Azad Engineering manufactures high-precision tools and equipment for niche sectors like aviation, energy (oil & gas), and defense.
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About Azad Engineering
- Azad Engineering manufactures high-precision tools and equipment for niche sectors like aviation, energy (oil & gas), and defense.
- Their products are highly engineered, mission-critical components with long qualification timelines due to strict regulations.
- Airfoils and blades for the energy segment currently generate the majority of revenue (72%).
- They aim to expand into other segments like aerospace, defense, and oil & gas.
Azad Engineering IPO details
| Parameter | Details |
|---|---|
| Total IPO Size | Rs 740.00 crores |
| Fresh Issue | Rs 240.00 crores |
| Offer for Sale | Rs 500.00 crores |
| IPO Subscription Dates | December 20, 2023 – December 22, 2023 |
| Allotment Finalization Date | December 26, 2023 |
| Tentative Listing Date | December 28, 2023 |
| IPO Price Band | ₹499 to ₹524 per share |
| Minimum Lot Size | 28 Shares |
| Minimum Investment (Retail) | ₹14,672 |
| Minimum Lot Investment (sNII) | 14 lots (392 shares) – ₹205,408 |
| Minimum Lot Investment (bNII) | 69 lots (1,932 shares) – ₹1,012,368 |
Azad Engineering Business Prospects
- High barriers to entry due to stringent qualifications and long approval processes for suppliers.
- Strong customer stickiness with long-term contracts due to the complexity of switching suppliers.
- Diversification plans to reduce customer concentration and tap into new growth areas.
- Potential to increase margins through process improvements and efficient raw material management.
- Order book of around ₹2,000 crores with contracts spanning 3 to 10 years
Azad Engineering – Expansion plans
Headquartered in Hyderabad, Telangana, India, Azad Engineering maintains a workforce ranging between 201 to 500 employees. As of Q1 FY 2024, Azad Engineering recorded revenues of ₹114Cr through the sale of blades in the energy sector. Its clientele spans across prominent regions including the USA, China, Europe, the Middle East, and Japan.
The company operates four manufacturing facilities situated in Hyderabad, Telangana, India. These facilities specialize in crafting high precision forged and machined components, covering a collective production area of approximately 20,000 square meters. Additionally, Azad Engineering has strategic plans underway to establish two new manufacturing units in Tuniki Bollaram village (Siddipet district, Telangana) and Mangampet village (Sangareddy district, Telangana). ₹60.4 crores will be allocated for expanding plant and machinery. ₹138.19 crores of IPO proceeds will be used to repay existing debt. This will improve their financial health and potentially free up resources for future investments.
Azad Engineering – Challenges and Concerns
- High customer concentration (top 5 customers account for 60% of revenue).
- Dependence on long-term contracts with OEMs can limit flexibility.
- Potential for raw material cost fluctuations and impact on margins. Hedging mechanisms with clients in place to deal with more than 5% raw material price fluctuations.
- High trade receivables due to standard payment terms of large OEM customers. However, company is working with its clients to address the issue through factoring or other discounting mechanisms.
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NSEOptions.in’s view on Azad Engineeering IPO
- The company issued bonus shares in September 2023.
- The offer price is based on a face value of Rs. 2, but if converted to Rs. 10, the price band would be Rs. 2495-2620.
- The company’s cash flows were negative in FY23 and Q2 of FY24.
- Company has clocked sustained revenue growth in the last three financial years. PAT has significantly reduced in FY 23.
- The issue looks over-priced.
- Since the company operates in growth sectors like defence, aerospace and energy sectors and has very good clientele, long term investment with patience to hold may be an appropriate strategy to generate good returns.
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Disclaimer:
The above content provided regarding Azad Engineering IPO in this web post is for informational purposes only and should not be construed as financial advice. Readers are encouraged to consult with financial professionals before making any significant financial decisions.
