ASK Automotive IPO - Investment Rationale, Financials, Peer Comparison, Strengths, Risks: Anand Rathi

Anand Rathi's IPO Report

The initial public offering of ASK Automotive Ltd. opened on Nov 07 and the issue will conclude on Nov 09. A well-established manufacturer of safety systems and critical engineering solutions company has fixed a price band in the range of Rs 268 and Rs 282 per share. The minimum bid lot is 53.

The Rs 834 crore initial share sale comprises entirely of an offer for sale of up to 2.95 crore equity shares by promoters Kuldip Singh Rathee and Vijay Rathee. There is no fresh issue segment in the IPO.

Strengths:

• Well established manufacturer of safety systems and critical engineering solutions for some of India’s largest original equipment manufacturers.

• Robust production model driven by research and development and design with an emphasis on advanced material knowledge to customize systems and products based on customer specifications and engineering lighter precision products.

• Technology and innovation-driven manufacturing process, with an extensive suite of systems and solutions for EV and ICE sectors.

• Long-standing customer relationships with both Indian and global OEM players.

Key Strategies:

• Electrification– further strengthen their position in the growing EV sector in India.

• Continue to focus on their design, research and development and engineering capabilities to develop innovative systems and solutions, as well as improve their manufacturing efficiencies.

• Further diversify their product offerings in the AB systems and ALP solutions categories and expand their addressable market.

• Leverage export opportunities and enter new markets.

• Increased focus on independent aftermarket sales and spares.

Valuation:

ASK Automotive is a well-established manufacturer of safety systems and critical engineering solutions for some of India’s largest original equipment manufacturers with technology and innovation-driven manufacturing process, with an extensive suite of systems and solutions for electric vehicle as well as internal combustion engine sectors and long-standing customer relationships with both Indian and global OEM players with Robust production model driven by research and development and design.

At the upper price band company is valuing at price/earning of 41 times, enterprise value/Ebitda 25 times with a market cap of Rs 55,594 million post issue of equity shares.

We believe that valuations of the company is fairly priced and recommend a 'Subscribe- Long Term' rating to the IPO.

Key Risk:

• A significant portion (more than 80%) of their revenue from operations in each of the last three Fiscals, the three months ended June 30, 2023 and June 30, 2022 is attributable to the Indian two-wheeler automotive sector. Any adverse changes in the two-wheeler automotive sector could adversely impact their business, results of operations and financial condition.

• They are dependent on their top three customers who contribute more than 50.00% of their revenue from operations with their single largest customer contributing approximately 30.00% or more of their revenue from operations in each of the last three Fiscals and in the three months ended June 30, 2023 and June 30, 2022. Loss of any of these customers or a reduction in purchases by any of them could adversely affect their business, results of operations and financial condition.

• Their business and profitability is substantially dependent on the availability and cost of raw materials, including aluminium, and any disruption to the timely and adequate supply of raw materials, or volatility in the prices of raw materials may adversely impact their business, results of operations and financial condition.

• They depend on third parties for the supply of raw materials and do not have firm commitments for supply or exclusive arrangements with any of their suppliers. Loss of suppliers may have an adverse effect on their business, results of operations and financial condition.

• They may not be successful in implementing their growth strategies, particularly increasing their market share in the evolving electric vehicle market, which could have an adverse effect on their business, financial condition, cash flows and results of operations.

• ASK Automotive have undertaken and may continue to undertake technical collaborations, joint ventures, strategic investments, alliances and acquisitions in the future, which may be difficult to integrate and manage, exposing them to risks that could adversely affect their business.

• The availability of counterfeit products and their failure to keep their technical knowledge confidential may have adverse effects on their business and results of operations.

• Product liability and other civil claims and costs incurred because of product recalls could harm their business, results of operations and financial condition.

• They use third-party dealers to market, sell and deliver products in the independent aftermarket category and are subject to risks associated with these arrangements.

• Company outsource certain operations of their business such as transport, logistics and other processes to third parties. Any failure by such third parties to deliver their services could have an adverse impact on their business.

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