Jay Bee Laminations IPO: Is This a Value Trap?

Jay Bee Laminations Introduction

Jay Bee Laminations Limited, established in 1988, specializes in manufacturing and supplying electrical laminations, slit coils, and assembled cores made from Cold Rolled Grain Oriented (CRGO) Silicon Steel and Cold Rolled Non-Grain Oriented (CRNGO) Steel1. These products are primarily used in transformers, UPS, and inverters, catering to the power industry.

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Brief about Jay Bee Laminations

Summary of the business of Jay Bee Laminations

Established in 1988, Jay Bee Laminations Limited, currently manufactures and supplies range of products such as electrical laminations, slit coils, and assembled cores made of Cold Rolled Grain Oriented Silicon steel and Cold-Rolled Non-Grain- Oriented Steel for applications in transformers, UPS, and inverters, for end-use in power industry.

Jay Bee Laminations History

Jay Bee Laminations company was originally incorporated as a Private Limited under the name “Jay Bee Laminations Private Limited” under the provisions of the Companies Act, 1956 and Certificate of Incorporation was issued by the Registrar of Companies, Delhi on March 22, 1988. Subsequently, the status of the Company was changed to public limited on July 1, 1994, with the name changed to “Jay Bee Laminations Limited” under Section 43A(1A) of the Companies Act, 1956. Then it was changed back to private limited on November 15, 2002, with the name reverted to “Jay Bee Laminations Private Limited” under Section 43A(2A) of the Companies Act, 1956. Subsequently, the status of the Company was changed to public limited, and the name of Company was changed to “Jay Bee Laminations Limited” vide Special Resolution passed by the Shareholders at the Extra Ordinary General Meeting of our Company held on October 23, 2023. The fresh certificate of incorporation consequent to conversion was issued on November 03, 2023, by the Registrar of Companies, Delhi.

Jay Bee Laminations Promoters & Board of Directors

• The promoters of Jay Bee Laminations company are Mr. Munish Kumar Aggarwal, Mr. Mudit Aggarwal, and Mrs. Sunita Aggarwal.

Jay Bee Laminations Board of directors

Jay Bee Laminations Share Holding pattern

Jay Bee Laminations Strength

• Track record in the industry;
• Long Term relationship with suppliers;
• Strong operational and financial performance
• Long Term relationship with Customers
• Experienced Promoters supported by a strong management and execution team.
• Quality Assurance

Jay Bee Laminations Strategies

• Focus on increasing our market share by expanding our manufacturing capacity at Unit-II
• Targeting new products and customer segments

Industry Outlook

INDIAN MANUFACTURING INDUSTRY

Manufacturing is emerging as an integral pillar in the country’s economic growth, thanks to the performance of key sectors like automotive, engineering, chemicals, pharmaceuticals, and consumer durables. The Indian manufacturing industry generated 16-17% of India’s GDP pre-pandemic and is projected to be one of the fastest growing sectors.

The machine tool industry was literally the nuts and bolts of the manufacturing industry in India. Today, technology has stimulated innovation with digital transformation a key aspect in gaining an edge in this highly competitive market.

Technology has today encouraged creativity, with digital transformation being a critical element in gaining an advantage in this increasingly competitive industry. The Indian manufacturing sector is steadily moving toward more automated and process-driven manufacturing, which is projected to improve efficiency and enhance productivity.
India has the capacity to export goods worth US$ 1 trillion by 2030 and is on the road to becoming a major global manufacturing hub.

With 17% of the nation’s GDP and over 27.3 million workers, the manufacturing sector plays a significant role in the Indian economy. Through the implementation of different programmer and policies, the Indian government hopes to have 25% of the economy’s output come from manufacturing by 2025.

India now has the physical and digital infrastructure to raise the share of the manufacturing sector in the economy and make a realistic bid to be an important player in global supply chains.

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A globally competitive manufacturing sector is India’s greatest potential to drive economic growth and job creation this decade. Due to factors like power growth, long-term employment prospects, and skill routes for millions of people, India has a significant potential to engage in international markets. Several factors contribute to their potential. First off, these value chains are well positioned to benefit from India’s advantages in terms of raw materials, industrial expertise, and entrepreneurship.

