Tag: auto components

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Hero MotoCorp, Zero Partner For Premium Electric Motorcycles – Top Indian Market Updates

Here are some of the major updates that could move the markets tomorrow:

Hero MotoCorp to partner with Zero Motorcycle for premium electric motorcycles

Hero MotoCorp have reached an agreement with California-based Zero Motorcycles to co-develop premium electric motorcycles. The companies intend to combine the expertise of Zero in developing powertrains and electric motorcycles with the scale of manufacturing, sourcing and marketing of Hero MotoCorp. In Sept 2022, the board of Hero MotoCorp approved an equity investment of up to $60 million in Zero Motorcycles.

Read more here.

Olectra Greentech bags order for 550 e-buses from TSRTC

Olectra Greentech Ltd has received an order for 550 pure electric buses from the Telangana State Road Transport Corporation (TSRTC). The order is to supply 50 standard-floor 12-metre intercity coach e-buses and 500 low-floor 12-metre intracity e-buses. The 50 intercity coach e-buses will ply between Hyderabad in Telangana and Vijayawada in Andhra Pradesh.

Read more here.

NTPC records 12% growth in electricity generation in April-Feb

NTPC Ltd has registered nearly 12% YoY growth in electricity generation to 364.2 billion units in the April-February period of FY23. The company’s captive coal production stood at 2.6 million metric tonnes (MMT) and despatch at 2.5 MMT, registering a growth of 80% and 87%, respectively. NTPC continues to demonstrate an increasing trend in coal production from its captive mines. 

Read more here.

Auto components industry to grow 10-15% in FY24: ACMA

India’s auto components industry is expected to grow by around 10-15% in FY24, said the Automotive Component Manufacturers Association of India (ACMA). This growth will be driven by both domestic and export market demand despite fears of a recession in major markets of the US and Europe. Going forward, the industry is expected to gain from the transition to electric vehicles (EVs) in the developed markets in the West.

Read more here.

Allcargo Logistics to acquire its partners’ contract logistics business

Allcargo Logistics plans to buy out the contract logistics business of its joint venture partner CCI Integrated Logistics and sell it to the customs clearance segment as a means of consolidating its business. The company bought a controlling stake in CCI in 2016 and subsequently formed the joint venture Avvashya CCI. It now holds over 61% stake and will buy the remaining 38.87% stake from its partners for ₹145 crore.

Read more here.

Max Estates completes office complex in Noida at ₹420 crore cost

Max Estates has completed an office complex (Max Square) in Noida at a total development cost of ₹420 crore. The company is expecting an annual rental income of about ₹60-70 crore from this project. New York Life Insurance Company has co-invested in this project and holds a 49% stake. Max Estates is part of Max Group’s listed entity Max Ventures & Industries Ltd (MaxVIL).

Read more here.

Vehicle sales grow 16% in February 2023: FADA

A report from the Federation of Automobile Dealers Associations of India (FADA) revealed that the total registrations across all segments rose 16% year-on-year (YoY) to 17,75,424 in Feb 2023. Total commercial vehicle retail sales in February grew 17% YoY to 79,027 units. Tractor sales rose 14% YoY to 68,988 units last month.

Read more here.

Domino’s becomes first QSR brand to achieve 20-min guaranteed delivery in Bengaluru

Jubilant FoodWorks Ltd announced the launch of a 20-minute delivery guarantee for Domino’s Pizza in Bengaluru. The fast-food chain now guarantees delivery of fresh and hot pizzas to customers’ doorsteps within just 20 minutes of placing the order. The service will be available across 170 Domino’s Pizza stores across the city. 

Read more here.

ONGC signs pact with TotalEnergies for exploration of deep-water blocks

Oil and Natural Gas Corp (ONGC) has signed an agreement with French major TotalEnergies for the exploration of deep-water blocks. The decision comes as the country wants to quickly monetise its oil and gas resources to reduce its reliance on costly imports. India is the world’s third-biggest oil importer & consumer of oil, and ships over 85% of its oil overseas. 

Read more here.

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Market News Top 10 News

Tata Group’s BigBasket Eyes IPO by 2025 – Top Indian Market Updates

big basket

Here are some of the major updates that could move the markets tomorrow:

Tata-owned BigBasket eyes IPO by 2025 after $200 million fundraising: Report

According to a BQ Prime report, Tata Group’s online grocer BigBasket is expected to launch an initial public offering (IPO) within three years after the recent fundraising valued the online grocer at $3.2 billion. The company had raised $200 million (~₹1,650 crore) to boost its quick commerce arm and expand its nationwide footprint. At present, BigBasket operates in 55 cities. The company wants to expand to 75 cities by March 2023.

