Rajesh Power Services IPO analysis

Rajesh Power Services IPO (initial public offering) will open for subscription on November 25, 2024, and close on November 27, 2024. Through this IPO, the SME (small and medium enterprise) aims to raise nearly Rs 160 crore. Below is a breakdown of the power sector contractor's strengths, weaknesses and growth prospects to help investors make an informed decision. Rajesh Power Services IPO in a nutshell Quality: Between FY22 and FY24, Rajesh Power reported an average three-year ROE and ROCE of around 18.4 per cent and 14.4 per cent, respectively. Growth: During FY22-24, its annual revenue and net profit growth were 39.2 per cent and 194.4 per cent, respectively. Valuation: The company's stock is valued at a P/E and P/B of 23.2 times and 2.9 times, respectively. Overview: Rajesh Power stands to benefit from growing demand for power and India's target to achieve 500 GW of renewable energy by 2030. Moreover, during the Union Budget in July 2024, the government allocated 50 per cent more funds towards green hydrogen, solar power and green energy corridors compared to last year, which may further boost Rajesh Power's growth prospects. However, factors like competition from large corporations and high working capital requirements can pose hurdles. About Rajesh Power Services Incorporated in 2010, Rajesh Power Services is an EPC (engineering, procurement and construction) contractor for the renewable and non-renewable power sector. It maintains, operates and sets up extra-high-voltage cables and transmission lines, solar plants, power transformers and substations (part of the power distribution system). The company also provides consultancy services pertaining to the design of substations and cable systems. Rajesh Power Services clientele comprises private, semi-government and government companies in the power sector. Further, a significant chunk of its revenue comes from Gujarat (95 per cent). Strengths of Rajesh Power Services Strong order book: As of November 13, 2024, the company had an order book of around Rs 2,400 crore, which is 8.4 times its FY24 revenue. Such high numbers provide some degree of predictability regarding the company's future prospects. Weaknesses of Rajesh Power Services Heavy reliance on the government: Rajesh Power Services largely depends on infrastructure projects undertaken by the government, where it places bids to acquire contracts. As a result, the company derives close to 60 per cent of its revenue from the government, and hence, a decline in broader government capex or policy changes can affect its financials. Rajesh Power Services IPO details Total IPO size (Rs cr) 160.5 Offer for sale (Rs cr) 67 Fresh issue (Rs cr) 93.5 Price band (Rs) 319 - 335 Subscription dates November 25 - 27, 2024 Purpose of issue To meet capital expenditures and working capital requirements Post-IPO M-cap (Rs cr) 603.2 Net worth (Rs cr) 205.5 Promoter holding (%) 73.4 Price-to-earnings ratio (P/E) 23.2 Price-to-book ratio (P/B) 2.9 Financial history Key financials (Rs cr) 2Y growth (%)