - Other Assets of the company was Rs. 1,386 crore in Mar2022 and in Rs. 1,691 crore in Mar2023 and Rs.2,187 crore in Mar2024.

    • The company's other assets have grown significantly, with an increase of 22.03% in 2023 and 29.32% in 2024. This indicates a strong accumulation of assets, which could include investments, long-term receivables, or intangible assets. The consistent growth suggests an expansion of the company's asset base, but the nature of these assets should be carefully reviewed to assess their impact on financial health.

5. Cash Flow

1. Cash from operating Activity - Cash from operating activity is increasing year on year. cash from operating activity In Mar2022 was Rs. 50 crore and in Mar2023 it was Rs.143 crore and in Mar2024 it was Rs.35 crore.

   • While the company saw a significant increase in cash from operating activities in 2023, it experienced a sharp decline in 2024. The strong performance in 2023 may have been driven by higher revenues or better working capital management, but the decline in 2024 suggests potential challenges in generating cash from operations. This should be closely monitored to understand the factors affecting cash flow and its sustainability.

2. Cash from Investing Activity - Cash from investing activity, In Mar2022 was (Rs.-81 crore) and in Mar2023 it was (Rs.-105 crore) and in Mar2024 it was (Rs.-78 crore).

   • The company has consistently experienced cash outflows from investing activities, reflecting ongoing investments in assets, acquisitions, or capital expenditures. While the outflows increased from Rs. 81 crore in 2022 to Rs. 105 crore in 2023, they slightly decreased to Rs. 78 crore in 2024. This trend indicates continued investment but with some moderation in the recent year, which could suggest a shift towards more selective or efficient investments.

3. Cash from financing Activity - Cash from financing activity, In Mar2022 was Rs. 0 and in Mar2023 it was Rs.29 crore and in Mar2024 it was Rs.28 crore.

   - The company did not have any cash flows from financing activities in 2022. However, in 2023 and 2024, it generated positive cash inflows of Rs. 29 crore and Rs. 28 crore, respectively. This suggests that the company raised funds through financing activities, likely through loans, equity, or other financial instruments. The steady inflow in the last two years indicates a continued reliance on external financing to support growth or operations.

6. Ratios

1. Debtor Days - Debtor Days of the company was 102 days in Mar2022 and it was 75 days in Mar2023 and it was 92 days in Mar2024.

   • The company's debtor days improved significantly in 2023, indicating a quicker collection of receivables. However, in 2024, the debtor days increased again, suggesting a slower pace of collection. The rise in 2024 could indicate challenges in receivables management or extended credit terms, which may need attention to maintain healthy cash flow.

2. Inventory Days - Inventory Days of the company was 86 days in Mar2022 and it was 63 days in Mar2023 and it was 63 days in Mar2024.

   • The company improved its inventory management in 2023, reducing inventory days by 23 days. However, in 2024, inventory days remained stable at 63 days, indicating that the company maintained efficient inventory levels, potentially optimizing its supply chain or sales processes.

3. Days Payable - Days Payable of the company was 329 days in Mar2022 and it was 263 days in Mar2023 and it was 275 days in Mar2024.

   • The company reduced its days payable significantly in 2023, indicating faster payments to suppliers. In 2024, there was a slight increase, suggesting a slight extension in payment terms, but overall, the company continued to maintain relatively efficient management of payables.

4. Cash Conversion Cycle - Cash Conversion Cycle of the company was (-141 Day) days in Mar2022 and it was (-126 days) in Mar2023 and it was (-120 days) in Mar2024.

   • The negative cash conversion cycle indicates that the company is able to generate cash faster than it pays its suppliers. The improvement over the years, with a decrease of 15 days in 2023 and 6 days in 2024, suggests enhanced efficiency in managing working capital, with the company shortening its time to convert investments in inventory and receivables into cash. This trend reflects strong operational efficiency.

5. Working Capital Days - Working Capital days of the company was 101 days in Mar2022 and it was 86 days in Mar2023 and it was 102 days in Mar2024.

   • The company improved its working capital efficiency in 2023 by reducing working capital days by 15 days. However, in 2024, the working capital days increased again, suggesting a potential slowdown in working capital management or an increase in inventory or receivables. This increase should be monitored to ensure the company maintains operational efficiency.

6. ROCE % - ROCE % of the company in Mar2022 was 21% and in Mar2023 it was 27% and in Mar2024 it was 35%.

   • The company has shown a strong improvement in its ROCE over the three years, indicating that it is generating more profit for each unit of capital employed. The significant increase in 2023 and 2024 suggests effective use of capital, improved operational efficiency, and potentially higher profitability. This upward trend reflects positive financial performance and efficient resource utilization.