Elin Electronics has marquee clients but the IPO looks more suitable for high risk investors

ET Intelligence Group: IPO Dates: Dec 20-22, 2022;
IPO price band: Rs 234-247;
IPO Size: Rs 475 crore;
Implied market cap: Rs 1,230 crore;
Face value: Rs 5;
Lot size: 60 shares;
Retail portion: 35% of the offer size;
Promoter and group holding Pre/Post: 54%/33%

Kolkata-based Elin Electronics, which provides electronics manufacturing services (EMS) to other brands in the fans, small kitchen appliances and lighting segments plans to raise Rs 475 crore through the primary market. Of this, Rs 300 crore will be through an offer for sale by the promoter and promoter group, while the remaining will be through the issue of fresh equity to reduce debt and for capital expenditure. After the IPO, the promoter group stake will fall to around 33% from 54%.

The company has done well over the past two years thanks to the strong bounce back in demand after the pandemic. However, its valuation seems to fully capture the growth momentum. Given this and lower promoter group holding make the IPO more suitable for long term investors with high risk appetite.

Business
Incorporated in 1982, Elin manufactures and assembles a wide array of products including LED lighting, fans and switches, small appliances, fractional horsepower motors, medical diagnostic cartridges, which together account for over 90% of the revenue. Its clients include Signify, which contributes 84% to LED lighting fans and switches revenue, Philips which forms 84% of small appliances revenue and , which forms 56% of fractional horsepower motors revenue. The company also has other brands such as , Usha, , and as clients.

The company has three manufacturing facilities in Ghaziabad, Baddi and Goa, which according to the company currently operate at around 75% capacity utilization in a single shift.

Financials
In FY22, revenue grew by 27% year-on- year to Rs 1,094 crore while net profit rose by 14% to Rs 39 crore. The company will use Rs 88 crore from IPO proceeds to reduce debt from Rs 100 crore in FY22. The return on equity (RoE) was 12-14% over the past three years. In the first half of FY23, revenue and net profit were Rs 604 crore and Rs 21 crore, respectively.

Valuations
The company demands a trailing price-earnings (P/E) multiple of up to 31. Elin’s business is capital intensive with low margin and high client concentration risk. It has no like-to-like peer. , another electronics manufacturer trades at a P/E of over 50. Amber’s stock is down 40% year-to-date.

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