Introduction:
Despite a subdued start in the first two months, the IPO fundraising in India gathered momentum in 2023. Over 16 mainstream companies have successfully raised more than Rs. 100 billion through their Initial Public Offerings (IPOs) since February. And around 42 more companies are awaiting to tap the equity markets to raise around Rs. 540 billion in the upcoming months.
One such company –Aeroflex Industries Limited – is poised to launch its IPO on 22 August 2023. As per the DRHP of this Mumbai-based company, it plans to generate up to Rs. 351 crores through the public offer. Keep reading to know more about the Aeroflex Industries Ltd. IPO and evaluate whether to invest in it or not.
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About Aeroflex Industries:
Incorporated in 1993, Aeroflex Industries is a leading manufacturer and supplier of environment-friendly metallic flexible flow solutions. The company’s product portfolio comprised Stainless Steel (SS) corrugated flexible hoses, SS braiding, vacuum hoses, interlock hoses, exhaust connectors, and expansion bellows. It also manufactures assembly parts for use in a diverse range of industries, including steel, oil and gas, refineries, aerospace, defense, mining, solar, and firefighting.
As of 31 March 2023, the company’s products were exported to more than 80 countries, including prominent regions of the United States of America (USA) and Europe. It has a well-established client base, which includes distributors, fabricators, Original Equipment Manufacturers (OEMs), and Maintenance Repair and Operations Companies (MROCs). The manufacturing plant is situated at Taloja, Navi Mumbai (Maharashtra).
Strengths of Aeroflex Industries:
- One of the leading metallic flexible flow solutions suppliers in the world
- Operates in a monopoly market with no listed peers
- Caters to the requirements of diversified industry segments
- A robust business model despite being capital-intensive
- The manufacturing facility is equipped with advanced R&D infrastructure
- The manufacturing unit has a high installed capacity of 11 million meters per annum
- Known for maintaining quality standards and rigorous product approval mechanism
- Significant entry and exit barriers for new players
- Boasts an experienced and dedicated management team
Key risks highlighted:
- The company’s business is dependent only on one manufacturing facility
- A significant portion of the revenue comes from the top five customers
- 80% of the revenue is generated through exports. Absence of domestic market base
- Profit margins are prone to fluctuations in foreign currency exchange rates
- Business is overtly capital-intensive. The company needs significant funding at regular intervals
- Dependence on third-party logistics partners for the supply of raw materials and delivery of manufactured goods
- Strict adherence to Government regulations is necessary
Financial Snapshot of Aeroflex Industries:
The table below captures the financials of Aeroflex Industries Ltd. for the last three financial years. All details have been as per the company’s Draft Red Herring Prospectus (DRHP):
| Particulars |
As of and For FY Ending March 31 |
| 2023 |
2022 |
2021 |
| Share Capital |
23 |
23 |
23 |
| Net Worth |
114 |
86 |
59 |
| Total Borrowings |
45 |
39 |
53 |
| Revenue From Operations |
269 |
241 |
145 |
| EBITDA Adjusted |
54 |
47 |
22 |
| Profit After Tax |
30 |
28 |
6 |
| Earnings Per Share (Diluted) |
3 |
2 |
1 |
| Net Asset Value (In Rs/share) |
10 |
8 |
5 |
| Return on Equity |
26% |
32% |
10% |
| Return on Capital Employed |
32% |
36% |
17% |
*Amount in Crores
As you can see, the net worth of the company has thrived from Rs. 59 crores in FY 2021 to Rs. 114 crores in FY 23. The profit has gone up by five times from Rs. 6 crores to Rs. 30 crores within the same period. However, the company’s borrowings have remained stable.
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Other than this, the company has maintained a splendid asset turnover ratio. The return on equity stood at an impressive 32% after FY 2022 and 26% after FY 2023. The diluted earnings per share (EPS) stood at Rs. 3.
Details of Aeroflex Industries:
Aeroflex Industries IPO opens for public subscription on Tuesday, 22 August, and closes on Thursday, 24 August. The company plans to raise Rs. 351 crore from the IPO, comprising a fresh issue of up to Rs. 162 crore and an offer for sale of 1.75 crore equity shares. The price band has been fixed in the range of Rs. 102 to Rs. 108 per share. You can bid for at least 130 shares (1 lot) and multiples thereof.
50% of the offer will be reserved for Qualified Institutional Buyers (QIBs), 15% for Non-Institutional Buyers (NIBs), and 35% for retail investors.
From the capital raised, the company plans to:
- Repay certain outstanding secured borrowings
- Fund working capital requirements
- Fulfil general corporate purposes
The final verdict
Considering the robust growth of profit and revenue figures, investing in Aeroflex Industries Limited seems a good idea at the moment. Growing EPS and fair valuation are other reasons to subscribe to this IPO. However, analyze the company’s fundamentals and prevailing market conditions before deciding.
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