Second, they can take advantage of four market opportunities: expanding exports, localizing imports, internal demand, and contract manufacturing. With digital transformation being a crucial component in achieving an advantage in this fiercely competitive industry, technology has today sparked creativity. Manufacturing sector in India is gradually shifting to a more automated and process driven manufacturing which is expected to increase the efficiency and boost production of the manufacturing industry.

India is gradually progressing on the road to Industry 4.0 through the Government of India’s initiatives like the National Manufacturing Policy which aims to increase the share of manufacturing in GDP to 25 percent by 2025 and the PLI scheme for manufacturing which was launched in 2022 to develop the core manufacturing sector at par with global manufacturing standards.

Manufacturing has emerged as one of the high growth sectors in India. Prime Minister of India, Mr. Narendra Modi, launched the ‘Make in India’ program to place India on the world map as a manufacturing hub and give global recognition to the Indian economy. Government aims to create 100 million new jobs in the sector by 2022.

Market Size

Manufacturing exports have registered highest ever annual exports of US$ 447.46 billion with 6.03% growth during FY23 surpassing the previous year (FY22) record exports of US$ 422 billion. By 2030, Indian middle class is expected to have the second-largest share in global consumption at 17%.

India’s gross domestic product (GDP) at current prices stood at Rs. 51.23 lakh crore (US$ 694.93 billion) in the first quarter of FY22, as per the provisional estimates of gross domestic product for the first quarter of 2021-22. The manufacturing GVA at current prices was estimated at US$ 77.47 billion in the third quarter of FY22 and has contributed around 16.3% to the nominal GVA of during the past ten years. India has potential to become a global manufacturing hub and by 2030, it can add more than US$ 500 billion annually to the global economy. As per the economic survey reports, estimated employment in manufacturing sector in India was 5.7 crore in 2017-18, 6.12 crore in 2018-19 which was further increased to 6.24 crore in 2019-20. India’s display panel market is estimated to grow from ~US$ 7 billion in 2021 to US$ 15 billion in 2025. As per the survey conducted by the Federation of Indian Chambers of Commerce and Industry (FICCI), capacity utilization in India’s manufacturing sector stood at 72.0% in the second quarter of FY22, indicating significant recovery in the sector.

Road Ahead

India is an attractive hub for foreign investments in the manufacturing sector. Several mobile phone, luxury, and automobile brands, among others, have set up or are looking to establish their manufacturing bases in the country. The manufacturing sector of India has the potential to reach US$ 1 trillion by 2025. The implementation of the Goods and Services Tax (GST) will make India a common market with a GDP of US$ 2.5 trillion along with a population of 1.32 billion people, which will be a big draw for investors. The Indian Cellular and Electronics Association (ICEA) predicts that India has the potential to scale up its cumulative laptop and tablet manufacturing capacity to US$ 100 billion by 2025 through policy interventions. One of the initiatives by the Government of India’s Ministry for Heavy Industries & Public Enterprises is SAMARTH Udyog Bharat 4.0, or SAMARTH Advanced Manufacturing and Rapid Transformation Hubs. This is expected to increase competitiveness of the manufacturing sector in the capital goods market. With impetus on developing industrial corridors and smart cities, the Government aims to ensure holistic development of the nation. The corridors would further assist in integrating, monitoring, and developing a conducive environment for the industrial development and will promote advance practices in manufacturing.

INDIAN POWER AND DISTRIBUTION INDUSTRY

Electricity distribution companies (DISCOMs) are the backbone of the country’s power sector. Their poor financial health can have a ripple effect on the efficient functioning of the electricity generation and transmission sector. For India’s growth momentum to stay intact, the efficient functioning of all three is crucial.
India is on a path of strong economic growth. According to International Monetary Fund (IMF) estimates, its gross domestic product (GDP) could grow by 6.3% in the fiscal year (FY) 2025. The Central Electricity Authority’s (CEA) Optimal Generation Mix report for 2029-30 projects a peak electricity demand of 334.8 gigawatts (GW) and electrical energy requirement of 2,279.7 billion units (BU) for 2029-30. To meet this demand, India needs to add 777.1GW of capacity, including 251.7GW of coal and lignite, 292.7GW of solar photovoltaic, 99.9GW of wind and 53.8GW of hydro.

