#SahasraElectronicsSolutions' #IPO opens for subscription today. Should you invest?
Director Varun Manwani discusses the plans for the proceeds and more in conversation with Sajeet Manghat. #NDTVProfitLive
Director Varun Manwani discusses the plans for the proceeds and more in conversation with Sajeet Manghat. #NDTVProfitLive
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00:00Hello and welcome to NDTV Profit. You are watching this special SME IPO Adda. And my
00:11company in focus today is Sahastra Electronics Solutions which is coming out with an IPO.
00:17The IPO is opening on 26th, closes on September 30th. It is priced between 269 to 283 rupees
00:24per share. It is one of the largest IPOs in the SME segment, raising nearly 186 crores.
00:32Fresh issue 172 crores and OFS of 14 crores. And joining me is Varun Manwani who is the
00:39CEO and ED of the company. Varun, thank you very much for joining us on NDTV Profit. My
00:44first question was you are raising 186 crores. Why are you coming to SME platform and not
00:50to the main board? Thank you very much and good morning to all the viewers. So basically,
00:59this specific entity, Sahastra Electronics Solutions, until two years, two to three years
01:05back was a proprietorship firm. And therefore, when we decided to get into the capital markets,
01:12as per the norms, you know, to get on the main board, we need to have a three-year balance
01:17sheet record. So that is the reason why we had to, by a technical requirement, we had
01:24to actually get onto the SME board. So basically, you're saying that by 2026, you will be eligible
01:33to migrate to the main board? Well, all fingers crossed and let's hope that things work in
01:42the right direction. Okay, give us a sense of the history of your company because I was
01:47reading the RHP and at some point in time, you were doing diesel retailing in the SEZ zone in
01:54Noida and then you are also, you ventured into, opened up your first facility in the SEZ for
02:04semiconductors and PCBs. So give me a sense of your history, how long is the history of your
02:09manufacturing because it comes across that you moved from diesel retailing to semiconductors.
02:16Yeah, that is interesting, but I'll give the right perspective on that. So our company
02:23named Sahesra, in Sanskrit, it means millennium. We actually started our operations back in the
02:29year 2000 and instead of naming it Millennium Electronics, we called it Sahesra Electronics,
02:35which resounded better with the Indian context. So we have actually been in electronics manufacturing
02:41over the last 24 years and this individual company, Sahesra Electronics, Sahesra Electronics
02:48Solutions Limited, was, the name got changed in 2021. Prior to that, this particular entity was
02:56a company called Northern Petroleum Company and we being based in the SEZ, we had acquired this
03:03from the previous owners in 2014. In the SEZ, you cannot really, you know, invest in land or
03:11building, you have to invest in the organization. And so right at that point of time, we had decided
03:16to, you know, open the second facility for electronics manufacturing. However, you know,
03:21our, the SEZ administration, it was a dream for them to look at the diesel trading business and
03:29therefore we gave it a shot for a few years. It worked well for some time, but you know,
03:34it's not our core business. And therefore, you know, when the diesel prices touched $100 a barrel
03:41in the international markets and the government subsidized the rates in India, we had to shut
03:46down that business. So in 2019, we started construction of this particular building in
03:52the SEZ. And in 2020, when COVID struck, at that point of time, we were able to commence our
04:01manufacturing and production operations. And then the very next year, we changed the name of the
04:06entity. And thereafter, we got into becoming a limited company because we had set our sights
04:13on going to the capital markets, considering, you know, being in electronics and the growth
04:19that was happening within India and overseas and the challenges that the industry was seeing
04:25in the electronic space worldwide. I understand that you have also received two PLIs.
04:33Take us through those PLIs as well. So at Sahesra Electronics Solutions,
04:39we are a PLI beneficiary for the IT hardware industry. So this is the PLI 2.0.
04:44And we also have a subsidiary company by virtue of 51% shareholding in the company called Sahesra
04:51Semiconductors. At Sahesra Semiconductors, we have a PLI for white goods for supplying
04:59ICs, specifically LED driver ICs for the LED lighting industry. So it's a semiconductor
05:05device which will get consumed by the LED lamp manufacturers. Now, Sahesra Semiconductors
05:13was incorporated in 2020. Fortunately, unfortunately, before the big push came from
05:21the government. But because of the fact that we were the very first and early players into this
05:26business, we started our trial production in 2023, sometime in September. And later this year,
05:35around the end of November, we should get into mass and commercial production of our
05:40LED driver ICs and other semiconductor packages. You're raising 172 crores in fresh issue.