Read more here.

Auto components industry grew 34.8% to ₹2.65 lakh crore in H1 FY23

India’s auto components industry witnessed a 34.8% YoY growth to ₹2.65 lakh crore in the first half (H1) of the current financial year (FY2022-23), said the Automotive Component Manufacturers Association of India. During the period, exports of components grew by 8.6% to ₹79.03 lakh crore, while imports rose 17.2% to ₹79.8 lakh crore. There was strong demand in the domestic market, particularly from the passenger vehicles segment.

Read more here.

Mankind Pharma enters pet care segment with ‘PetStar’ brand

Mankind Pharma has diversified into the pet care segment with the launch of its ‘PetStar’ brand. The brand aims to build and support the pet care ecosystem by offering pet food, medicine, supplements, and grooming products. The pharma company aims to make PetStar a loved, palatable, nutritious, and healthy food brand for pets such as dogs and cats.

Read more here.

M&M to continue strong momentum owing to robust demand for newly-launched SUVs

Mahindra & Mahindra’s revenue market share in the SUV category stood at 19.9% in Sept 2022, up from 12.9% in Sept 2021. The company had pending orders for 2.6 lakh SUVs at the close of last quarter. M&M’s new launches (Thar, XUV700, and Scorpio) have been received well, and the automaker is confident of maintaining this momentum with a strong order book and in-demand blockbuster products.

Read more here.

Credit growth far away from being considered ‘exuberant’: RBI Governor

The present credit (or loan) growth in India is far away from being considered ‘exuberant’ and there is no ‘big gap’ between the credit growth and deposit accretion when looking at the absolute numbers, said RBI Governor Shaktikanta Das at the BFSI Summit organised by Business Standard. Credit growth is going up after two years of being depressed, while the deposit growth number has come off a relatively higher growth during the pandemic years.

Read more here.

IndiGrid, G R Infraprojects partner to bid for power transmission projects worth ₹5,000 crore

India Grid Trust (IndiGrid) and G R Infraprojects Ltd (GRIL) have partnered to bid for identified power transmission projects worth ₹5,000 crore. The two firms have entered into a framework agreement to acquire a 100% stake in Rajgarh Transmission Ltd, which GRIL won in March 2022. The power ministry has recently unveiled a plan for investment of ₹2.5 lakh crore in building transmission infrastructure for meeting the vision of 500 GW of renewable energy capacity by 2030.

Read more here.

IL&FS transfers two more road assets worth ₹976 crore to Roadstar InvIT

IL&FS has transferred two more road projects— Hazaribagh Ranchi Expressway and Thiruvananthapuram Road Development Company— to Roadstar Infra Investment Trust (InvIT) at an enterprise value of ₹979 crore. With this, secured lenders of both the assets, including Punjab National Bank, Union Bank, Indian Overseas Bank, and others (with a combined debt of over ₹630 crore) will get 100% recovery through restructuring of their debt under the InvIT.

Read more here.

Paytm CEO says there will be no more cash burn

Paytm CEO Vijay Shekhar Sharma said that going ahead, there will be no more cash burn in the business. He also added that the digital payments firm was far ahead in re-setting its ambition on controlling spending. Paytm had net cash, cash equivalents, and an investable balance of ₹9,182 crore at the end of September, according to its latest quarterly earnings report. CLSA also upgraded Paytm in November, saying that cash burn could end in another 4-6 quarters.

Read more here.

Bharti Airtel launches 5G services in Ahmedabad, Gandhinagar, Imphal

Bharti Airtel Ltd announced the launch of high-speed 5G services in Ahmedabad and Gandhinagar (Gujarat). The company also announced the rollout of 5G services in Imphal (Manipur). Customers with 5 G-enabled devices can enjoy the high-speed network at no extra cost until the rollout is more widespread. Airtel 5G will allow superfast access to high-definition video streaming, gaming, and multiple chatting.

Read more here.

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Editorial

Sona Comstar IPO: All You Need to Know

sona camstar

The IPO frenzy has returned to the Indian stock markets. Sona BLW Precision Forgings, one of the leading auto components manufacturers in the world, had launched its three-day initial public offering (IPO) on June 14. In this article, we take a closer look into the company and its IPO.

Company Profile – Sona BLW Precision Forgings

Sona BLW Precision Forgings Ltd (SBPFL) is an automotive technology company headquartered in Gurugram, Haryana. It was incorporated in 1995. The company is widely known as Sona Comstar. It is primarily engaged in the design, manufacturing, and supply of mission-critical automotive systems and components in India and around the globe. Their products include differential assemblies, gears, conventional and micro-hybrid starter motors, etc. The company also manufactures a range of electric vehicle (EV) traction motors. Hence, they provide essential components required for the production of all types of vehicles.

