Ahlada Engineers IPO Analysis (Neutral)

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