05:47It's nearly 26% of the equity which you are raising. Take us through how you're going to
05:53use this 172 crores. So there are several objects that have been mentioned in the RHP
06:04out of that 23 crores will get invested in the semiconductor facility. About 65 to 66
06:15crores will get invested into the new plant that we are coming up in Bhiwadi, Rajasthan again,
06:20which is next door to the semiconductor plant. Some of it will be used for, you know,
06:27our debt bearing. And thereafter, the balance will be used for other activities as well.
06:32Ah, you know, I understand that nearly 80% of your revenues come from exports and I think 78% of
06:41that is to the United States. Give me a profile of your clients. What kind of,
06:46you know, the products that you export to them from your SEC unit?
06:52Yes. So our business is, firstly, I'll start with the business is diversified. We have,
06:57you know, the portfolio is the EMS industry, which is the PCBAs, which includes wire harnesses and
07:04box builds. Other than that, we are also in memory solutions. So we do SSDs, DDR, which is also known
07:13as RAMs and modules. Then we also do USB drives and micro SD cards. And we are in IT hardware
07:20space as well. So we are manufacturing for OEMs, laptops, tablets, and servers. Now, yes,
07:29as you rightly said, 75 to 80% or even 85% of our revenue comes from exports. Our primary market is
07:36the US, but we also export to Europe, France, Germany, Italy, Belgium, and customer profile
07:45ranges across industry. So we have customers in the space of automotive, industrial electronics,
07:53railways, defense, medical, aerospace, and many others.
08:00Can you name some of the customers if you are allowed to?
08:05Well, I'm bound by NDAs in many cases, but I can take the names of a couple.
08:10We have intelligent observation, which is in the medical space. We have Avionica, which is in the
08:15aerospace space. And we have Paragon, which is in railways.
08:19You know, interesting that you have 80% coming in from that. But I was looking at the RHP and
08:27the way you operate is that you are selling most of your product to your group companies,
08:32and they're the ones who are selling it forward, which basically means that there's a huge related
08:37party transaction that will happen in between yourself when you get listed and the group
08:42companies, because they will be the one face to the client. What is this relationship? And
08:50how are you going to manage this? So there is an entity called Optima
08:57Technologies in the US. We sell most of the product via them, and that is primarily because
09:03it's a pass-through. So most of the American customers, they prefer to have local stocking,
09:08local support. So the office that we have there, there are white Americans there who
09:16run that operation. And as I said, it's a pass-through. It's really only for the last
09:21mile connectivity for providing local support there. So it's not really that the related party
09:27transaction happens from that point of view. It's more of a pass-through, as I said, to provide the
09:32value add to the customers. What is the kind of commissioning
09:36or marketing margins that they get for that services?
09:40It ranges between 4% to 7%, depending upon the specific project, the client,
09:48size of the business, etc. Given that the US is the biggest market for you,
09:52why haven't you put in your own foot on the ground and set up your own subsidiary,
09:59who can manage this? So there are two things. One is that this company Optima,
10:06we do have cross-investment from one of the other entities. So there is
10:15to us and we're exclusive to them. And let's hope that in the future, there could be many
10:21other interesting things that can happen. Give me a sense of the kind of order book,
10:25because I saw your revenues jump from 10 crores to 101 crores. And that 10 crores is primarily
10:32because I think you started operation in February, March, or technically the public
10:37thing happened around that time. But 100 crores is the kind of revenue which you have. What is
10:45the end of growth that you see? And given that you have a PLI obligation coming in, which will
10:52be for five years, how do you see the revenue trajectory? Varun, can you give us a revenue
11:07trajectory given that you have two PLIs and you have revenues linked to that?
11:15Apologies, you know, bound by a lot of compliances. So I may not be able to give
11:19you any projections at this time because we are within the silent period. But tell you that we
11:25have customers across various categories. We are a PLI player. We are already supplying laptops,
11:33tablets, and IT hardware, or other enterprise solutions to our customers.
11:41We work with a lot of medium to large
11:49companies. Varun?
