Published on Tuesday, February 11, 2025 by Saurabh Verma
At a market cap of Rs. 3,291 crores, Quality Power Electrical Equipments Ltd. (Quality Power) is valued at 30.60x of FY25 Proforma Annualized PAT. A look at the proforma figures given in RHP and in IPO notes by brokerage houses such as Asit C. Mehta reveals the following information…
Source: Analyst reports and industry sources
The industry in which Quality Power is growing at a rapid pace with CAGR of 40-45%. This growth is driven by the global push for clean, zero-carbon energy solutions.
The Indian HVDC and FACTS market is expected to grow at a CAGR of 60-65%, from USD 1.4 billion in 2024 to USD 9.2 billion by 2028, reflecting the increasing focus on renewable energy integration and grid stability.
India's high-voltage electricity transmission sector is undergoing a significant transformation, driven by the rapid expansion of renewable energy, interregional power transfer needs, and grid modernization efforts.
High Voltage Direct Current (HVDC) systems and Flexible AC Transmission Systems (FACTS) are becoming essential for efficient long-distance power transmission, reducing energy losses, and enhancing grid stability.
Renewable energy targets (500 GW by 2030) and government-led green energy projects.
Smart grid investments and interregional HVDC lines.
Major players like Siemens India and Hitachi Energy dominate the market, while manufacturers like Quality Power are gaining traction.
Sector offers strong growth potential for manufacturers and investors, supported by government incentives and private sector participation.
Major players in the industry including Hitachi and Siemens, along with other global HVDC energy transmission equipment providers, are facing significant demand levels. The industry is experiencing long waiting times and suppliers have order books extending until 2030 indicating strong demand and a favourable market environment.
Quality Power gains from orders received from large industry players. This suggests that the Company is strategically positioned within the supply chain to take advantage of the massive demand levels.
The Company's wallet share in T&D infrastructure projects, which represent critical equipment, comprises a very small portion (5-10% of project costs). This results in demand inelasticity, high pricing power and significant customer barriers.
Quality Power enjoys high margins with its operating margins exceeding the net margins of almost all larger peers. This highlights the company's efficiency and profitability.
Strong market demand helps ensure that the company enjoys a steady stream of orders—which, as a critical supplier with pricing power, supports its high margins.
Capacity constraints and technological barriers acting as effective barriers to entry, Quality Power can maintain its high margins even as it benefits from orders passed down from larger industry players.
Improving Mehru’s business efficiency and aligning its margins with Quality Power’s figures will contribute to maintaining or even expanding PAT margins on a consolidated basis.
The company’s capacity is fungible, allowing it to prioritize more lucrative products. For instance, in FY24, it shifted focus entirely to coils, moving away from transformers. Further, Quality Power sells to over 100 countries, allowing it to target markets with better margins.
Setting up an HVDC system costs ~₹120–150 billion and takes ~5 years. Due to the critical nature of these systems, companies prefer reliable players with proven track records, creating high entry barriers.
The industry has barriers to entry, including technological expertise and capacity constraints. Quality Power's ability to execute projects and deliver products positions it as a key player in the market.
The company is addressing capacity constraints through expansion plans and acquisitions, which will further enhance its ability to meet demand.
The company's revenue growth is projected to be sharp with significant increases in order book visibility and capacity addition.
Going forward, Quality Power has a clear strategy of growth both organic and inorganic means.
Focus on growth through organic and inorganic acquisitions
Mehru specializes in high-voltage and extra-high-voltage specialty instrument transformers, including products like oil-cooled transformers, resin-cast transformers, and capacitor voltage transformers, which complement Quality Power’s existing offerings.
This acquisition allows Quality Power to expand its product range, particularly in transformers up to 500 kV, strengthening its position in the high-voltage equipment market.
The combined entity creates cross-selling opportunities, leveraging Mehru’s strong market presence in Southeast Asia and Africa, while utilizing Quality Power’s global customer base and operational scale.
Mehru’s advanced testing facilities (8 labs, including routine, discharge, and raw material testing labs) enhance Quality Power’s R&D capabilities, enabling the development of innovative, high-quality products.
The acquisition of Mehru Electrical will enable Quality Power to improve Mehru’s business efficiency, particularly in marketing, and operations, which had previously underperformed.
On a pro forma basis, the consolidated revenue from operation of Quality Power and Mehru for FY25 is projected to be ₹534 crores, compared to Quality Power’s standalone revenue annualized for 1HFY25 of ₹311 crores. This represents a significant increase in scale.
Similarly, on a pro forma basis, the consolidated PAT of Quality Power and Mehru for FY25 is projected to be ₹107 crores (20.1% margin).
Mehru’s profitability aligns with Quality Power’s high-margin business model, ensuring that the consolidated entity maintains robust margins.
Expand operating facilities and increase operating capacity.
Saurabh Verma is a financial analyst with expertise in IPO, delivering detailed and insightful analysis for readers.