Last year, Sona Comstar secured its position as one of the top 10 global players in the differential bevel gear segment. It is also the largest exporter of starter motors in India. According to a recent report by Ricardo plc (a consultancy firm), Sona Comstar obtained a global market share of 5% for differential bevel gears and 3% for starter motors in 2020. They also secured an impressive global market share of 8.7% for BEV differential assemblies (used in EVs). 

The company caters to the rising demands of some of the largest manufacturers of passenger vehicles (PV), commercial vehicles (CV), and tractors in the world. Their client list includes Ashok Leyland, Volvo, Mahindra & Mahindra, Maruti Suzuki, Daimler, and Renault Nissan.

SBPFL supplies its products across India, Europe, China, and the United States. Close to 95% of its total revenue comes from sales in overseas markets. They own and operate 9 manufacturing and assembly units across India, China, the US, and Mexico. Sona Comstar is also well known for its extensive Research & Development (R&D) activities. The company is run by a set of highly experienced managers and promoters, led by Sunjay Kapur. He has over 21 years of experience in the auto industry. They are backed by US-based investment firm Blackstone Group.

About the IPO

In May 2021, Sona BLW Precision Forgings received approval from SEBI to float an initial public offering (IPO). The public issue will open on June 14, 2021, and close on June 16, 2021. The total issue size of the IPO is Rs 5,550 crore. This comprises a fresh issue of equity shares aggregating up to Rs 300 crore. It also includes an offer for sale (OFS) of up to Rs 5,250 crore by an existing shareholder— Singapore VII Topco III Pte. Ltd. The company will issue a total of ~19.07 crore shares. The price band for the IPO has been fixed at Rs 285-291 per share.

Individual investors can bid for a minimum of 51 equity shares (1 lot), which will amount to Rs 14,941. The maximum number of shares that can be applied by a retail investor is 663 equity shares (or 13 lots). Thus, the maximum amount one can invest in the IPO is Rs 1,92,933. But take care not to apply for more than 1 lot, as your capital may get blocked for no reason if the IPO is oversubscribed.

Sona Comstar will utilise the net proceeds from the IPO for two main purposes. The main priority is to make repayment or pre-payment of its existing debts. The company will spend Rs 241.12 crore from the IPO proceeds to reduce debt. The remaining amount will be used for general corporate purposes. The total promoter holding in the firm will reduce from 100% to 67.30% post the successful completion of the IPO.

Financial Performance

From the table, it is clear that Sona Comstar has posted strong financial growth over the past few years. Its total income has grown at a CAGR of 22.9% between FY18-FY21. In FY20, the company secured the highest operating EBITDA margin, profit margin, Return on Capital Employed (ROCE), and Return on Equity (ROE) when compared to the top 10 publicly listed auto component manufacturers in India.

The net profit for the financial year 2020-21 (FY21) declined by 40.2% YoY to Rs 215.17 crore. This was mainly due to higher provisioning for depreciation and an increase in the cost of raw materials amidst the Covid-19 pandemic. Earnings Per Share (EPS) came down to Rs 3.76 in FY21, compared to Rs 7.06 in FY20. However, the company’s total income increased by 50% YoY to Rs 1,565.64 in FY21. As mentioned earlier, a majority of its revenues come from large automakers from around the globe. The high demand for their innovative products (especially those for electric vehicles) has been a key factor for revenue growth. 

The company’s ROCE stands at 35%, which is very high when compared to its competitors. This means that for every Rs 100 worth of capital employed, Sona Comstar earns Rs 35 on it. The Return on Net Worth (RoNW) stood at 30.6% in FY20 and declined to 16.5% in FY21. RoNW shows how much profit a company generates from the investments made by equity shareholders. 

Risk Factors

  • The company’s business is highly dependent on the performance of the automotive sector globally. Any drastic changes in conditions affecting its key markets (US, Europe, India, and China) could adversely impact their overall operations and financial performance.
  • The revenue derived from Sona Comstar’s top 10 customers represents around 79.9% of its overall sales income (as of December 31, 2020). The loss of any one of these customers or even a reduction in purchases by them will negatively affect financial results.
  • Like most other companies, the Covid-19 pandemic caused a severe impact on Sona Comstar’s operations. All manufacturing and assembly facilities were shut worldwide due to strict lockdowns. The company had also experienced a sharp decline in overall demand for its products. Such health threats could adversely affect its business/financial growth.
  • Sona Comstar has admitted that it may not be successful in implementing its growth strategies, including the strategy to capture opportunities in the highly promising electric vehicle (EV) market. Their R&D segment could fail to develop new and improved products on time or may exceed estimated budgets.
  • The company faces a very high level of competition in both the domestic and international markets. When compared to peers, it may not be able to launch new products based on rapidly-changing customer demands or requirements.  

