Ajax Engg. IPO review (Apply)

•    The company is a leader in SLCM machinery that are widely used in infra developments.
•    The company enjoys 75+% in the SLCM market share and thus has virtual monopoly like situation.
•    The company posted steady growth in its top and bottom lines for the reported periods.
•    As per historical data, it gets around 35+% turnover in first half and 60+% in the 2nd half.
•    Based on its recent financial performance, the issue appears reasonably priced against the peers’ average.
•    Investors may lap it up for medium to long term.

ABOUT COMPANY:
Ajax Engineering Ltd. (AEL) is a leading concrete equipment manufacturer with a comprehensive range of concrete equipment, services and solutions across the concrete application value chain (Source: RedSeer Report). As of September 30, 2024, it has developed over 141 concrete equipment variants catering to the concrete application value chain, and over the last ten years, it has sold over 29,800 concrete equipment in India. Since its inception 32 years ago, the company has developed a comprehensive product portfolio that includes equipment such as self-loading concrete mixers (“SLCMs”) and batching plants for the production of concrete, transit mixers for the transportation of concrete, boom pumps, concrete pumps and self-propelled boom pumps for the placement of concrete, slip-form pavers for the paving of concrete and 3D concrete printers for depositing concrete.

SLCMs are versatile self-loading machines capable of mixing and transporting concrete ingredients, enabling on-site production of concrete. These machines are equipped with, among others, (i) self-loading arms with a hatch bucket to ensure smooth flow of concrete ingredients into the drum in order to minimize spillage, and (ii) concrete batch controllers to accurately measure all the ingredients in order to produce high quality concrete. During Financial Year 2024, approximately 14% of all concrete produced in India was processed through SLCMs, reflecting their growing importance in meeting the demand for faster and more reliable construction methods (Source: RedSeer Report). Moreover, between Financial Year 2022 and the six months’ period ended September 30, 2024, its SLCM sales have experienced a CAGR of 45.70%, underscoring the rapid adoption and success of SLCMs in the construction sector.

AEL is a leading manufacturer of SLCMs in India, with an approximately 77%, 75%, 77% and 86% market share in the SLCM market in India in terms of number of SLCMs sold during the six months’ period ended September 30, 2024 and Financial Years 2024, 2023 and 2022, respectively (Source: RedSeer Report). Moreover, during Financial Year 2024, 12% of the concrete production in India was through its SLCMs (Source: RedSeer Report). It also continues to assist customers throughout the life of the equipment, and with that aim, it provides spare parts for the equipment sold and facilitate the provision of after-sales service by its dealers. As of September 30, 2024, it had overall 1245 personnel including 495 permanent employees.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route secondary IPO of 20180446 equity shares issue worth Rs. 1269.35 cr. (at the upper cap). The company has announced a price band of Rs. 599 – Rs. 629 per equity shares of Re. 1 each. The issue opens for subscription on February 10, 2025, and will close on February 12, 2025. The minimum application to be made is for 23 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 17.64% of the post-IPO paid-up equity capital. Since this is a pure Offer for Sale (OFS), no funds are going to the company.

The company has reserved 78947 shares for its eligible employees and offering them a discount of Rs. 59 per share. From the rest, it has allocated not more than 50% for QIBs, not less than 15% for Retail investors.

The joint Book Running Lead Managers (BRLMs) to this issue are ICICI Securities Ltd., Citigroup Global Markets India Pvt. Ltd., JM Financial Ltd., Nuvama Wealth Management Ltd., and SBI Capital Markets Ltd., while MUFG Intime India Pvt. Ltd. (erstwhile Link Intime India Pvt. Ltd., is the registrar to the issue. Investec Capital Services (India) Pvt. Ltd., JM Financial Services Ltd., Nuvama Wealth Management Ltd., and SBICAP Securities Ltd. are the syndicate members.

Having issued initial equity shares at par value, the company issued further equity shares at a fixed price of 4.00 (based on Re. 1 FV) in December 2003. It has also issued bonus shares in the ratio of 3 for 1 in March 2009, and November 2022. The average cost of acquisition of shares by the promoters is Rs. NIL, Rs. 0.19, and Rs. 323.41 per share. 

Post-IPO, its current paid-up equity capital of Rs. 11.44 cr. will remain same as this is a secondary issue. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 7196.19 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 771.85 cr. / Rs. 66.21 cr. (FY22), Rs. 1172.57 cr. / Rs. 135.90 cr. (FY23), and Rs. 1780.07 cr. / Rs. 225.15 cr. (FY24). For H1 of FY25 ended on September 30, 2024, it earned a net profit of Rs. 101.02 cr. on a total income of Rs. 794.16 cr. According to the management, historically their second half always has better performance (60% + for H2 against 35%+ for H1) with higher top and bottom lines. 

For the last three fiscals, the company has posted an average EPS of Rs. 8.83 (basic) and an average RoNW of 15.77%. The issue is priced at a P/BV of 7.23 based on its NAV of Rs. 87.04 as of September 30, 2024, as well as on post-IPO basis.

If we attribute FY25 annualized earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 35.61. Based on FY24 earnings, the P/E stands at 31.96. Thus the issue appears reasonably priced, considering its peers’ ratio (average at 40+%) and the 75% market shares enjoyed by it. 

The company reported PAT margins of 8.58% (FY22), 11.59% (FY23), 12.65% (FY24), 12.72% (H1-FY25) and RoCE margins of 15.52%, 25.31%, 32.82%, 13.84% for the referred periods, respectively. 

DIVIDEND POLICY:
The company has paid a dividend of 217.12% for FY24 and H1-FY25. It has already adopted a dividend policy in January 2024, based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Action Construction, BEML, and Escorts Kubota, as their listed peers. They are trading at a P/E of 40.5, 50.1 and 32.5 (as of February 05, 2025. However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER’S TRACK RECORD:
The five BRLM associated with the offer has handled 112 pubic issues in the past three fiscals, out of which 30 closed below the offer price on the listing date.