Aeroflex Ind IPO review (May apply)

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Review By Dilip Davda on August 19, 2023

•    AIL is a subsidiary of SIL group and has a niche place in the segment it operates. 
•    For the last three fiscals, it posted steady growth in its top and bottom lines. 
•    AIL posted improved performance for Q1 of FY24.
•    With over 80% exports, the company is confident about bright prospects ahead. 
•    The IPO appears fully priced discounting all near-term positives. 
•    Well-informed investors may park funds for medium to long-term rewards. 

PREFACE:
AIL is a subsidiary of Sat Industries Ltd (SIL) that brought the IPO of Sah Polymers Ltd. (SPL) in January 2023 and is now bringing the IPO of AIL. AIL has done pre-IPO secondary placement (i.e. from promoters to the new investors) of 8695207 shares worth Rs. 76.14 cr. at a price of Rs. 87.56 per share in the month of May/June 2023 to marquee investors like VPK Global Ventures (Vikas Khemani), Jagdish Master, Ashish Kacholia, Bengal Finance and others. According to the management, these placements were in the pipeline since January 23 and were finalized on the basis of AIL's performance till December 2022, but concluded the deal just before the IPO. Thus the placement price works out at a higher P/E than the IPO pricing and it will have lock-in periods as well. 

ABOUT COMPANY:
Aeroflex Industries Ltd. (AIL) is the manufacturer and supplier of environment-friendly metallic flexible flow solution products including braided hoses, unbraided hoses, solar hoses, gas hoses, vacuum hoses, braiding, interlock hoses, hose assemblies, lancing hose assemblies, jacketed hose assemblies, exhaust connectors, exhaust gas recirculation (EGR) tubes, expansion bellows, compensators and related end fittings collectively known as flexible flow solutions catering to global as well as domestic markets. 

AIL exports its products to more than 80 countries including Europe, the USA and others. It supplies products to a wide spectrum of industries for the controlled flow of all forms of substances including air, liquid and solid. Flexible flow solutions play a critical role in the transfer of substances (air, liquid and solid) in any industrial or commercial ecosystem, connecting the origin and end points of various processes. 

AIL's capabilities to provide customized solutions up to the assemblies' level enable it to tap flexible flow solutions value chain. As of March 31, 2023, it had more than 1,700 Product SKUs (Stock Keeping Units) in its product portfolio. While it is into metallic flexible flow solutions made of SS, it has recently developed products made of bronze as well. The company's products replace flow solutions made of rubber and polymers. Flexible flow solutions made with stainless steel corrugation are becoming a preferred solution because of their numerous advantages. In FY23 it added a solar power segment to its product portfolio. It served 217 customers in 51 countries during FY23. As of March 31, 2023, it had 383 employees on its payroll and additional 44 contract labourers in various departments. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden combo IPO of fresh equity shares worth Rs. 162 cr. (approx. 15000000 shares at upper cap) and an offer for sale of 17500000 shares (worth Rs. 189 cr. at the upper cap). Thus it is an IPO for an overall value of Rs. 351 cr. (approx. 32500000 shares at the upper cap). The company has announced a price band of Rs. 102 - Rs.108 for equity shares having a face value of Rs. 2 per share. The issue opens for subscription on August 22, 2023, and will close on August 24, 2023. The minimum application to be made is for 130 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 25.13% of the post-IPO paid-up capital of the company. 

The company has reserved 500000 shares for the eligible shareholders of the promoter company i.e. Sat Industries Ltd. From the rest portion, it has allocated not more than 50% for QIBS, not less than 15% for HNIs and not less than 35% for Retail investors. 

From the net proceeds of the fresh equity issue funds, the company will utilize Rs. 32 cr. for repayment/prepayment of outstanding secured borrowings, Rs. 84 cr. for working capital and the balance for general corporate purposes.  

The issue is solely lead managed by Pantomath Capital Advisors Pvt. Ltd. and Link Intime India Pvt. Ltd. is the registrar of the issue. 

Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs. 8 - Rs. 40 (on the basis of Rs. 2 FV), between March 2008 and April 2018. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 1.95 per share. 

Post-IPO, AIL's current paid-up equity capital of Rs. 22.86 cr. will stand enhanced to Rs. 25.86 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 1396.66 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, AIL has (on a consolidated basis) posted a turnover/net profit of Rs. 144.84 cr. / Rs. 6.01 cr. (FY21), Rs. 240.99 cr. / Rs. 27.51 cr. (FY22), and Rs. 269.48 cr. / Rs. 30.15 cr. (FY23). The total number of customers served by AIL increased from 538 (FY21) to 723 (FY23) with average capacity utilization of 81.53%. It marked average export revenue of 82.01% for the last three fiscals. According to management, these trends are likely to continue as it has established a niche place in the segment where it has two global peers. Its net profit margins improved from 4.15% (FY21) to 11.19% (FY23), similarly, its RoE margins too improved from 10.24% to 26.43% for the said periods respectively.  

For the last three fiscals, it has reported an average EPS of Rs. 2.21 and an average RoNW of 25.56%. The issue is priced at a P/BV of 10.82 based on its NAV of Rs. 9.98 as of March 31, 2023, and at a P/BV of 5.06 based on its post-IPO NAV of Rs. 21.35 per share (at the upper cap). 

As per the data available in the public domain under Q1-FY24 performance of the promoter company i.e. Sat Industries Ltd. (SIL), AIL as a subsidiary of SIL has reported a net profit of Rs. 11.09 cr. on a turnover of Rs. 82.93 cr. for the said period. 

If we attribute FY23 earnings to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of around 46.35 and based on annualized FY24 earnings, it is at a P/E of 31.49. Thus the issue appears fully priced.

DIVIDEND POLICY:
AIL has paid a dividend of 10% for FY22 and FY23 and has also adopted a dividend policy based on its financial performance and future prospects. (Refer to page no. 220 of the offer document). 

COMPARISON WITH LISTED PEERS:
As per offer documents, the company has no listed peers to compare with. 

MERCHANT BANKER'S TRACK RECORD:
This is the 6th mandate in the last three fiscals (including the ongoing one). Out of the last 5 listings, all opened at premiums ranging from 5% to 41% on the date of listing.

Aeroflex Industries IPO FAQs