Rishabh Instruments Ltd: Avoid

Rishabh Instruments Ltd: Avoid
  • Date

    30th Aug, 2023 - 01stSept, 2023

  • Price Range

    Rs. 418 to Rs. 441

  • Minimum Order Quantity


Established in 1982, Rishabh Industries Ltd. is a leading global energy efficiency solutions company involved in designing, developing, manufacturing and supplying electrical automation devices, metering control and protection devices, portable test and measuring instruments, and solar string inverters. Having its focus on electrical automation, metering & measurement and precision-engineered products, the company provides comprehensive solutions to customers who are looking for cost-effective ways to measure, control, record, analyze and optimize energy and processes. They are engaged in designing, developing and manufacturing, and sale of devices significantly under its own brand across several sectors. The company also provides complete aluminum high-pressure die-casting solutions to customers such as automotive compressor manufacturers and automation high precision flow meters manufacturers which require close tolerance fabrication, machining and finishing of precision components.

Objects of the issue:

The net proceeds from the fresh issue will be used towards the following purposes:

  • Financing the cost towards expansion of Nashik Manufacturing Facility 1 (“Expansion of Nashik Manufacturing Facility 1”);
  • General corporate purposes.
Investment Rationale:

A diversified product portfolio

Being a global leader in manufacturing and supply of analog panel meters and low voltage current transformers, Rishabh Industries Ltd. is a customer centric organization having a product portfolio of over 145 product lines and 0.13 million stock keeping units. The company diversifies its product portfolio in such a way that its products are customized for the technology, parameters, features and scale for each of the geographies the company serves. The company believes that its diversified product portfolio helps them to retain its customers and strengthen the company’s cross-selling efforts across product portfolios.

A global engineering solution provider operating in large addressable markets and well positioned to benefit from mega industrialization trends

The global commitment to sustainability and addressing climate change will require focus on efficient energy utilization and shift towards sustainable and renewable sources of energy which will drive the demand for energy solutions. With this industry marker in view, the company has developed its capabilities for solar string inverters by initially gaining technical proficiency through a technology purchase and thereafter developing a portable version of the solar string inverter in-house. Also, the rise of process automation which is taking place across multiple industries is one of the significant industrial trends in current times. The global total addressable market for the electrical automation market is estimated to be USD 52.4 billion. The emergence of global mega trends such as connected living, Industry 5.0, digital reality, data as the oil of the 21st century, etc rely on seamless connectivity, where the company’s product portfolio having communication enabled devices have its application. This can be more evidently seen in products from its electrical automation and industrial panel devices product segment. As a global energy efficiency solution company providing electrical measurement and process optimization equipment and engaged in the designing, development and manufacturing of devices primarily across power and industrial sectors, the company believes that they are well positioned to leverage their market position to tap opportunities from the mega industrialization trends.

Valuation and Outlook:

Following a contraction in 2020 due to the COVID-19 pandemic, the Indian economy has rebounded sharply by 9.1% in 2021, followed by a 6.8% growth in 2022 and a growth expectation of 5.9% in 2023. India is largely considered as a bright spot in the current global economic scenario. One of the contributors to the economic strength is the country’s manufacturing sector which is aided by resilient domestic demand, government incentives, a progressive tax structure, and the availability of skilled labour. Based on the current market scenario, the market for electrical automation components, metering, control and protection devices and solar inverters is looking quite mature globally. The Indian Electrical Automation market was valued at USD 6,367.8 million in 2022 and is forecast to grow at a CAGR of 9% to reach USD 9,802.6 million by 2027. Among its end users, automotive and transportation, food and beverage, FMCG, chemicals, and textiles are major end users of electrical automation. The Metering, Control and Protection Devices market is well established globally where its products are used in applications such as electrical distribution, industrial panels, and process control, and their end users include residential buildings, commercial buildings, industrial buildings, and other industries such as Railways, Defense, Steel & Cement, Oil & Gas, and Utilities. The Indian Metering, Control and Protection Devices market was valued at USD 660.8 million in 2022 and is forecast to grow at a CAGR of 5.5% to reach USD 864.5 million by 2027. Out of the business segments, electrical automation and Metering, Control, and Protection Devices segments form a major portion of revenue and operations. The company has a track record of sustained Revenue/EBITDA/PAT growth which grew at a CAGR of 20.85%/11.02%/17.58% during the FY21-23 period, respectively. On the upper price band, the issue is valued at a P/E of 34.6x based on FY2023 earnings which we feel is richly valued. 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 a “Avoid” rating for the issue. However, we would reassess the company on improvement in financial metrics over a sustained period.