Given the uncertainty around DISCOMs being able to effectively cater to demand, Indian consumers, especially commercial and industrial (C&I), installed 77GW of captive installed capacity as of June 2022. Further, most residential consumers have backup power, which either runs on battery or diesel, adding to carbon emissions. In rural areas, people stack fuel like kerosene, solar home systems and solar pumps, in addition to the grid, to deal with erratic power supply.

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The political economy is critical in determining the electricity tariff, with most states providing subsidies to agricultural and residential consumers. However, these subsidies are poorly targeted, adding to the financial woes of DISCOMs. As on 31 March 2021, DISCOMs had accumulated a deficit of Rs5,166 billion (US$62.6 billion).

Government initiatives

Over the years, the government has bailed out DISCOMs numerous times, but the impact on their financial health has been limited due to other deep-rooted problems such as inefficient tariff setting processes, delay in subsidy reimbursements, billing and collection inefficiencies, and poorly targeted subsidies. In the last couple of years, the government has announced several measures to instill financial discipline in DISCOMs – improved cash flows, a streamlined accounting process, differential time-based tariffs, strengthened demand projections and penalties on the non-timely disbursement of subsidies.

The recent amendment to the Electricity (Second Amendment) Rule 2023 aims to improve subsidy payments to DISCOMs by streamlining the accounting, reporting, and billing processes. The amendment mandates that regulatory commissions must hike tariffs if state governments do not reimburse subsidies on time. By implementing a carrot-and-stick approach, the government hopes to ensure timely and transparent subsidy disbursements Moreover, the government’s decision to implement Time of Day (ToD) tariffs for C&I consumers from 2024 onwards and smart prepaid meters’ installation will not only ease the strain on the grid during peak hours but also encourage responsible electricity consumption patterns and optimize costs. Shifting the power demand from evening to daytime can help reduce tariffs by tapping into solar power, and such measures can promote greater deployment of clean energy.

With the help of the July 2023 CEA guidelines on power demand projections, DISCOMs can plan and optimize their operations, resulting in reduced losses and improved efficiency.

The implementation of all the above initiatives at the state level can help enhance transparency, efficiency, and financial viability in the power sector. It could also attract investments for state-level power sector reforms.

The finance ministry has earmarked Rs1.4 trillion (US$17.3 billion) under additional borrowings in FY24 for states to undertake power sector reforms. This additional financial window depends on states implementing specific reforms, including transparency in the reporting of financials, timely rendition of financial/energy accounts and auditing, providing subsidies through direct benefit transfer (DBT) to consumers and achieving targets for reduction in Aggregate Technical and Commercial (AT&C) losses. States that privatize DISCOMs can borrow more.

Positive impact of reforms

These government initiatives are already creating a positive impact. The total outstanding dues of states to generation companies (GENCOs), which stood at Rs 1,205 billion (US$14.6 billion) on 3 June 2022, reduced to Rs610 billion (US$7.4 billion) on 24 July 2023. DISCOMs also started paying their dues in time to avoid penalties after the enactment of the Electricity (Late Payment Surcharge and Related Matters) Rules, 2022. IEEFA’s States’ Electricity Transition (SET) report shows considerable improvement by states in reducing their total overdue amount/owed payment ratio.

Another positive impact of the reforms has been the decline in AT&C losses. AT&C losses reduced from 23.7% in FY16 to 17% in FY21. Currently, India stands at 15.8%, according to the Ujjwal DISCOM Assurance Yojana (UDAY) dashboard. The government aims to further reduce losses by improving the billing and collection ratio by installing 25 crore smart prepaid meters for domestic consumers under the Revamped Distribution Sector Scheme (RDSS). Karnataka, Andhra Pradesh, and Gujarat installed 100% of their sanctioned smart meters as of September 2022 under the National Smart Grid Mission.