IPO Details in a Nutshell

The finalisation of the basis of allotment is likely by June 21. Kotak Mahindra Capital, Credit Suisse Securities, JP Morgan India, JM Financial, and Nomura Financial Advisory & Securities have been appointed as the book-running lead managers to the public issue. Sona BLW Precision Forgings had filed draft papers for its IPO in February 2021. You can read it here.

Ahead of the IPO, Sona Comstar raised Rs 2,497.5 crore from anchor investors on June 11. The investors include the Government of Singapore Investment Corp (GIC), Nomura Asset Management, Morgan Stanley, RWC Funds, Goldman Sachs Asset Management, etc. 

Conclusion

The global auto components industry is growing at a fast pace. According to a report from Automobile Component Manufacturers Association (ACMA), the Indian auto components industry is expected to grow to a $200 billion (~Rs 14.50 lakh crore) market by 2026. Sona BLW Precision Forgings has transformed into one of the best-performing and innovative companies in this industry. Even though most of the firms in the auto sector suffered from the Covid-19 pandemic, SBPFL was able to post higher revenues. It has changed its focus towards delivering green technologies and launching components suitable for the future of mobility— EVs. This indicates that one could invest in the company based on its future growth prospects.

Sona Comstar will be directly competing with major players such as Motherson Sumi Systems, Sundaram Clayton, Bosch Ltd, Mahindra CIE, Sundaram Fasteners, and many more.

Before applying for Sona Comstar’s IPO, I will personally wait to see if the portion reserved for institutional investors gets oversubscribed. Due to its impressive track record, the company is expected to attract significant investor participation. As always, do consider the risks associated with this company and come to your own conclusion.

What are your opinions on this IPO? Will you be applying for it? Let us know in the comments section of the marketfeed app.

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Minda Industries: A Bright Investment Opportunity?

Minda Industries or Uno Minda is an automobile component manufacturer with companies like BMW, KTM, Honda, Ford, Royal Enfield, Toyota, and many more in its client list. Essentially, the company has almost all major automobile manufacturers on its client list. Recently, the company had announced that it was investing Rs 500 crore to expand its four-wheeler lighting and alloy wheels business.

Mind you, Minda Industries should not be confused with its namesake Minda Corp or Spark Minda. Pretty much like the Ambanis and Reliance, there was a split in business between brothers Nirmal K Minda and Ashok Minda. Nirmal Minda took hold of Minda Industries and Ashok Minda held Minda Corp. Both the companies are indeed excelling in their own paths.

Minda Industries posted a net profit of 168% and 34% in the last two quarters respectively. Between 2013 and 2019, the company posted a profit growth in all years except one. What makes Minda Industries a bright investment opportunity? Let us find out. 

The Business

  • A motor vehicle has many fine tunings like noise control, ambient lighting, switches, wheel turning, alloys, sound systems, sensors, controllers, etc. Minda Industries manufactures and sells these to major automobile players for both 2/3 wheeler and 4 wheelers. Both segments contribute nearly equally to total revenue. 
  • The Company has 16 direct subsidiaries, 12 step-down subsidiaries, 8 joint ventures, and 2 associates as of 31 March 2020. To know more about them, click here. 
  • The company has a strong domestic as well as international presence. In FY2019-20, the international business contributed 19% to the revenue stream, the remaining 81% being a domestic business. 
  • Segment-wise share of business by production volume. This shows how much amount of output for produced for each segment:
    • Passenger Vehicles: 13%
    • Commercial Vehicles: 3%
    • Three-wheelers: 3%
    • Two-wheelers: 81%
  • The company has 5 major divisions. Switch, Lighting, Acoustics, Light Metal(LMT), and Others. The Switch division contributes the most to the revenue stream and operates five plants in India and two overseas plants in Indonesia and Vietnam. The products are manufactured out of different locations across India viz. Manesar, Pune, Hosur, Aurangabad, and Pantnagar, catering to many domestic as well as international two-wheeler and four-wheeler manufacturers.
  • The company constantly keeps acquiring new technology to stay upbeat in the market. Over the past 5 years, the company has added and/or acquired close to 13 subsidiaries, 5 joint ventures(JVs), and 4 step-down subsidiaries estimating close to Rs 880 crore. Some of these include Minda Kosei for alloy wheels for Passenger Vehicles(PV), Minda TG Rubber for brake, and fuel hoses, Roki Minda for air intake systems, carbon canisters, Spain-based Rinder Group for lighting systems.  
  • With more than 22,000 employees, Minda Industries has 62 manufacturing plants in India, Spain, Morocco, Mexico Colombia, Indonesia, Vietnam, Germany design centers in Taiwan, Japan & sales offices in North America, Europe, and other ASEAN countries.
  • People might delay accessorizing their vehicles or vehicle sales might go up during a festive season. Just like the rest of the automobile industry, Minda’s business remains cyclical. 

