Sunil Kumar Varma, in conversation on Small Cap Spotlight, outlines IC Electricals’ evolution into a multi-division railway-focused business driven by in-house R&D and diversified capabilities. He highlights strong order visibility, margin expansion through higher product mix, and a continued focus on scaling within core railway segments.
Karunya Rao: Hello and welcome to SmallCap Spotlight and today we have with us the management of IC Electricals, Mr. Sunil Kumar Varma. He’s the managing director of the company and he’s joining us to talk to us about how they built the company, what’s driving the growth at their end and what the future outlook looks like. Mr. Varma, thank you so much for joining in today.
Sunil Kumar Verma: Thank you ma’am.
Karunya Rao: So first things first, if you could give us a quick overview of IC Electricals. What are your core business segments and what is it that you do?
Sunil Kumar Verma: IC Electricals journey started in 2005 by acquiring Agra-based company and thereafter we shifted the whole plant to Haridwar where we now have got three working plants and the day we shifted this unit to Haridwar, we set up our own R&D and from single product company our journey began.
Now we have a multi-product, multi-division company and all the products manufactured by us are designed and developed in our R&D. IC Electricals operates in three verticals. One is Power Electronic Division, another is Rotating Machine Division and third one is Contracting Division.
In Power Electronic Division, we manufacture passenger information system, battery chargers for railway, vigilance control device, power diagnostics system, lighting system for railway, LED based and inverters, electronic controllers for Indian railway. In Rotating Machine Division, we manufacture 25 kilowatt alternators up to 30 kilowatts. We manufacture permanent magnet alternator up to 30 kilowatt, auxiliary motor up to 30 kilowatt along with blower and traction motor up to 760 kilowatt.
Our third division is Contracting Division in which we take AMC of our own manufactured product and we take the trunky project for supply erection commissioning of the overhead transmission line of Indian railway. These are our various activities and our main strength lies with our professional team which is headed by me. Our R&D department is headed by Mr. Rahul Verma who is a retired scientist from Central Electronic Research Institute of Planning.
Our production and technical team is headed by Mr. Sanjay Vishkarma and Mr. R.S. Chauhan. Our QC team is headed by Mr. Nitesh. He has more than 15 years experience.
Our marketing team is headed by Mr. Gupinder Bais who has more than 30 years experience in dealing with railway. Our contract division is headed by Mr. Sumit Chaudhary who has more than 15 years experience in execution of these types of projects. Then our finance is headed by Devi Shyamverma and Mr. Krishna Neeraj.
This is overall view.
Karunya Rao: So, you’ve built a very experienced and a very strong team and people who are building various verticals in the company. But tell me something, if I look at where your revenue comes from, which are the sectors or what type of clients are the ones who contribute to the majority of your revenue?
Sunil Kumar Verma: As I told earlier, we are serving Indian railway.
Indian railway itself, it looks like it is a single customer but it comprises of more than 29 general railways and six production units. So, overall we have 35 customers within the railway. Then we have customers like BML, BHEL, Siemens, Elstorm, Bombardier.
And in future, the metro railways, once they go for the rehabilitation of their coaches, those companies would also become our customer. Okay. 100% business comes from railway and 90% business comes directly and balance 10% approximately comes from private sector.
That also goes to Indian railway. We have some intermediaries who buy from us and then sell it to railway with our authorisation.
Karunya Rao: Okay, understood. What is the current order book size like and your revenue visibility for the next two, three years? Can you tell us something on that?
Sunil Kumar Verma: As of date, we have executive orders in hand of approximately 180 crores. And revenue visibility is very good in future because government of India is putting a lot of emphasis in developing railway infrastructure. Each year they are investing in railway infrastructure.
Next year, they are budgeted to more than 50,000 crores in production of rolling stock in which our major business lies. They have increased their exposure in contract business. So, overall there will be, we shall continue to grow what we have been growing.
Even we will do better than that.
Karunya Rao: Okay, here’s hoping. But in the segment that you operate in, are there more players who are also offering a similar kind of manufacturing and service support? Yes, there are.
So, what differentiates your company from them, IC Electricals?
Sunil Kumar Verma: You see, IC Electrical is a multi-product, multi-division company. We operate in electronic division, we operate in a rotating machine division, we operate in contracting business. No other vendor has this diversification.
Either they are a pure electronic player or they are rotating machine players or they are EPC contract. But we have a balanced approach if something goes wrong with one division and there are other two divisions to take care of the same. I’ll give you an example.
During COVID, this coach division, coach production of Indian Railway came to stand still. Whatever order we had, we had, but we were not allowed to supply. So, that division was totally closed.
