Should long term investors bet on Powerica IPO?

ET Intelligence Group: Powerica, a generator set maker, plans to raise ₹700 crore through fresh issue to repay debt and ₹400 crore through offer for sale. Promoter shareholding will fall to 77.4% from 100% after the IPO. The company has diversified into renewable energy and is expanding its wind power portfolio. However, it depends heavily on a single supplier, Cummins India, for engines used in gensets, accounting for over two-third of the total revenue. In addition, the company’s return on equity has been falling. Given these factors, investors may wait for a better clarity on financials after listing.

Business

Incorporated in 1984, Powerica is an integrated power solutions company with a dual business model spanning diesel generator sets and wind power generation. The generator set business remains the core revenue driver, contributing about 85% to total revenue in FY25. It also provides medium-speed large generators through collaboration with Hyundai. It operates three in-house manufacturing facilities located in Karnataka, Dadra & Nagar Haveli, and Maharashtra that serve industrial, commercial, data centre, and infrastructure customers.

The company diversified into clean energy in 2008 and has since built a wind power business covering independent power production (IPP), EPC (Engineering, Procurement, and Construction), and operations and maintenance (O&M) services. Its total installed operational wind capacity at the end of FY25 reached 279.6 megawatt (MW).

Financials
Revenue rose 5.3% annually to ₹2,653 crore in FY25 from ₹2,378 crore in FY23. Net profit increased by 25.8% to ₹175.8 crore from ₹106.5 crore during the period. However, the Ebitda margin declined to 13% in FY25 from 14% in FY23, underperforming peers such as Cummins India and Kirloskar Oil Engines, which reported margins of 19-23%.

Return on equity (ROE) declined to 17.5% in FY25 from 26.5% in FY24. The net debt-equity ratio fell to 0.2 in FY25 from 0.3 in FY23, but rose again to 0.4 in the first half of FY26 as the company ramped up ongoing wind projects.

Valuation
The issue is valued at the FY25 price-earnings (P/E) multiple of 28 based on post-IPO equity. Considering annualised profit for FY26, the P/E is 18.6 for the company. Cummins India, which manufactures engines and power generation systems, trades at a P/E of 52 while Kirloskar Oil Engines, engaged in diesel engines, agri-equipment and power solutions, trades at around 34.