Finances

Vital Financials(Source: Company Annual Report)
  • The company hasn’t faced a net loss in a decade nearly. It has consistently grown its revenue and value of total assets.
  • For FY2019-20, the company had a Return on Equity(RoE) of 16.82%, which nearly halved in FY2020-21 to 8.5%. Return on Equity indicates the ability of a company to generate profits from what its shareholders invest in the company. A falling RoE indicates poor return or management of shareholder’s investment in the firm.
  • The Return on Capital Employed or RoCE for FY2019-20 was 18.8% which reduced to 11.2%. A RoCE of 11.2% means that the company got Rs 11.2 in return for every Rs 100 of Capital Employed or the amount invested by the company with the intention of making a profit.
  • Mutual Funds’ shareholding in the company has almost doubled since 2018 from 4.23% to 9.74%. While Public shareholding of the company has decreased by ~5% since 2018, Domestic Institutional Investors(DIIs) have jacked up shareholding by ~6% in the past 3 years. 
  • The share price of Minda Industries has grown by 2438.9%, this means that had you invested Rs 1 lakh in the company 10 years ago, they would have become close to ~24 lakhs. Over the past year, the share price has increased ~113%.
  • Minda’s debt or borrowings are increasing, but so are its revenue and cash flows from operations for the past 5 year. The company’s liquidity position is fairly strong, sufficient to cover its short term debt. 
  • The company has had a declining Inventory Turnover Ratio. It is a measure of the number of times inventory is sold or used in a given time period. A decline in the inventory turnover ratio highlights that the operations of the company have become more working capital intensive.

What Lies Ahead

Recently, the company had announced that it was investing Rs 500 crore to expand its four-wheeler lighting and alloy wheels business. The company has had a good history when it comes to rewarding its shareholders, be it healthy dividend payouts or good value returns. Apart from this, the company has a good project execution rate. Its debt position is in sync with its revenue growth and profitability. To know more about the company, you can check out their Annual Report 2020, over here.

The auto-sector had just managed to recover when India was hit with the Second-wave of COVID-19. What followed is a series of night-curfews, weekend curfews and partial lockdown like situation across many states. Auto sales are likely to go down and the company’s position might be impacted again? Do you think the company offers a good return in the current financial year? Let us know in the comments section in the marketfeed App

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Craftsman Automation IPO: All You Need to Know

Craftsman Automation has launched its three-day initial public offering (IPO) today- March 15, 2021. This is the first IPO to be launched by an auto components manufacturer in the past 3 years. Let us take a closer look into the company and its IPO.

Company Profile – Craftsman Automation

Craftsman Automation Limited is an engineering company based in Coimbatore. It was incorporated in 1986 and is primarily engaged in the design, development, and manufacturing of automotive components. The company is well-known for the machining of cylinder blocks and cylinder heads in commercial vehicles and tractors. A cylinder block is the basic framework of a vehicle’s engine that plays an important role in maintaining stability and controlling temperature. The company offers a wide range of such components to automobile manufacturers in India and abroad. 

The company’s products and services segments are divided into three verticals:

  1. Automotive- Powertrain and others: This includes engine parts such as cylinder heads, cylinder blocks, transmission parts, turbocharges, etc. These components are used in the production of commercial vehicles, special utility vehicles, and tractors. This segment contributes nearly 17.3% to the overall revenue of the company.
  2. Automotive- Aluminium products: This segment includes key products such as cylinder blocks, as well as crankcases for two-wheelers, passenger vehicles, and commercial vehicles. This division contributes 47.5% to the company’s overall revenue.
  3. Industrial and Engineering: The main products in this segment include high-end precision products (castings) and storage solutions. It caters to the pharma, fast-moving consumer goods (FMCG), and e-commerce industry. This segment contributes 35.2% to the total revenue. 

Craftsman Automation owns and operates 12 state-of-the-art manufacturing facilities across 7 cities in India. These units are strategically located near major automobile manufacturing hubs. The company has established itself as a leading provider of essential components to large automakers. Some of their prominent clients include Mahindra & Mahindra, Tata Motors, Escorts, Ashok Leyland, Daimler India, JCB India, and TVS Motors. 90% of their revenue comes from the domestic market and the remaining 10% from exports.

