CRISIL assigns IPO Grade ‘2/5’ to Automark Industries’ IPO

CRISIL has assigned an IPO Grade ‘2/5’ to the proposed initial public offer (IPO) of Automark Industries (India). This grade indicates that the fundamentals of the IPO are ‘below average’ relative to the other listed equity securities in India.

The assigned grade takes into account Automark’s leading position in the organised segment of the road marking industry. Automark is present across the value chain in the road marking industry - it not only manufactures and sells thermoplastic material and road marking machineries but also takes on road marking contracts. The company has an in-house R&D facility to ensure manufacturing of superior quality homogeneous products and adherence to specifications mentioned by National Highway Authority of India (NHAI) and the Ministry of Road Transport and Highway.

Automark has successfully executed more than 4 mn sq. mt. of road marking including more than 50 projects for NHAI. The grade also factors in increased government thrust to improve road infrastructure in the country, which will provide large opportunities for established road marking players like Automark. Further, the management’s more than 40 years of industry expertise support the grade.

The grade is constrained by low entry barriers given the absence of any major technology or capital investment requirement in the industry. As a result, the industry is dominated by unorganized players who constitute 60-70% of the industry; the sizeable presence of unorganized players leads to pricing pressure.

Also, the grade is constrained by Automark’s high working capital requirement due to high debtor and inventory days, which necessitates continuous fund raising. The company also plans to set up a material manufacturing unit in Kenya and Uganda, which could be a challenge since it does not possess relevant experience in the overseas market. The grade is further constrained by the company’s significant dependence on the top management. Most of the key managerial people as well as independent directors have been inducted recently.

Automark is a Nagpur (Maharashtra)-based company. The company operates in the niche segment of road marking. Automark, through its wholly owned subsidiary company Automark Technology (India), manufactures thermoplastic road marking materials and primers for application of thermoplastic road marking materials on concrete roads.