Elin Electronics Limited IPO Analysis

About the Company

Elin Electronics Limited is engaged in electronics manufacturing services (EMS) manufacturer of end-to-end product solutions for major brands of lighting, fans, and small/ kitchen appliances in India, and is one of the largest fractional horsepower motors manufacturers in India.
The electronic manufacturing services market is traditionally comprised of companies that manufacture electronic products, predominantly assembling components on Printed Circuit Boards (PCBs) and box builds for major brands.
The company serves under both original equipment manufacturer (“OEM”) and original design manufacturer (“ODM”) business models. Under the OEM model, the company manufacture and supplies products basis designs developed by their customers, who then further distribute these products under their own brands.
Under the ODM model, in addition to manufacturing, the company conceptualizes and designs the products which are then marketed to their customers’ prospective customers under their brands.
Key business verticals include:
1) LED lighting, fans, and switches.
2) Small appliances which include a Mixer grinder, Hair dryer, Hair straighter, Iron, etc.
3) Fractional horsepower motors.
4) Medical diagnostic cartridge.
5) Moulded and sheet metal parts and components.

Industry Overview

The total addressable EMS market in India was valued at INR 2,654 billion (USD 36 Billion) in FY21 and is expected to grow to INR 9,963 billion (USD 135 Billion) in FY26 with a CAGR of 30.3%. However, the contribution of Indian EMS companies is around 40%, which is valued at INR 1,069 billion (USD 14 Billion) in FY21, which is expected to grow at 41.1% CAGR to reach INR 5,978 billion (USD 81 Billion) by FY26.

The expansion of India's EMS industry is being fuelled by a variety of factors, including an increase in consumer electronics and appliance consumption as well as the lighting segment.
In the total EMS market, original equipment manufacturing (OEM) accounts for approximately 80%, while original design manufacturing (ODM) accounts for the remaining 20%. As reference designs and specifications are provided primarily by the OEMs to EMS providers, there is not much scope for product differentiation. EMS companies are steadily shifting towards ODM models, giving full turnkey solutions for items from design, and product development to reverse logistics.

Financials

Valuation and comparison with listed peers
As per the RHP, the company has 2 listed peers which are Dixon Technologies (India) Limited and Amber Enterprises India Limited

On the upper price band, the company is asking for a PE multiple of ~24.4 the upper price band as against the average industry PE ratio of ~77.5
If we were to compute the P/BV the company has priced the offer at ~3.3 times its book value however the P/BV of Dixon Technologies and amber Enterprises are ~21.5 and ~3.72. So as per the PE and P/BV, the issue seems to be undervalued.

Objects of the offer
The Fresh Issue proceeds will be utilized for:
1) Repayment/ prepayment, in full or part, of certain borrowings
2) Funding capital expenditure towards upgrading and expanding existing facilities.
3) General corporate purposes.

Risks
1) High Dependency on top 5 customers.
2) EMS industry is rapidly changing and highly competitive.

IPO Details
1) The IPO opens on 20^th December 2022 and will remain open till 22^nd December 2022.
2) The total issue size is Rs.475 crores out of which 175 crores is fresh issue and 300 crores is OFS
3) The price band of the issue is Rs. 234 to Rs.247 per share and a retail investor can apply for a maximum of 13 lots.
4) As of releasing the blog, the IPO has been subscribed 0.17 times and the GMP is 19.3%