Unimech Aerospact IPO review (May apply)

•    The company is engaged in providing engineering solutions for critical parts in Aero Tooling, ground support equipment etc.
•    The company posted quantum jump in its top and bottom lines from FY24 onwards.
•    Based on its recent financial numbers, the issue appears fully priced.
•    Well-informed investors may park funds for medium to long term.

ABOUT COMPANY:
Unimech Aerospace & Manufacturing Ltd. (UAML) is an engineering solutions company specializing in manufacturing and supply of critical parts such as aero tooling, ground support equipment, electro-mechanical sub-assemblies and other precision engineered components for aerospace, defence, energy, and semiconductor industries. It possesses “build to print” capabilities, wherein it manufactures products based on client designs, and “build to specifications” capabilities, wherein the company assists clients in designing the products to be manufactured basis specifications. It supplies high precision and critical components to major OEMs and their licensees worldwide. Its export-oriented business has a diverse product portfolio and strong focus on quality and timely delivery.

UAML’s product portfolio includes, inter alia, engine lifting and balancing beams, assembly, disassembly and calibration tooling, ground support equipment, airframe assembly platforms, engine transportation stands, mechanical & electro-mechanical turnkey systems, and precision components. It is a key link in the global supply chain for global aerospace, defence, semi-conductor and energy OEMs and their licensees for the supply of critical parts like aero tooling, ground support equipment, electro-mechanical sub-assemblies and other precision engineered components (Source: F&S Report). Its key clients include top global airframe and aero-engine OEMs and their approved licensees. 

The salient features of its products are complexity and a “high-mix, low volume nature”, characterized by high mix products which are not mass manufactured. It offers a wide range of products (“SKUs”) but produce relatively small quantities of each based on specific customer requirements. Its ability to efficiently manufacture even single units of a particular SKU provides with the flexibility to optimize pricing and maintain high profit margins. Factors such as on-time delivery and product quality significantly influence its pricing strategy. The company adheres to stringent quality standards and measures as per AS9100D & BS EN ISO 9001:2015, being the industry norms for aerospace. Between Fiscals 2022 and six months’ period ended September 30, 2024, it has manufactured 2,999 SKUs in tooling and precision complex sub-assemblies’ category and 760 SKUs in the precision machined parts category, supplying to more than 26 customers across 7 countries.

Its diverse capabilities allow it to service the customers globally, which has established as an export-oriented company with customers across USA, Germany and United Kingdom. Its products and service exports aggregated to Rs. 33.10 cr. Rs. 89.65 cr. Rs.  203.85 cr. and Rs. 115.43 cr., contributing 91.06%, 95.20%, 97.64% and 95.67% of its total revenue from operations for Fiscals 2022, 2023 and 2024 and six-months period ended September 30, 2024, respectively. As of September 30, 2024, it had 622 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route combo IPO of fresh equity shares worth Rs. 250.00 cr. (approx. 3184713 shares at the upper cap), and an Offer for Sale (OFS) worth Rs. 250.00 cr. (approx. 3184713 shares at the upper cap). The overall issue size is for Rs. 500.00 cr. (approx. 6369426 shares at the upper cap). The company has announced a price band of Rs. 745 – Rs. 785 per equity shares of Rs. 5 each. The issue opens for subscription on December 23, 2024, and will close on December 26, 2024. The minimum application to be made is for 19 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 12.52% of the post-IPO paid-up equity capital. From the net proceeds of the fresh equity issue, the company will utilize Rs. 36.37 cr. for capex funding, Rs. 25.29 cr. for funding working capital, Rs. 43.89 cr. for capex on machinery/equipment, Rs. 44.72 cr. for working capital, Rs. 40.00 cr. for repayment/prepayment of certain borrowing, and the rest for general corporate purposes.

The company has reserved shares worth Rs. 1.50 cr. (approx. 19108 shares at the upper cap) for its eligible employees, and from the rest it has allocated not more than 50% for QIBs, not less than 15% for HNIs and not less than 35% for Retail investors.

The two Book Running Lead Managers (BRLMs) to this issue are Anand Rathi Securities Ltd., and Equirus Capital Pvt. Ltd., while KFin Technologies Ltd., is the registrar to the issue. Equirus Securities Pvt. Ltd., and Anand Rathi Share & Stock Brokers Ltd., are the syndicate members.

Having issued/converted initial equity shares at par value, the company issued further equity shares in the price range of Rs. 274.75 – Rs. 681.74 (based on Rs. 5 FV) between July 2023, and July 2024. It has also issued bonus shares in the ratio of 20 for 1 in December 2023. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. NIL, Rs. 0.24, and Rs. 2.30 per share. 

Post-IPO, its current paid-up equity capital of Rs. 23.84 cr. will stand enhanced to Rs. 25.43 cr. (Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 3992.27 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit of Rs. 37.08 cr. / Rs. 3.39 cr. (FY22), Rs. 94.93 cr. / Rs. 22.81 cr. (FY23), and Rs. 213.79 cr. / Rs. 58.13 cr. (FY24). For H1 of FY25 ended on September 30, 2024, it earned a net profit of Rs. 38.68 cr. on a total income of Rs. 127.58 cr. 

For the last three fiscals, the company has posted an average EPS of Rs. 8.47 and an average RoNW of 44.38 %. The issue is priced at a P/BV of 9.17 based on its NAV of Rs. 85.65 as of September 30, 2024, and at a P/BV of 6.24 based on its post-IPO NAV of Rs. 125.86 per share (at the upper cap).

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 51.61, and based on FY24 earnings, the P/E stands at 68.68. The issue appears aggressively priced on the basis of its recent earnings. 

For the reported periods, the company has posted PAT margins of 9.33% (FY22), 24.23% (FY23), 27.85% (FY24), 32.06% (H1-FY25), and the RoCE margins of 10.34%, 42.84%, 54.36%, 9.69% for the referred periods respectively. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It has adopted a dividend policy in August 2024, based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown, Azad Engg., Dynamatic Techno., MTAR Techno, Data Pattern, and Paras Defence and Space, as their listed peers. They are trading at a P/E of 141, 111, 136, 77.6, and 95.8 (as of December 20, 2024). However, they are not truly comparable on an apple-to-apple basis.

MERCHANT BANKER’S TRACK RECORD:
The two BRLM associated with the offer have handled 21 pubic issues in the past three fiscals, out of which 6 issues closed below the offer price on the listing date.