These developments highlight the effectiveness of the government’s initiatives in creating a stable and reliable power sector. Increased competition through carriage and content separation, as well as DISCOM privatization, can further boost the distribution sector. Regulatory discipline, such as cost-reflective tariffs, cross-subsidization reduction, regulatory asset management and subsidy delivery, need additional attention at the state level. States should also accelerate deploying energy-efficient technologies, smart grid solutions and digitization solutions to optimize demand and boost revenue collection.

INDIAN TRANSFORMER AND DISTRIBUTION INDUSTRY

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Distribution Transformers play a very important and vital role in delivering electricity to the last mile. It can be rightly said that the Distribution industry is bringing light in the life of the people. The thrust by the Indian Government to provide quality power to each village and every household through various schemes of electrification like DDUGJY/ IPDS/ RAPDRP/ Saubhagya has given a huge fillip to the demand of distribution transformers all over India.

The demand of Distribution transformers is catered majorly by the domestic Industry and the import of transformers is very marginal/ project specific. The Industry is dominated by unorganized MSME units which are spread all over India and are mainly supplying to their state utilities. There are large scale units also which apart from having Pan India presence are also engaged in export of transformers.

The transformers produced in India have been brought under mandatory BIS certification, resulting in standardization of the product, which has resulted in improvement of quality and reduction of failure of transformers. The distribution transformers have also been brought under mandatory BEE star labelling scheme which has resulted in the use of modern technology in manufacturing energy efficient transformers.

The demand of distribution transformers will keep on increasing due to increase in generation capacity of both conventional and non-renewable sources due to increase in per capita consumption of electricity and new avenues like electric vehicle charging stations etc. The demand will also increase due to replacement of old transformers with energy efficient transformers.

The challenges faced by the industry is the lack of mandatory guidelines for installation and maintenance of transformers, bad earthing practices, overloading of transformers, tampering/ bypassing the protection equipment, theft of material/ oil which leads to fire and failure of transformers. The payment position by the utilities, though has improved due to UDAY scheme and MSMED act, needs to be further streamlined.

Jay Bee Laminations Business Data

Jay Bee Laminations Verticals

• CRGO Steel
  • Slit Coils
  • Cut Laminations
  • Assembled Cores
  • Mother Coils
• CRNGO Steel
  • E & I Stampings

Jay Bee Laminations Product wise break-up

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Jay Bee Laminations Revenue contribution from Geography presence

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Jay Bee Laminations Customer dependency

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Jay Bee Laminations Supplier dependency

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Jay Bee Laminations Machinery/Plants/Factory

Jay Bee Laminations operate two manufacturing facilities, the details of which are briefly described hereunder:

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• Unit I is an owned property located at A -18,19 & 21, Phase II, Dadri Road, Distt. Gautam Budh Nagar, Uttar Pradesh, Noida – 201305, Delhi, India. It occupies an area of 2,812 square meters with an aggregate annual capacity of 6,600 metric tonnes.
• Unit II is a leased property located at B-9, Site – C, UPSIDC Surajpur Industrial Area, Greater Noida – 201306, Uttar Pradesh, India. It occupies an area of 8,066 square meters with an aggregate annual capacity of 4,750 metric tonnes.

Capacity Utilisation

Competition

Quality of CRGO and CRNGO steel in India is regulated by the Bureau of Indian Standards through the Ministry of Steel Quality control orders (QCO). Before the implementation of the Quality Control Order (QCO) in 2012, CRGO steel market was characterized by extreme fragmentation, with numerous spurious and unorganized players operating within it. Since the introduction of the BIS QCO, the market has witnessed a significant consolidation trend, with fewer players dominating the scene, a trend that continues to evolve.

Presently, there are multiple CRGO core manufacturing companies recognized and certified by the BIS in India. While the majority of these manufacturers focus solely on producing distribution transformer cores, a select few specialize in power transformer cores. The latter requires substantial investments in plant and machinery, maintaining larger inventory levels, obtaining end-user approvals, and possessing extensive experience in handling such high-value products. These organized players effectively cater to the nation’s demand for transformer cores, particularly in the 220 kV, 400 kV, and 765 kV classes, where consistent quality suppliers are scarce.