About the IPO

In February 2021, Craftsman Automation received approval from SEBI to float an initial public offering (IPO). The public issue will open on March 15, 2021, and close on March 17, 2021. The total issue size of the IPO is Rs 823.70 crore. This comprises a fresh issue of equity shares aggregating up to Rs 150 crore. It also includes an offer for sale (OFS) of 45.21 lakh equity shares (aggregating up to Rs 673.70 crore) by promoters and existing shareholders. The price band for the IPO has been fixed at Rs 1,488-1,490 per share.

Individual investors can bid for a minimum of 10 equity shares (1 lot), which will amount to Rs 14,900. The maximum number of shares that can be applied by a retail investor is 130 equity shares (or 13 lots). Thus, the maximum amount one can invest in the IPO is Rs 1,93,700. But take care not to apply for more than 1 lot, as your capital may get blocked for no reason if the IPO is oversubscribed.

Craftsman Automation will utilise the net proceeds from the IPO for two main purposes. The main priority is to make repayment or pre-payment of its existing debts. As per reports, around 80% of the IPO proceeds will be used for repaying debts. The remaining amount will be used for general corporate purposes. The company’s promoters, lead by Srinivasan Ravi, currently hold a 63.4% stake. The total promoter holding in Craftsman Automation will reduce to 59.76% post the successful completion of the IPO.

Financial Overview

.31 Dec 2020(FY 21)31 March 2020 (FY20)31 March 2019 (FY19)31 March 2018 (FY18)
Total Assets2,246.292,303.132,325.391,999.4
Total Income1,029.91,501.051,831.61,522.86
Profit After Tax50.641.0797.3631.5
(Values in Rs crore)

From the table, it is clear that Craftsman Automation’s financial performance has not been consistent over the years. The company’s revenue grew at a CAGR of ~20% between 2017 and 2019. After this period, it faced a decline in both domestic and international demand across all three product verticals (due to a slowdown in the automobile industry). The Industrial & Engineering division is the only segment that has shown positive growth in the last three years. The fall in revenue was also due to the high capital expenditure it incurred for setting up production plants. On the other hand, it shows how they have focused on scaling up production activities.

The company’s profit has shown a strong rebound at Rs 50.6 crore for the 9 months ended December 2020, despite a heavy fall in revenue. This was primarily because their interest costs (for loans) had fallen due to the moratorium introduced by the government amidst the Covid-19 pandemic. 

Another factor to consider is the overall debt burden of the company. Between 2016 and 2020, Craftsman Automation’s long-term debt has grown at a CAGR of around 20%. This is quite alarming indeed. Its total debt as of December 31, 2021, stood at Rs 890.11 crore. As mentioned before, the company will use a major part of its IPO proceeds to reduce this debt. 

Graph showing the company’s long-term debt figures from 2017-2020 (Values in Rs crore)

Risk Factors

  • There has been a significant decline in automobile sales due to the ongoing Covid-19 pandemic. The company is uncertain whether its sales will recover even after the impact of the Covid-19 pandemic is over.
  • Craftsman Automation has not been able to meet debt obligations through its debt financing arrangements. Also, some of the company’s assets have been mortgaged as securities with lenders. In case they are unable to pay off debts, it may adversely affect their business operations, financial results, and cash flows.
  • As mentioned before, the company has prominent clients from the automobile industry. There could be instances wherein the firm loses key customers, which could lead to a decline in production and sales. This could affect its overall business operations and financial results.
  • The company operates in a highly competitive business environment. Its market share and profits could decline if they are unable to respond to competition and pricing pressures. This could ultimately affect their operations and financial results. [Craftsman Automations’ peers in the auto-components industry include Bharat Forge, Endurance Technologies, Mahindra CIE Automotive, and Sundaram Fasteners]  
  • Craftsman Automation is also involved in certain legal proceedings amounting to Rs 21.24 crore.
  • The company does not have long-term contracts or exclusive arrangements with its suppliers. Its operations could be severely affected by supply chain disruptions, which has been a major issue for many firms amidst the Covid-19 pandemic.

IPO Details in a Nutshell

IPO DateMarch 15, 2021 – March 17, 2021
Issue TypeBook Built Issue IPO
Face ValueRs 5 per equity share
IPO PriceRs 1,488 to Rs 1,490 per equity share
Lot Size10 shares
Issue SizeRs 823.70 crore
Fresh Issue (goes to the company)10,06,711 equity shares of Rs 5 each (aggregating up to Rs 150 crore)
Offer for Sale (goes to promoters)45,21,450 equity shares of Rs 5 each (aggregating up to Rs 673.70 crore)
Allotment DateMarch 22, 2021
Listing DateMarch 25, 2021
Listing AtBSE, NSE

Axis Capital and IIFL Securities have been appointed as the book-running lead managers to the public issue. Craftsman Automation had filed draft papers for its IPO in December 2020. You can read it here.

