Prostarm Info Systems IPO to open soon: 10 key risks from RHP you must know before subscribing

Prostarm Info Systems Ltd is set to launch its initial public offering (IPO) on Tuesday, May 27, with the issue remaining open for subscription until Thursday, May 29. The company has fixed the price band of the IPO at ₹95 to ₹105 per share. The issue comprises a fresh sale of 1.60 crore equity shares, and at the upper price band, the company aims to raise ₹168 crore.

The company plans to utilise the net proceeds from the issue for a variety of purposes. These include pre-payment or repayment of outstanding borrowings, funding inorganic growth through acquisitions and strategic initiatives, meeting working capital requirements, and general corporate needs. This broad use of funds indicates Prostarm’s ambition to scale its operations while simultaneously strengthening its balance sheet.

The IPO follows the standard allocation format. Half of the issue is reserved for Qualified Institutional Buyers (QIBs), 35 percent for Non-Institutional Investors (NIIs), and 15 percent for Retail Individual Investors (RIIs). Retail investors can bid for a minimum of 142 shares in one lot, with a minimum investment of ₹14,910 at the upper end of the price band.

Choice Capital Advisors Pvt Ltd is acting as the book-running lead manager to the issue, while Kfin Technologies Ltd has been appointed as the registrar. These firms will handle the application and allotment process and support the overall IPO execution.

Incorporated in 2008, Prostarm Info Systems is engaged in the design, manufacture, assembly, sale, and service of energy storage and power conditioning equipment. Its product offerings include UPS systems, inverter and lift inverter systems, solar hybrid inverter systems, lithium-ion battery packs, servo-controlled voltage stabilisers, and isolation transformers. The company plays a significant role in India’s energy management ecosystem by addressing the demand for reliable and efficient power solutions.

With the growing emphasis on renewable energy and stable power infrastructure, Prostarm is well-positioned to benefit from long-term trends. However, potential investors should also be aware of business risks outlined in the company’s filings, such as prior years of negative operating cash flow and its reliance on tender-based contracts. Nevertheless, the IPO offers a compelling opportunity to tap into a specialised segment of the energy sector.

10 Key Risks to Know About Prostarm Info Systems’ IPO

Consistent Negative Operating Cash Flows: Prostarm has recorded negative cash flows for three consecutive years— ₹1,350.31 lakh in FY23, ₹780.18 lakh in FY24, and ₹1,053.45 lakh in the nine months ended Dec 2024—largely due to higher trade receivables, inventory buildup, and capital investments.

Customer Concentration Risk: A significant portion of revenue comes from a limited set of clients. Loss of any key customer due to contract termination, financial stress, or operational disruptions could materially impact the company's cash flow and profitability.

Legal Risk from Customs Violation: The company has received a show cause notice under the Customs Act, 1962. Any adverse ruling in this matter could lead to financial penalties and negatively affect its business and reputation.

Tender-Based Revenue in Solar EPC: A major chunk of Prostarm’s solar EPC business depends on government tenders. Project delays, qualification issues, or legal disputes could result in idle resources and cash flow disruptions.

High Competitive Intensity: The firm faces stiff competition from organized and unorganized players in the power solutions space. Competitors offering lower prices or stronger distribution capabilities could erode Prostarm’s market share.

Debt Servicing Stress: The company’s debt service coverage ratio dropped from 10.3 in FY22 to 5.59 in FY24, raising concerns about future funding needs and its ability to meet financial obligations under current or new loan covenants.

International Expansion Risks: Plans to enter international markets within two years expose Prostarm to challenges like foreign regulatory issues, currency risks, political instability, and logistical inefficiencies, all of which could affect growth projections.

Macroeconomic Vulnerability: Any downgrade in India’s sovereign credit rating could impact Prostarm’s ability to raise funds at competitive rates overseas, limiting its future expansion or refinancing capabilities.

Regulatory Constraints on Foreign Borrowing: As an Indian company, Prostarm is subject to strict exchange controls. Regulatory hurdles could limit access to foreign capital or make borrowing terms more stringent, restricting growth and operations.

Rising Working Capital Needs: Increasing inventory and receivables have added pressure on working capital requirements. Without efficient management or additional financing, this could hamper operations and scalability.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.