Azad Engineering Limited

Azad Engineering Limited are one of the key manufacturers of the qualified product lines supplying to global original equipment manufacturers ('OEMs') in the energy, aerospace and defence, and oil and gas industries, manufacturing highly engineered, complex and mission and life-critical components. They manufacture complex and highly engineered precision forged and machined components that are mission and life-critical and hence, some of the products have a 'zero parts per million' defects requirement. As of September 30, 2023, they generated a revenue of Rs 1,142.92 million from sale of airfoils / blades for the energy industry, which comprised of 72.00% of the revenue from operations. They compete with manufacturers from China, Europe, USA and Japan. The customers include global OEMs across the energy, aerospace and defence, and oil and gas industries such as General Electric, Honeywell International Inc., Mitsubishi Heavy Industries, Ltd., Siemens Energy, Eaton Aerospace and MAN Energy Solutions SE. The components have been supplied to countries such as USA, China, Europe, Middle East, and Japan since the inception. Accordingly, they are a key link in the global supply chain for OEMs. They increased the revenue from Rs 1,240.00 million in Financial Year 2020 to Rs 2,516.75 million in Financial Year 2023 (CAGR of 27% between Financial Years 2020 and 2023) with an adjusted EBITDA margin of 31.61% in Financial Year 2023. They are one of the fastest growing manufacturers (in terms of revenue growth for the period between Financial Years 2020 – 2023) with one of the highest EBITDA margins among the key players for machined components for the key industries serviced by them. The vision is to revolutionize the global precision manufacturing industry and disrupt the industries in which they operate in with cutting-edge technology while contributing towards India’s evolving manufacturing ecosystem. The products include 3D rotating airfoil / blade portions of turbine engines and other critical components for (a) gas, nuclear and thermal turbines used in industrial applications or energy generation, and (b) defence and civil aircrafts and spaceships. The demand for such precision, forged and machined components is driven by requirements relating to energy turbines (industrial, gas, nuclear and coal), aircrafts (commercial and military), amongst others. Airfoils/ blades are one of the most critical 3D rotating and stationary parts of a turbine in the compression section. To sustain the high pressure, airfoils/ blades are made up of exotic/ super alloys and manufactured with a unique process designed by the Company. They believe that they have proved the capability by manufacturing and delivering 3.09 million units between Fiscal 2009 to Fiscal 2023 at an overall level. Most of the revenues are derived from exports to global OEMs, backed by long-term contracts and as of September 30, 2023, 89.69% of the total revenue was from contracts with customers located outside India. For Fiscal 2023, the exports and domestic sales amounted to Rs 2,023.08 million and Rs 493.67 million, respectively, and private, government sales and export incentives amounted to Rs 2,337.05 million, Rs 176.00 million and Rs 3.70 million, respectively.  They have four advanced manufacturing facilities in Hyderabad, Telangana, India, capable of producing high precision forged and machined components with a total manufacturing area of approximately 20,000 square metres. Further, they have two manufacturing facilities in the pipeline at (a) Tuniki Bollaram, Telangana and (b) Mangampet, Telangana, with a total manufacturing area of 94,898.78 square metres and 74,866.84 square metres, respectively. The construction and development of these proposed manufacturing facilities are intended to be funded from the internal accruals. The upcoming manufacturing facility at Tuniki Bollaram, Telangana is proposed to have dedicated and exclusive manufacturing setups for the customers. They plan to initially introduce this exclusive manufacturing setup for production of critical and complex components such as airfoils / blades and other special machined parts for gas and thermal turbines for Mitsubishi Heavy Industries, Ltd., one of the long-standing customers. As per financial performance, Azad Engineering Limited has posted total income / net profits of Rs 125.03 Cr / Rs 11.50 Cr (FY21), Rs 199.26 Cr / Rs 29.46 Cr (FY22), Rs 261.52 Cr / Rs 8.47 Cr (FY23) and Rs 169.54 Cr / Rs 26.89 Cr (upto Q1 FY24). So as per previous financials data, company has shown good growth. Company has an average EPS of Rs 3.48 and average RoNW of 12.68% for last three fiscals. Issue is priced at a P/BV of 11.46 as per NAV of 45.74 as on 30.09.23. If we attribute latest earnings of FY22, FY23, and annualised FY24 on fully diluted equity post issue, then asking price is at a P/E of around 105.15, 365.58 and 57.60 respectively, which looks fully priced. As per RHP, comparison between listed peers is shown in above table. On BRLM's front, four lead managers are associated with this IPO, and have handled around 114 IPOs in last three fiscals. Axis Capital Limited : This is 46th IPO from this BRLM. From last 10 IPOs, one opened below issue price and remaining above issue price or at par on the day of listing. As of now, from last 10 IPOs, one is trading below issue price and remaining are trading above issue price or at par. ( As on 15.12.2023 ) ICICI Securities Limited : This is 49th IPO from this BRLM. From last 10 IPOs, one opened below issue price and remaining above issue price or at par on the day of listing. As of now, from last 10 IPOs, one is trading below issue price and remaining are trading above issue price or at par. ( As on 15.12.2023 ) SBI Capital Markets Limited : This is 19th IPO from this BRLM. From last 10 IPOs, four opened below issue price and remaining above issue price or at par on the day of listing. As of now, from last 10 IPOs, four are trading below issue price and remaining are trading above issue price or at par. ( As on 15.12.2023 )  Anand Rathi Advisors Limited : This is 4th IPO from this BRLM. From last 3 IPOs, all are opened above issue price or at par on the day of listing. As of now, from last 3 IPOs, all are trading above issue price or at par. ( As on 15.12.2023 )  As per financials, Azad Engineering Limited has shown good growth, RoNW is 4.23% and P/E is respectively 105.15, 365.58 and 57.60 as per FY22, FY23, and annualised FY24 earnings. So, issue looks fully priced. Company manufactures complex and highly engineered precision forged and machined components that are mission and life-critical and niche player. Performance of BRLM is good. So, we give SUBSCRIBE rating for this IPO. Readers must consult a qualified financial advisor prior to making any actual investment decisions.

• 1  Rakesh Chopdar