Quadrant Future Tek IPO Analysis 2025: Should You Subscribe?

Quadrant Future Tek (QFTL) launched its initial public offering (IPO) on January 07, 2025, with bidding set to close on January 09, 2025. The IPO, carrying a grey market premium (GMP) of 72%, received a solid response on the first day.

However, investors should get a clear understanding of both potential rewards and risks before subscribing. This IPO analysis provides a comprehensive review to help make an informed decision.

Quadrant Future Tek IPO Details

• Issue Details: Mainstream
• Issue Size: Rs 290 crore 
• Price Band: Rs 275 – Rs 290
• Lot size: 50 shares
• Listing Date: January 14, 2025

Quadrant Future Tek IPO Subscription Status

The QFTL IPO kicked off with a strong response, recording an overall subscription of 15.86 times by 6 pm on the opening day. Retail investors led the surge, oversubscribing their allotted shares by an impressive 54.84 times. Non-institutional investors also showed strong interest with a 21.51 times subscription, while qualified institutional buyers (QIBs) registered a 0.05 times subscription rate.

Overview of Quadrant Future Tek Ltd

QFTL manufactures specialty cables for railway rolling stock and the naval defence industry, specializing in Electron Beam Irradiated Cables designed for fire safety, lightweight, and long-term performance. Recently, it expanded into developing an indigenously built Automatic Train Protection System under the Kavach project, using radio frequency identification to prevent train collisions.

QFTL’s diverse product portfolio includes railway rolling stock cables, naval defence and marine cables, solar PV cables, automotive cables, connectors, and junction boxes. It also offers end-to-end solutions for electrical connectors and wiring harnesses tailored to client requirements.

Quadrant Future Tek Key Strengths

• Remarkable Growth Trajectory: QFTL has demonstrated exceptional financial growth, achieving compounded annual growth rates (CAGRs) of 21% in operational revenue, 96% in EBITDA, and 175% in net profit between FY22 and FY24.
• High Profitability Margins: QFTL boasts superior profitability metrics, reporting an EBITDA margin of 24.15% and a PAT margin of 9.68% in FY24, ranking among the highest in the industry.
• Impressive Return Ratios: QFTL demonstrates excellent financial efficiency, achieving a Return on Equity of 33.41% and a Return on Capital Employed of 26.12% in FY24. 
• RDSO-Approved Kavach System: QFTL's production and testing facility for the Kavach system has been approved by the Research Designs & Standards Organisation (RDSO). Kavach is set to be the world's most cost-effective collision protection solution, priced at approximately Rs 70 lakh per kilometre—significantly lower than the global average of Rs 200 lakh per kilometre.
• Major Contract Secured: In December 2024, QFTL received a Rs 978 crore order from Chittaranjan Locomotive Works to install Kavach technology in 1,200 locomotives. Post-installation, the company will earn 3% of the project’s capital cost annually over an 11-year maintenance period, ensuring long-term financial stability.
• Collaboration with Railtel: Partnering with Railtel, QFTL aims to introduce and implement Kavach technology in international railway systems. Under this MoU, Railtel will handle stakeholder engagement, while QFTL will ensure technological maintenance and compliance with RDSO standards, paving the way for global market expansion.

Quadrant Future Tek Risk Factors

• Client Concentration: QFTL faces a high level of client concentration risk, with a significant portion of its revenue reliant on a few key clients. As of September 30, 2024, the top ten customers accounted for 95.66% of the total revenue.
• Recent Losses: QFTL reported a loss for H1FY25, primarily due to expenses from its Train Control & Signalling division being charged to the profit and loss account following the capitalization of the intangible asset created for developing the Kavach System. However, the wires and cable division remains profitable at both the EBITDA and PBT levels.
• Low Capacity Utilization: The capacity utilization of QFTL's specialty cables segment was suboptimal, standing at 49.42% in FY24 and 54.26% in FY23, indicating underutilized resources.
• Limited Experience in Train Control Systems: QFTL recently entered the Train Control Systems market, making it challenging to predict its performance and prospects. Additionally, the promoters lack significant experience in this segment of the railways industry, which could impact strategic execution.
• Cash Flow Challenges: QFTL has reported negative cash flow from operating activities in H1FY25 and FY22. Continued negative cash flows could adversely affect the firm’s operational efficiency and financial stability.

Conclusion: Should You Subscribe to Quadrant Future Tek IPO?

QFTL has showcased impressive CAGR growth in sales, EBITDA, and PAT during FY22-24, supported by industry-leading profit margins and strong return metrics that highlight efficient financial and operational management. However, the company’s reported loss in H1FY25 raises some concerns.

The industry in which QFTL operates is poised for significant growth, driven by government initiatives in railway development, stricter safety regulations, and a growing emphasis on the defence sector. While the company has primarily focused on cable manufacturing, its ability to transition into the promised growth trajectory will be crucial.

At a P/E multiple of 59x based on FY24 earnings, the IPO appears fully priced. Nonetheless, the grey market premium indicates a strong debut, supported by positive investor sentiment and a recently announced Rs 978 crore work order.

QFTL’s future success will depend heavily on the effective utilisation of IPO proceeds and its capacity to execute the large order efficiently with its current infrastructure. Considering all these aspects, investors may consider subscribing to the IPO, keeping in mind that the company's ability to deliver on these fronts will be crucial to its long-term performance.

For a deep dive into other IPOs, explore: IPO Corner on Liquide