Kay Cee Energy & Infra
- Kay Cee Energy & Infra is coming out with initial public offering (IPO) of 29,50,000 shares of Rs 10 each in a price band Rs 51-54 per equity share.
- The issue will open for subscription on December 28, 2023 and will close on January 2, 2024.
- The shares will be listed on NSE Emerge Platform.
- The face value of the share is Rs 10 and is priced 5.10 times of its face value on the lower side and 5.40 times on the higher side.
- Book running lead manager to the issue is GYR Capital Advisors.
- Compliance Officer for the issue is Yogesh Soni.
Profile of the company
Kay Cee Energy & Infra is an Engineering, Procurement and Construction (EPC) company providing specialized services of construction and commissioning of power transmission and distribution system including overhead and underground lines, substation construction, automation etc. to various government authorities and private entities. The company undertakes EPC projects for various government entities, including but not limited to Rajasthan Rajya Vidyut Prasaran Nigam Limited (RRVPNL). The company’s service portfolio includes handling, erection, testing, commissioning of equipment and materials for power transmission & distribution System including lines, substation construction, automation, augmentation/ modification and extension of existing power system.
The service portfolio of the company also includes the Operation and Maintenance of 132 kV Substations, Maintenance of substations up to 400 kV Level and Maintenance of EHV Lines up to 765 kV Level including deployment of Emergency Restoration System (ERS) for breakdown maintenance etc. The company undertakes turnkey, partial turnkey and labour contract jobs for supply, civil, erection, testing & commissioning of all types of electrical system works for government and private entities.
The company, with the vision of becoming a fully integrated unit is proposing to diversify its business activities to manufacture materials required for EPC Contract of EHV transmission lines, and sub-stations, namely, line and substation hardwares accessories/ items/ fittings along-with clamps and connectors up-to 765 kV, Bird Flight Diverters, Structures for Substation/ Lines and Solar Plants, Electrical Panels etc. in phased manner. The company shall be setting up its manufacturing unit at B-16, Road No.2, IPIA, Kota -5, Rajasthan, India and is proposing to commence commercial product during the Fiscal 2025. In addition to independently undertaking projects, the company has also entered into a collaboration with other engineering companies such as Sterlite Power Transmission Limited, Jost Engineering Limited, in its industry to jointly bid and execute larger projects.
Proceed is being used for:
• Funding working capital requirements.
• General corporate purposes.
Industry overview
Power is one of the most critical components for infrastructure development and crucial for the economic growth and well-being of any country. The existence and development of adequate power infrastructure is essential for the sustained growth of the Indian economy. The power industry is divided into three segments: (i) Generation, (ii) Transmission, and (iii) Distribution. Generation is the process of producing electricity from different sources like thermal energy (coal, diesel, among others), nuclear and renewable sources such as sunlight and wind, natural gas, in generating stations or power generation plants. Transmission utilities transport large amounts of electricity from power plants to distribution substations via a grid at high voltages. Retail electricity distribution, which is the distribution of electricity to consumers at lower voltages, forms part of the distribution segment. The installed power capacity in India has increased from 356 GW in Fiscal 2019 to 416 GW in Fiscal 2023; it increased by 5% year-on-year in July 2023 to 424 GW; India is the world's third-largest producer and second largest user of energy.
The industrial sector accounts for majority of the power consumption in India followed by the domestic sector. The industrial sector consumption recorded a CAGR of 4.3% between Fiscal 2013 and Fiscal 2022 whereas the domestic sector recorded 7% over the same period, thereby indicating an increase in power consumption by the domestic sector as more and more household got access to electricity. The commercial and agricultural sectors’ consumption recorded a CAGR of 4.4% and 5%, respectively, between Fiscal 2013 and Fiscal 2022. India is among the top nations in the world which are leading the global renewable energy growth. On technology specific installed capacity, India ranks 3rd in onshore wind, 5th in Solar, 4th in Bioenergy and 6th in Hydro as per International Renewable Energy Agency renewable capacity statistics 2023.
Power transmission is critical in the transfer of electricity from the point of generation to consumption. In a world where power generation needs to be located away from consumption hubs for reasons of environmental integrity, there is a premium on effective and efficient transmission. These imperatives are being facilitated by digitalized interventions. Uninterrupted power supply is the backbone of the India’s economy underpinned by a strong transmission network. Through strenuous efforts, India has been able to foster a vision that contributes significantly to the nation-building.
Pros and strengths
Strong Order Book of supply, Erection and commissioning of EHV transmission lines: The company is an Engineering, Procurement and Construction (EPC) company providing specialized services of Construction of Power transmission and Distribution System including overhead and underground lines, substation construction, automation etc., Operation and Maintenance of 132 kV Substations, Maintenance of substations up to 400 kV Level and Maintenance of EHV Lines up to 765 kV Level including deployment of Emergency Restoration System (ERS) for breakdown maintenance to various government authorities and private entities. Consistent growth in its Order Book is a result of its focused approach towards building a specialised service portfolio and its ability to successfully bid and win new projects. The company’s experience in execution of EPC power transmission projects and specialised projects, such as laying underground cables or setting-up electrical overhead line across railway track(s) has helped it to create a diverse and longstanding customer base and has enabled it to successfully bid for and win projects.
