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Ahlada Engineers IPO Analysis

Review By Finception on Sep 10, 2018

Ahlada is in the business of manufacturing steel doors and windows. They began their operation in 2006 in Hyderabad and currently have 3 manufacturing facilities in addition to a stock yard and an assembling unit.

 The Company currently manufactures the following products:

  1. Steel Doors
  2. Steel Frame windows
  3. Clean Room Equipment

So how are they doing as a business?

1. Ahlada’s revenue has grown consistently in the past few years, it has increased at 13 % CAGR from 79 crores in FY 14 to 128 crores in FY 18.

2. Interestingly, the company bagged more orders for steel doors, which bumped up the revenue contribution from the steel door segment considerably (from30% in FY 14 to 71 % in FY 18).While revenues from Clean Room Equipment dropped by more than 50% since FY16. Is this a trend that’s expected to continue ? We don’t know.

Particulars  (Cr)

FY 18

FY 17

FY 16

Revenue(Cr)

%

Revenue(Cr)

%

Revenue(Cr)

%

Clean Room Equipment

31.4

24

64.4

54

74.2

66

Steel Doors

89.4

71

49.9

42

33.6

30

Steel Windows

6.8

5

4

4

3.1

4

Grand Total

127.7

100

118.4

100

111

100

 3. Operating margin increased from 8.16 % in FY 14 to 13.28 % in FY18 - a good sign for any business. The bottom line has also grown four folds during the same period.

FY

FY 18

FY 17

FY 16

FY 15

FY 14

Revenue(Cr)

128

118

111

96

79

PAT (Cr)

8

3.27

       3.05

2.58

2.64

Operating Margin (%)

13.28

        8

7.5

7.48

8.16

How well are they using their Current capacity?

The company currently has an installed capacity to manufacture 1.32 lac doorsper year.  In the past three years, with the increasing number of orders the capacity utilisation for steel doors has increased from 69 % to 83 %.   As per the company

"Capacity and utilisation details for clean room equipment, furniture, windows and other equipment cannot bedetermined due to 1) large number of products 2) such products being highly customised and 3) manufacturingequipment and machineries being interoperable for such products"

Particulars (Steel Doors)

FY 18

FY 17

FY 16

Installed capacity

132000

132000

132000

Utilised Capacity

109200

93121

91312

% Utilisation

83

71

69

 


Banking on Tata Steel?

"In order to expand our business and customer base, we have on August 22, 2017, entered into a Master Manufacturing and Supply Agreement (MMSA) with Tata Steel Limited (TSL), whereby TSL has assured offtake of doors manufactured and shall work with us to improve process and line efficiency. We consider this alliance with Tata as one of our biggest strengths."

The company has entered into an agreement with Tata for a period of four years in which the latter has committed to order a minimum quantity of 11.75 lac doors during the term of the agreement. So an order of 11.75 lacs doors for a period of four years boils down to  producing 3 lac door/year.This, the company says will be a major boost to their business.

But how will they produce 3 lac doors with current capacity?

The company wants to expand their current capacity by installing machinery that will increase their capacity of steel doors from 1.32 lac to 3.4 lac doors per annum.

Steel Doors Proposed capacity and utilisation

Particulars

FY 21

FY 20

FY 19

Installed capacity (in lacs)

6.24

5.64

3.4

Proposed Capacity (in lacs)

4.8

4.8

3.0

% Utilisation

77

85

88


IPO Funds - Where is the money going?

The company wants to fulfill four objectives

  1. It wants to utilise about 13 % of its net IPO proceeds i.e. ₹6.50 Crores towards reducing debt levels. They intend to partly or fully repay the unsecured borrowing of 4.56 crores (Balance as on 31st July 2018) availed from Banks/NBFC and also repay upto 2.5 Cr of the unsecured interest-free loans from the Promoter.
  2. The company wants to utilize 34.1 % of net ipo proceeds i.e. 17.4 crore to increase their capacity of steel doors from 1.32 to 3.4 doors per annum through installation of key machineries.
  3. It also wants to utilize 33.3 % of net ipo proceeds i.e 17 crore to meet the working capital gap.
  4. 20 % of proceeds will go to general Corporate expenses.

 

Particulars

Amount Raised through IPO (Cr)

Repayment of unsecured loans

6.5

Purchase of machinery

17.4

Working capital

17

General Corporate Purpose

10

Total

51

Points of Interest:

  1. The company is trying to repay the interest free loan upto ~2.5 crore which it borrowed from the promoters. Since its interest free, it will not reduce the finance cost of the company.
  2. Over the last few years the company took various vehicle loans amounting to 1.4 Cr to purchase a BMW, an Innova, a Nissan Terrano and 3 more cars and two Eicher trucks.

What does the Future hold?

At an issue price of 150, the company wants to raise 51 crores in total by diluting around 26 % of their stake. At this price, the P/E translates to about 24, post issue. We don't know what's a good company to compare this with and so commenting on the company’s P/E will perhaps be premature.

We here at Finception, wish the company all the best in its future endeavour.

The review has been compiled by Pawan Kumar- NISM Certified and cofounder, Finception.

 


Conclusion / Investment Strategy

At an issue price of 150, the company wants to raise 51 crores in total by diluting around 26 % of their stake. At this price, the P/E translates to about 24, post issue. We don't know what's a good company to compare this with and so commenting on the company’s P/E will perhaps be premature.

Review By Finception on Sep 10, 2018

Review Author

Dilip Davda, a freelance journalist

Finception

Finception is a startup dedicated to simplifying stocks through compelling storytelling. Finception aggregates, analyses and filters information from multiple sources and creates compelling narratives about publicly listed companies in an easy to understand language without financial jargons. The startup is the brainchild of 3 IIM Ahmedabad alumnus and they are currently based out of Ahmedabad.

Email: support@finception.in

Web: https://finception.in/

More Ahlada Engineers Ltd IPO Views / Analysis / Recommendations ...

The Ahlada Engineers IPO Analysis helps you to understand about the company, offer detail, valuation, capital structure and financial performance. Our SEBI registered IPO Analysts tells you if Ahlada Engineers IPO worth investing. The Ahlada Engineers IPO Note sets the IPO expectations in systematic way which tells you if Ahlada Engineers IPO good to buy (good or bad / yes or no). The IPO Forecast tells you weather to invest in Ahlada Engineers IPO by providing IPO recommendations i.e. subscribe, avoid and neutral.


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