Jay Bee Laminations company possesses the capacity, facility, and capability of producing transformer cores up to 220 kV class. Additionally, continually pursue opportunities to enhance operational efficiencies. This entails optimizing our manufacturing processes, streamlining our supply chain, and harnessing technology to boost productivity. By bolstering our efficiency levels, we aim to fortify our market position further and solidify standing in the industry.

Peer companies comparison

• There are no listed companies in India and abroad that is engaged in developing a similar line of product solution to that of Jay Bee Laminations company. Accordingly, it is not possible to provide a comparison of accounting ratios of industry with Company. (Source: DRHP)

Jay Bee Laminations Group companies

• HMTD Engineering Private Limited
• M.S.Stampings Private Limited
• Arvind Conductors Private Limited

Jay Bee Laminations SWOT ANALYSIS

• Strengths
  • Established Reputation: With over three decades in the industry, Jay Bee Laminations has built a strong reputation for quality and reliability.
  • Diverse Product Range: The company offers a wide range of products, including electrical laminations, slit coils, and assembled cores, catering to various segments of the power industry.
  • In-House Testing and Tooling: The presence of an in-house laboratory and tooling division ensures high-quality standards and efficient production processes.
  • Strategic Location: Operating from NOIDA, a major industrial hub, provides logistical advantages and access to a skilled workforce.
• Weaknesses
  • Dependence on Raw Material Prices: Fluctuations in the prices of CRGO and CRNGO steel can impact production costs and profitability.
  • Limited Market Reach: While the company serves manufacturers producing transformers up to 220 kV class, expanding into higher voltage classes or other markets could be challenging.
  • IPO Risks: The upcoming IPO introduces financial and operational risks, including market volatility and investor expectations.
• Opportunities
  • Growing Power Sector: The increasing demand for electricity and infrastructure development in India presents significant growth opportunities.
  • Technological Advancements: Investing in advanced manufacturing technologies and automation can enhance production efficiency and product quality.
  • Export Potential: Expanding into international markets can diversify revenue streams and reduce dependence on the domestic market.
  • Strategic Partnerships: Collaborating with other companies in the power sector can lead to new business opportunities and innovations.
• Threats
  • Intense Competition: The electrical laminations market is highly competitive, with numerous players vying for market share.
  • Regulatory Changes: Changes in government policies and regulations related to the power sector can impact operations and profitability.
  • Economic Uncertainty: Economic downturns or disruptions in the supply chain can affect demand and production capabilities.
  • Technological Disruptions: Rapid technological changes may require continuous investment in R&D to stay competitive.

Business risk factors

• Jay Bee Laminations currently operate two manufacturing facilities, located at Noida & Greater Noida. Any slowdown or disruption in manufacturing operations in any of our manufacturing facilities could have a material and adverse impact on business operations and financial performance.
• Restrictions in import of raw materials may adversely impact business and results of operations.

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• Demand for Jay Bee Laminations products is related to growth and trends of end user industry. Decline in sales of customers may adversely affect the demand for products which in turn would adversely impact business, financial condition, results of operations and prospects.
• A significant portion of Jay Bee Laminations domestic sales (including supply to SEZ) is derived from the northern and southern region, and any adverse developments in this market could adversely affect business.

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• Nearly majorly of Jay Bee Laminations revenues from operations are derived on sales made within India. business is therefore significantly affected by fluctuations in general economic activity in India.

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Jay Bee Laminations Financials

Jay Bee Laminations Key Performance Indicators

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Jay Bee Laminations Balance Sheet

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Jay Bee Laminations Profit & Loss

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Jay Bee Laminations Cash Flow

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Jay Bee Laminations Capital structure

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Jay Bee Laminations IPO Details

Jay Bee Laminations IPO Details

Jay Bee Laminations Object of the issue

Litigation involved in Jay Bee Laminations

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