Strong execution capabilities with industry experience: As on September 30, 2023, the company has 15 projects in hand with an aggregate order book value of around Rs 54,990.27 lakh. The company’s focus is to leverage its strong project management and execution capabilities to complete projects in a timely manner while maintaining high quality of engineering and special power transmission services. The company’s in-house design and engineering team, a fleet of modern machinery and equipment and skilled manpower to execute projects in a timely manner makes it fully integrated and enable it to provide quality work to its customers that meets the project standards and specifications for materials, workmanship, schedules and public service while maintaining profitability and competitiveness.
Existing client relationship: The company has maintained good relationship with its major customers. The company is successful in building a strong client base for its business. The company’s existing relationships help it to get repeat business from its customers. This has helped it to maintain a long-term working relationship with its customers and improve its customer retention strategy. The company’s existing relationship with its clients represents a competitive advantage in gaining new clients and increasing its business.
Risks and concerns
Revenues largely depend on acceptance of bids submitted to the Government and other agencies: The company’s business is substantially dependent on infrastructure projects undertaken by governmental authorities and other entities funded by Governments. Contracts awarded by central, state and local governmental authorities are tender-based. The company competes with various infrastructure companies while submitting the tender to Government and other agencies. In case it does not qualify or are not amongst the lowest bidders, the company stands to lose the business. It cannot assure that any of the bids that it submits would be accepted / awarded to it; therefore, its ability to procure the business by bidding at the lowest rates is crucial for its revenues.
Maximum revenue comes from top 5 customers: The company’s top five customers have contributed 100%, 96.31%, 91.41% and 95.08% of its revenues for the period ended June 30, 2023 and year ended March 31, 2023, March 31, 2022 and March 31, 2021 respectively based on Restated Financial Statements. However, its top customers may vary from period to period depending on the demand and thus the composition and revenue generated from these customers might change as it continues to add new customers in normal course of business. Since its business is concentrated among relatively few significant customers, it could experience a reduction in its results of operations, cash flows and liquidity if it loses one or more of these customers or the amount of business, it obtains from them is reduced for any reason, including but not limited on account of any dispute or disqualification. The company cannot assure that it shall generate the same quantum of business, or any business at all, from these customers, and loss of business from one or more of them may adversely affect its revenues and profitability.
Geographical constrain: The company derives its revenue from State of Rajasthan. However, for its regional business, it derives a large portion of its revenue from state of Rajasthan. State of Rajasthan contribute 95.23%, 99.33%, 96.81% and 85.31% of its total regional revenue for the period ended June 30, 2023 and financial year ended on March 31, 2023, 2022 and 2021, respectively. If there is change in policy by Government of Rajasthan regarding Engineering and Construction or economic conditions of State of Rajasthan become volatile or uncertain or the conditions in the financial market were to deteriorate, or if there are any changes in laws applicable to its industry or if any restrictive conditions are imposed on it or its business, there will be a severe impact on the financial condition of its business.
Outlook
Kay Cee Energy and Infra provides services for the construction and commissioning of electricity transmission and distribution systems. The company's service portfolio includes handling, erection, testing and commissioning of equipment and materials for power transmission and distribution systems, including transmission lines, construction of substations, automation, extension/modification and expansion of existing power systems. The company has a strong base of loyal customers, including well-known public sector companies such as Rajasthan Rajya Vidyut Prasaran Nigam Limited and Power Grid Corporation of India Limited. Kay Cee Energy & Infra Limited also provides services to reputed private companies like Wonder Cement Limited, H G Infra Engineering Limited, Gawar Construction Limited, Raj Shyama Constructions Private Limited, DRAIPL-GCC (JV), DMIA Nyati LLP, Larsen & Toubro Limited and Sadbhav Engineering Limited. On the concern side, the company’s top five customers contribute majority of its revenues from operations. Any loss of business from one or more of them may adversely affect its revenues and profitability. Moreover, the company’s revenues are highly dependent on its operations in geographical region of State of Rajasthan. Any adverse development affecting its operations in this region could have an adverse impact on its business, financial condition and results of operations.
The issue has been offered 29,50,000 equity shares of Rs 10 each in a price band of Rs 51-54 per equity share. The aggregate size of the offer is Rs 15.05 crore to Rs 15.93 crore based on lower and upper price band respectively. On performance front, the total income of company for fiscal year 2023 was Rs 6,132.07 lac against Rs 5,012.55 lac total income for Fiscal year 2022. An increase of 22.33% in total income. This increase was due to rise in number of projects and tenders received during the year. Profit after tax for the Fiscal 2023 was at Rs 550.71 lac against profit after tax of Rs 310.05 lac in fiscal 2022, a 77.62% increase. This was due to increase in the growth of Profit before Tax that led to the increase. Meanwhile, the company has over the years diversified its service portfolio by venturing into specialized services, including automation of sub-stations, laying power cables either under-ground or through monopoles to transmit power over long distance or setting-up electrical overhead line or under-ground cable placed across railway track for the transmission and/or distribution of electrical energy. In order to further diversify its business activities, the company is proposing to set up a manufacture unit for manufacturing materials required for EPC Contract of EHV transmission lines, and sub-stations, namely, line and substation hardwares accessories/ items/ fittings along-with clamps and connectors up-to 765 kV, Bird Flight Diverters, Structures for Substation/ Lines and Solar Plants, Electrical Panels etc., in phased manner. The strategic decision to expand its business activities and become a fully integrated unit will increase its ability to capture the supply gap of its proposed products.
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