Then we had a business of locomotive side and then contract division, which supported during COVID. These two divisions were operating in Indian Railway. That’s how we could maintain.
Otherwise, we would have seen a knock of 30 to 40% in our top line and bottom line. Bottom line would have been negative. This is a major difference.
Plus, we have our own R&D. We don’t have to look to others for technical support. Whenever some changes take place in Indian Railway requirements, our team is there to quickly deliver those changes and products.
These are the main differences between IC Electrical and other companies.
Karunya Rao: Okay, interesting. But you know the industry that you operate in, now execution and working capital, these are two very critical challenges in the industry.
How are you managing your project execution along with ensuring that the cash flow is not a problem?
Sunil Kumar Verma: It is a real challenge. Somehow, we have been maintaining by infusing our own capitals. We have raised some by making private placement.
The main reason for going public is to maintain our healthy cash flow and product execution in time. The major challenge comes in the contract division whether the payment cycle is longer than the product. The emphasis of the company is to increase the product portfolio or product revenue than the EPC business.
EPC business, we are continuing but it has been a bellwether during difficult times. Plus, it is also contributing to our product portfolio. Certain products we use in the contract division.
That gives us in-house business.
Karunya Rao: Okay. Currently, what are your margins like and if you can tell us what is the plan here to kind of expand from the current levels? How do you want to augment your profitability?
Sunil Kumar Verma: This is easy. I have already told our plan to increase the maximise our product portfolio. In the electronics division, our margins are around 45% gross margin. Then, the rotating machine division, it varies from 35% to 40% and contract, it varies from 20% to 25% gross margin.
Our emphasis has been to maximise the business of the electronic division where we have more margins. If you see our balance sheet or figures given in the market, up to 24, the electronic division was contributing 8% of the business. Last year, we grew to 21% and in current year, we may cross 30%.
As our contribution from this division is growing, the profitability is of the companies also growing. That’s how we would be able to maintain plus. We would be introducing new products in both the division, both electric and electronics.
Those would face a better valuation and better profitability.
Karunya Rao: Have you pumped in any more money for R&D and for developing these newer projects?
Sunil Kumar Verma: This year, we are spending close to 5 crores every year in our R&D. It’s an ongoing process.
Karunya Rao: What about different areas like renewable energy, smart infra, new electrical technologies? Are you also looking at those areas to expand into?
Sunil Kumar Verma: I don’t want to diversify from my core competence. I’ve seen many companies going down the drain when they diversified into uncharted areas. I have a lot to do within railway.
My business may not be 0.1 or 0.2% of the Indian requirement overall in infrastructure. If I have to diversify, I will diversify into different verticals of railway. My aim is to go for signalling systems where anti-barriers are very stringent and quality is the prime consideration.
Karunya Rao: Have you already started working towards that goal?
Sunil Kumar Verma: We are working on that, but it is a long-run process. Business visibility will come after 5-6 years. That’s why I’m not giving any projections in this.
But if I have to diversify, I will diversify within the railway where my core competence lies. You’ve talked about the growth plans, about the opportunities.
Karunya Rao: Any other key risks or challenges that you want to flag that you foresee impacting growth going forward in your industry?
Sunil Kumar Verma: I have been associated for more than 30 years with railway.
I have not seen recession or any such risk in their demand except the COVID period. During the COVID period also, we could manage our bottom line with other two regions working well. Going forward, the only challenge is now this government is moving very fast in the new technical area.
For that, our R&D comes in handy. We are ahead of our competitors in this area. In the future, we have tied up with two or three Korean partners.
Korea is a very formidable technology partners in the railway infrastructure. They are the second best after Japan. We will continue to grow in this field.
Karunya Rao: Since you have listed in the markets, there is of course a lot more interest and investors who truly want to see what lies ahead for IC Electrical. If I have to ask you, over the next five years, what kind of growth vision should investors expect or what kind of scale should investors expect from the company? What would you say to them?
Sunil Kumar Verma: I would say that the company has been growing for the last three years after COVID at the rate of 20%. We would continue to grow more than 20% or 25% every year, top line and bottom line both.
In addition, we may introduce new products and new technologies in the Indian railway that are not counting in this 20% projection. That would be additional. But they are subject to timelines because new things railway might take more than my estimated time.
I’m not giving those projections to my investors. They would be incremental. They will come over time.
But that growth will come.
Karunya Rao: Great. Here’s hoping. Here’s hoping for the same, Mr. Verma. Thank you so much for taking time out and joining us on SmallCap Spotlight and to highlight what the game plan is for your company going forward.
Sunil Kumar Verma: Thank you once again. Thank you very much.