11:55So I think with the IPO coming up, it will be a very interesting period for us.
12:02And we will be able to, you know, look at matching whatever numbers we are looking for.
12:10What is the total PLI incentive that you may be getting over this period? Can you give us that
12:15idea? Yeah, the PLI incentive will range between four to eight percent. It depends upon the level
12:21of indigenization and the kind of components that one uses in the product. So that is the overall
12:28range. And it will also depend over the period that the PLI is spread out. So over a six-year
12:36period, this percentage will increase to some extent, then it flattens out, and then there
12:43will be a decline. Your business also requires a lot of working capital, given that you have
12:50a huge exposure to exports. I was looking at your inventory levels, and it's more than 90 days.
12:59Do you expect that to continue at that level? Yeah, it's been within the 90 to 100-day period.
13:06In the last couple of years, you know, because of the semiconductor shortages
13:10that happened, you know, between 21 to 23, that definitely contributed to a lot of,
13:18you know, mismatches. But over the time to come, there will definitely be a lot of correction that
13:23we're looking at. Varun, one of the biggest hits that many of the companies have got because of
13:29the supply chain issue and logistics, do you see logistics easing up, the cost of logistics easing
13:35up? Well, in the temporary situation, the logistics is in bad shape. The costs have
13:41actually gone up, you know, due to various threats that come up every, you know, all the time.
13:51I think, you know, India is definitely looking to mitigate this challenge as a country,
13:58and a lot of investment is getting into ports and getting into, you know, containers and, you know,
14:04building of containers. So, I think that will definitely help. And some of the alternate routes
14:09that the government of India is looking at in terms of shipping will also definitely help
14:13ease up these troubles. If I look at your working capital requirement, which you have projected
14:20in your RHP, it's going to double in FY25. And again, you know, it's going to go up by another
14:2750% in FY26. That almost gives us a projection of the kind of revenue projection that also you
14:34are looking at. How do you manage your cash flows in such a situation?
14:41Yeah, so I probably don't need to answer that because the RHP, you know, talks about it.
14:46And yes, but, you know, the business needs, you know, with the growth will definitely require
14:53more funding. And, you know, I think it will all depend upon, you know, the contracts that
15:00we negotiate with our customers. And that will, you know, all depend upon how it will,
15:07you know, work with us for the working capital. You mentioned that you're going to raise 85 crores
15:12for debt. Will that be incremental debt that you're going to raise from here on? And will that
15:22also mean that at some point in time, you will again come back to the capital markets, possibly
15:26on the main board to raise further funds? Yes, there is, you know, some level of consolidation
15:34that we also need to do, which we will be doing within our group companies. And if the markets
15:42are kind to us, and we do as per what has been planned, then you never know, whatever, you know,
15:50the way, the way things are going, you know, we may come back.
15:57A bit about your margins as well, 35% margins, EBITDA margins in FY24.
16:02Is that the nominal level of margins in this industry? Or it was, it's just starting up for you?
16:10So, yeah, our margins are, you know, let's say compared to peers, slightly higher, for sure,
16:18which is, you know, due to the customer profile that we have. So, you know, we work with a lot of,
16:28you know, niche customers, where we work with them very closely,
16:32you know, together on the engineering side. And, you know, the client base that we target
16:40are companies who are looking at base industrial space. So, therefore, that, you know, definitely
16:55alludes to better margins for us. My final question to you is about your
17:01new subsidy, which is in which you hold 54%. And I think you're going to invest
17:05in that company as well, around 23 odd crores. Do you look to consolidate your
17:11shareholding in that company going forward? Yes, that will definitely be, you know, the
17:17plan. The semiconductor operation, you know, requires a lot of capital investment as well.
17:23And therefore, the consolidation will help the subsidiary in the long term.
17:30It was a pleasure talking to you today. Thank you very much for joining us on NDTV. That was
17:36Electronics Solutions is an SME on NSE Emerge platform. 26th September is the date when the
17:44IPO opens and September 30th is when it is closed. 269 to 283 is the price band.
17:51The anchor book is already out. It has some good foreign names. And among domestic,
17:56I think SGFC Bank is also one of the investors in this company. And the company is raising 186
18:01crores through this SME IPO. Thank you for joining us on NDTV.