Conclusion

Craftsman Automation had filed draft papers for an IPO with SEBI way back in June 2018. It had even received the regulator’s approval for the same. However, the company could not launch the public issue as market conditions were not favourable during that period. Now, the question arises whether investors would show interest in this company amidst a slowdown in the automobile sector. Moreover, there are red flags such as declining revenues and large debts. Do consider the risks associated with this company and come to your own conclusion.

Ahead of the IPO, the company was able to raise Rs 247.11 crore from 21 anchor investors. HSBC Global Investment Funds, Tata Mutual Fund (MF), Aditya Birla Sunlife MF, The Nomura Trust are some of the prominent anchor investors of the firm. 

In the current scenario, almost every IPO is providing some lucky investors with great listing gains. Before applying for Craftsman Automation’s IPO, I will personally wait to see if the portion reserved for institutional investors gets oversubscribed. 

What are your opinions on this IPO? Will you be applying for it? Let us know in the comments section.

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Editorial

Auto Ancillaries Industry in India: An Analysis

After months of production slowdown and decline in demand amidst the Covid-19 pandemic, the automobile industry in India is now witnessing a strong recovery. This is very evident from the December sales data of automobile manufacturers that were released last week. Almost all companies posted a healthy increase in their sales. 

As we know, the process that goes into the manufacturing of vehicles is very complex. The cars and two-wheelers that are sold in the market today include very sophisticated electronic or digital features. Thousands of components or parts need to be sourced from different manufacturers, which are spread all around the world. Thus, automakers are heavily dependent on the firms that produce essential auto ancillary components. Let us take a look at some of the main listed companies that fall under the automotive components industry.

Motherson Sumi Systems

Motherson Sumi Systems Ltd (MSSL) is a joint venture between Noida-based Samvardhana Motherson International Ltd and Sumitomo Wiring Systems Ltd of Japan. It is engaged in the manufacturing and sales of components to the automotive original equipment manufacturers (OEMs) in India and also internationally. MSSL is one of the world’s largest manufacturers of electrical wiring harnesses for commercial vehicles and rearview mirrors for passenger cars. It is also a leading supplier of plastic modules and components in Europe and India. 

The company has established a very strong customer base in Germany, the USA, France, Mexico, China, and many more. Some of the prominent clients of MSSL include the Daimler Group (Mercedes-Benz), Audi, Volkswagen, BMW, Renault, Ford, and Maruti Suzuki. Thus, we can see that Motherson Sumi has created synergies with some of the greatest automobile manufacturers in the world.

In the previous financial year (FY20), MSSL initiated a dedicated 5-year plan that focuses on obtaining a total revenue of $36 billion (~Rs 2.62 lakh crore) by 2024-2025. The company also stated that 40% of its consolidated profits at the end of 5 years would be provided as dividends. Motherson Sumi plans to fund its growth by utilising its reserve of profits and also raising debts.

Financial Performance

Over the past 5 years, the company has registered a consistent increase in revenue and profit. Its consolidated revenue for FY 2019-2020 stood at Rs 63,925 crore. Over the past 5 years, MSSL’s revenue has grown at an annual rate of 12.74%, whereas the industry average revenue stood at 6.96%. The company has been able to establish a market share of 34%. During the second quarter of FY21, MSSL reported a 2.7% YoY increase in consolidated net profit at Rs 388 crore. The company stated that it was seeing a huge surge in the demand for auto components all across the globe.

Since the beginning of FY21, the share price of Motherson Sumi Systems has risen by 190%.

Sundaram Clayton

Sundaram Clayton Ltd (SCL) is part of one of the largest conglomerates based in India- the TVS Group. SCL was founded in 1962 in collaboration with UK-based Clayton Dewandre Holdings plc. The company manufactures and markets machined and sub-assembled aluminium castings for the automotive industry. SCL’s product range includes flywheel housing, gear housing, clutch housing, filter heads, and much more. It provides these components for the heavy and medium commercial vehicle, passenger car, and two-wheeler markets. The company’s customer base includes prominent automakers such as Hyundai, Volvo, and Honda.

In 2019, SCL inaugurated its first overseas production facility in the United States by investing Rs 630 crore. Through this facility, the company plans to serve its customers in North America, which is its biggest export market. During the same year, the company inaugurated its new foundry at Oragadam, near Chennai. This major capacity expansion aims to meet the rapidly growing demand for its products from the automotive industry and will primarily serve Hyundai Motor India Limited.

