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MV ELECTROSYSTEMS LIMITED

MV Electrosystems Limited - Related Party Transactions

Introduction

Based on the Red Herring Prospectus (RHP) dated July 23, 2026, and subsequent filings, here are the “Related Party Transactions” (RPT) details of MV Electrosystems Limited.

Business Model Operations

Explain the business model of the company: The company is an indigenous designer and manufacturer of railway propulsion systems and cable assemblies. Its operations cover the full product lifecycle: concept design, prototyping, precision manufacturing, and testing for railway rolling stock (locomotives and EMUs).


Does the company get any advances from customers? Yes, though minimal; "Advance from Customers" stood at ₹ 0.88 million in FY26.


Does the company have comparable peers? Hind Rectifiers Limited is considered a proxy listed peer, while Medha Servo Drives Private Limited is a major unlisted competitor.


Raw material consumed and sourcing: Key materials include IGBTs, DC Capacitors, semiconductors, microprocessors, and thyristors. Sourcing is global; in FY26, 19.12% of total materials were imported, primarily from China (₹ 40.47 million), UK (₹ 16.11 million), and Hong Kong (₹ 17.81 million).


Volatility in raw material prices & key vendors: Prices are subject to international market fluctuations and are considered volatile, though some contracts include price escalation clauses. Major vendors include Pelf Power Electronics and Quadrant Future Tek Limited.


Key factors affecting the business: Business depends on Indian Railways' procurement policies, successful tender participation, timely RDSO approvals, and the "Make in India" initiative.


Competitive & Regulatory landscape: The landscape is highly competitive with large players like Siemens and Alstom. It is strictly regulated by the Ministry of Railways and RDSO, requiring rigorous technical certifications for every product.


Total Addressable Market (TAM): The estimated requirement for propulsion equipment by Indian Railways over the next 5 years is 10,000 units with an aggregate value of approximately ₹ 197,970.10 million.


Order Book: As of June 30, 2026, the total executable order book is ₹ 9,216.40 million, representing 564 3-phase propulsion equipment sets.

Financial Performance Health

Balance Sheet health detail: Total assets grew significantly from ₹ 741.19 million to ₹ 1,457.37 million in FY26, primarily driven by a surge in inventories (₹ 674.85 million) for new propulsion orders. However, the company faced a negative net worth (numerical loss impact) in its operations for FY26.


Operating Cash Flows: The company generated negative CFO of (₹ 575.45 million) in FY26, a sharp decline from a positive ₹ 50.39 million in FY25, due to inventory accumulation and operating losses.


Customer concentration: Concentration is very high; Indian Railways accounted for 76.72% of revenue in FY26. The top ten customers represent 93.04% of total sales.


Share of domestic and exports: Revenue is almost entirely domestic, serving Indian Railways and domestic OEM suppliers.


Debt and CapEx (Last 3 Years):

  1. Total Debt: Increased from ₹ 275.85 million (FY24) to ₹ 498.93 million (FY26).
  2. CapEx: Totalled ₹ 250.72 million over the last three years (₹ 43.60 mn, ₹ 25.49 mn, and ₹ 181.63 mn respectively).


Returns and Asset Turnover:

  1. ROCE: Declined from 22.13% (FY25) to (17.69%) in FY26.
  2. Asset Turnover (Gross): Dropped from 3.5x (FY25) to 1.9x in FY26.


Financial Trends (Sales, EBITDA, PAT):

  1. Sales: Decreased from ₹ 626.37 mn (FY25) to ₹ 494.28 mn (FY26).
  2. EBITDA: Flipped from ₹ 89.17 mn profit (FY25) to a loss of (₹ 99.42 mn) in FY26.
  3. PAT: Declined from ₹ 13.84 mn (FY25) to a loss of (₹ 126.95 mn) in FY26.


Profit Margins: EBITDA Margin dropped from 13.80% to (19.97%), and PAT Margin fell from 2.17% to (25.36%) in FY26. These decreased primarily due to high R&D costs charged to the P&L and a shift in product mix with lower margins on control panels.


Free Cash Flow & Conversion Table:

Trend: FCF is declining. The high conversion % in FY26 is misleading as both EBITDA and CFO are negative, indicating massive cash consumption relative to the operating loss.

Risks Management Outlook

Identify Red Flags:

  1. Massive Operating Loss and Negative FCF in FY26.
  2. High Customer Concentration: 76%+ dependency on a single customer (Indian Railways).
  3. Statutory Non-compliances: History of delays in RoC filings and MSME payments.
  4. Anonymous Complaints: SEBI has received complaints regarding land allotment and statutory certifications.


Growth Plans & Government Intervention: The company plans to expand into high-power locomotives and EMU train sets. There is strong government intervention via the "Make in India" policy and the mandate for 100% railway electrification by 2030, which acts as a primary demand driver.


Promoter Quality: Promoter Mohit Vohra has 17+ years of experience and successfully led the indigenous development of 3-phase propulsion. While they have delivered on technical milestones (prototype approval), they have a history of regulatory lapses and penalties related to share allotments and board reports.


Management Outlook (Structural vs Cyclical): Management views industry trends as structural, noting that "India is progressing towards a self-reliant railway ecosystem" with


Legal Cases: There are no criminal cases, but the company faces 4 tax proceedings involving ₹ 4.79 million and has voluntarily filed for adjudication of multiple Companies Act non-compliances.

Disclaimer

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SEBI REGN NO. INH000001071