Rashi Peripherals IPO Review: The company is coming up with its IPO fresh issue of Rs. 600 crore, which will open on 7^th February 2024. The issue will close on 9^th February and be listed on the exchange on 14^th February 2024. In this article, we will look at Rashi Peripherals IPO Review and analyze its strengths and weaknesses. Keep reading to understand about the company.

Rashi Peripherals IPO Review

About the Company

The company was incorporated in 1989. Its unique selling point is its comprehensive value-added services, including marketing, credit solutions, warranty management, solution design, pre-sale activities, and technical support. 

The company is a manufacturer of computer peripherals. They have a pan-India distribution network consisting of 50 sales branches. 

As of September 2023, it had 10,508 SKUs (Stock Keeping Units) across 63 warehouses. They distributed and marketed 34.38 million units in FY23 from 53 global technology brands. 

The company operates in two business segments: 

Personal Computing, Enterprise, and Cloud Solutions: In this vertical, Rashi distributes enterprise solutions, personal computing devices, cloud computing, and embedded designs/products.
Lifestyle and IT essentials: It includes the distribution of products such as (i) components such as motherboards and central processing units (“CPUs”); (ii) graphics cards and memory devices; (iii) lifestyle peripherals and accessories such as keyboards, fitness trackers, monitors, web cameras, wearables, gaming accessories, mouse, and casting devices. (iv) power equipment such as inverters and UPS; and (v) mobility and networking devices.

About the Industry

India aims to boost its electronics manufacturing sector, with key exported products including mobile phones, IT hardware (laptops, tablets), consumer electronics (TV, audio), industrial electronics, and auto electronics. 

Demand for IT hardware and software is increasing due to the adoption of Artificial Intelligence and emerging technologies such as Machine Learning, which are driving industry growth. 

The PLI schemes aim to increase the production and assembly of products in India, thereby boosting trading activities and reducing reliance on imported goods.

The Ministry of Electronics and Information Technology (MeitY) anticipates exports to contribute USD 120-140 billion to the overall USD 300 billion target by 2026. 

The 2019 National Policy on Electronics seeks to establish India as a global hub for Electronics System Design and Manufacturing (ESDM) by fostering domestic capabilities in core component development and creating a competitive global industry environment. 

Rashi Peripherals IPO Review – Financials

Rashi reported revenue from operations of Rs. 9,454.27 crore in FY23, up 1.51% from Rs. 9,313.43 crore in FY22. Net profits in FY23 were Rs. 123.34 crore, a decrease of 32.42% from FY22. The increase in finance costs has impacted its profitability, which has been growing since FY21. 

Rashi generates the majority of its revenue from the sale of goods, which accounts for 99.48%, with the remaining 0.51% coming from services in FY23.

The company’s revenue exposure across geographies was 97.53% from overseas in FY23, up 0.34% YoY, with the remaining 2.46% from India, up 88.02% YoY.

Key Players 

Rashi’s listed peer is Redington Ltd., which is larger. Redington’s revenue growth in FY23 exceeds that of Rashi. Redington has a profit after-tax margin of 1.81%, compared to Rashi’s 1.30%. 

The EBITDA margins of these two companies are relatively consistent, ranging from 2.83% to 2.85%. Because these companies’ margins are thin, 

Rashi’s return on equity is 19.33% lower than its peer. The company has a high debt-to-equity ratio of 1.53, whereas Redington’s is 0.43. 

Strengths of the Company

• Long-term relationships with global technology companies: The company’s partnerships with global technology brands prioritize R&D, with new products being introduced regularly. Rashi uses robust supply chain capabilities to ensure product availability, promote brands through ads in tech and consumer media, as well as actively participate in media events.

• Diversified product portfolio and solutions: From fiscal 2002 to fiscal 2023, the company distributed 311.89 million units from global technology brands. Consistent product availability while meeting a wide range of customer demands across IT configurations and sub-segments such as lifestyle, components, and more.

• Scalable Business: Rashi buys from global tech brands, and monitors demand through customer connections. It optimizes inventory with targeted initiatives to improve fill rates and service levels using SAP software.

• PAN India Presence: They serve as a one-stop shop for “B2B” customers. They maintain a diverse channel mix to avoid the risks associated with relying solely on one channel. The company’s channel mix is primarily composed of general trade, modern trade, and e-commerce channels.

Weaknesses of Company

• Revenue concentration: As of September 2023, Rashi’s revenue from the distribution of products manufactured by its top eight global technology brands accounted for 82.39%.

• Low Gross Margins: The ICT industry in which the company operates is characterized by intense price competition, overcapacity, and price cuts, making it difficult to maintain or improve gross margins, potentially affecting profitability in the face of low demand.

• Product Liability: Selling ICT components below the cost of equipment may result in disproportionate damage claims. The distribution of defective products may become entangled in its proceedings, with the finished product being deemed defective rather than the distributed components.

• Negative Cash Flow: Rashi’s cash from operations as of FY23 was -114.55 crore, and as of September 2023, it was -285.67 crore. Over time, significant negative cash flows in the short term could have a material impact on the ability to operate a business and implement growth plans.

Rashi Peripherals Limited IPO Review – GMP

The shares of Rashi Peripherals Ltd traded at a 27.33% premium in the grey market on February 5^th, 2024. The shares in Grey Market traded at Rs. 396 This gives it a premium of Rs 85 per share over the cap price of Rs 311.

Key IPO Information

Promoters: Krishna Kumar Choudhary, Suresh Kumar Pansari, Kapal Suresh Pansari, Keshav Krishna Kumar Choudhary, Chaman Pansari, Krishna Kumar Choudhary (HUF) and Suresh M. Pansari (HUF). 

Book Running Lead Manager: JM Financial Ltd and ICICI Securities Ltd. 

Registrar to the Offer: Link Intime India Pvt Ltd.

The Objective of the Issue

1. To reduce outstanding borrowings taken by the company.
2. Funding working capital requirements.

Conclusion

Rashi Peripherals generates profits through volume growth with low margins. The company operates more like a trading company, and its prospects are aligned with the demand for computers.

So what do you make of this company? Will it be able to maintain its current margins to sustain its current earnings, or Will the business’s capital-intensive nature eat heavily into its margins? What is your view? Let us know in the comments below.

Written by Santhosh

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