Financial Performance

Over the past 5 years, SCL’s revenue has grown at a yearly rate of 11.73%, as compared to the industry average of 6.96%. The company has been able to establish a market share of 10.79%. Till FY 2019, the company had been registering a consistent increase in its overall revenue. However, there was a small decline in revenue during the previous financial year (FY20)- which was reported at Rs 19,914 crore.

Sundaram Clayton’s share price has seen a surge of 75% since the beginning of the financial year 2020-2021. 

Endurance Technologies Ltd

Endurance Technologies Ltd is a leading manufacturer and supplier of automotive components for OEMs in the automotive industries of Europe and India. It was founded in 1985 and is based in Aurangabad. The company primarily offers die castings, which are used to create complex parts for vehicles. It also manufactures components for engines, gearboxes, and transmission parts. Other products include suspension products, including hydraulic, mono, shock absorbers, steel wheel hubs, head axles, cross members, and steering housings. The company offers its products for use in two, three, and four-wheelers, as well as scooters and quadricycles. One of my favourite companies in this list, they supply to Bajaj Auto, Hero MotoCorp, Royal Enfield and Honda in India. European clients include Volkswagen and even Porshe.

Financial Performance

The company’s consolidated revenue during FY20 stood at Rs 6,965 crore. There had been a fall in both revenue and profit as compared to the previous financial years. Over the last 5 years, its revenue has grown at a yearly rate of 7.07%, whereas the industry was at 6.96%. Endurance Technologies has been able to establish a market share of 3.77%

Since April 2020, the shares of Endurance Technologies has increased by 137%.

Bosch Ltd

Bosch Ltd manufactures and trades in automotive products in India, as well as internationally. The company was founded in 1951 and is headquartered in Bengaluru. It is a subsidiary of Robert Bosch GmbH, a German multinational engineering and technology company. Interestingly, the Bosch Group operates in India through a total of 13 companies.

Bosch offers powertrain solutions (including gasoline and diesel injection products) and electrified drives with battery and fuel cell technologies in the electric vehicle, passenger car, and commercial vehicle market segments. It also provides automotive aftermarket services such as auto diagnosis and repairs. Bosch is well known for its power tools and measuring technologies. They also offer professional audio and communications solutions for the automotive industry.

Recently, Bosch Ltd claimed that it has secured orders worth €2.5 billion for its vehicle computers since 2019. The company also announced plans to start full-scale production of distributed power stations based on solid oxide fuel cell (SOFC) technology in 2024. It has continued investment in its restructuring & reskilling strategies and also for other transformational projects. 

Financial Performance

The company’s consolidated revenue for FY20 stood at Rs 10.45 crore. As compared to the previous financial years, the company had posted a significant decline in its revenue and profit. Over the past 5 years, Bosch Ltd’s revenue has grown at an annual rate of -3.74%, whereas the industry average is 6.96%. During the same period, the company’s market share decreased from 8.27% to 5.66%. It reported a consolidated net loss of Rs 64.57 crore for the quarter ended September (Q2 FY21). 

Since the beginning of FY21, the share price of Bosch Limited has increased by over 50%.

Conclusion

We have only mentioned four top companies that fall under the category of auto component or parts manufacturers. Other prominent listed firms in this category include Minda Industries, Varroc Engineering, Sundaram Fasteners, Schaeffler India, and Wabco India. Bharat Forge Ltd, which is part of the Pune-based Kalyani Group, is also one of the largest exporters of automotive components from India. These companies have partnered with some of the biggest automakers around the world. The different components that you see on your cars or two-wheelers today would have been made by these firms. 

According to a study conducted by the India Brand Equity Foundation (IBEF), the automotive components industry registered a CAGR of 6%, reaching $49.3 billion in FY20. Exports grew at a CAGR of 7.6% during 2016-2020, to reach $14.5 billion during the same financial year. It was found that this industry accounted for 2.3% of India’s Gross Domestic Product (GDP) by 2020. According to the Automobile Component Manufacturers Association (ACMA), automobile component export from India is expected to reach $80 billion by 2026. Thus, we can see that this industry is vital not just for automobile manufacturers but also for the overall economic development of our country. 

We can see that these companies are investing heavily in their research and development (R&D) activities. They are constantly introducing new components in the market to meet the rising demand of the automakers. Most companies are now making a shift towards the production of electric and hybrid cars. This would lead to greater demand and more opportunities for auto-component manufacturers. Let us look forward to seeing how these firms plan to expand their production and sales in the years to come.