Precision Metaliks coming with an IPO to raise upto Rs 21.93 crore

Precision Metaliks

• Precision Metaliks has come out with an initial public offering (IPO) of 43,00,000 Equity Shares of face value of Rs 10 each for cash at a fixed price of Rs 51 per equity share.
• The issue will open for subscription on January 19, 2022 and will close on January 24, 2022.
• The shares will be listed on NSE Emerge Platform.
• The share is priced 5.10 times higher to its face value of Rs 10.
• Book running lead manager to the issue is First Overseas Capital.
• Compliance Officer for the issue is Rakesh Kumar Chandak.  

Profile of the company

The company was incorporated in the year 2012. The company was initially engaged in the business of trading of the metals prior to FY 2018-19. After that, the company commenced manufacturing activity from FY 2019-20 in the SEZ Unit. Its SEZ Unit is situated at Visakhapatnam Special Economic Zone, Duvvada, Visakhapatnam, Andhra Pradesh. Under this unit, the company carries out the manufacturing activities / process on Semi-finished Wheels by rendering value added services such as cleaning, washing, buffing, polishing, testing and packing.

The company converts semifinished / raw wheels to finished wheels by carrying its value added services such as Polishing, Buffing, Testing and Packing for its major client, Synergies Castings, Visakhapatnam. The company is also planning to offer these services to the USA market through Silver MetalX INC, USA by way of supplying finished Alloy Wheels with accessories to cater to the aftermarket. It also provide high-end design engineering services, analysis, product development, prototyping, tooling design and various other services such as flow forming, skin cut services etc.

Proceed is being used for

• Meeting additional working capital requirements.
• General corporate purpose.

Industry overview

In 2020, India was the fifth-largest auto market, with 3.49 million units combined sold in the passenger and commercial vehicles categories. It was the seventh largest manufacturer of commercial vehicles in 2019. The two wheelers segment dominates the market in terms of volume owing to a growing middle class and a young population. Moreover, the growing interest of the companies in exploring the rural markets further aided the growth of the sector. India is also a prominent auto exporter and has strong export growth expectations for the near future. In addition, several initiatives by the Government of India and major automobile players in the Indian market is expected to make India a leader in the two wheeler and four-wheeler market in the world by 2020. Domestic automobiles production increased at 2.36% CAGR between FY16-20 with 26.36 million vehicles being manufactured in the country in FY20. Overall, domestic automobiles sales increased at 1.29% CAGR between FY16-FY20 with 21.55 million vehicles being sold in FY20.

The Indian auto-components industry has experienced healthy growth over the last few years. The auto-components industry expanded by a CAGR of 6% over FY16 to FY20 to reach $49.3 billion in FY20. Auto-components industry account for 2.3% of India’s Gross Domestic Product (GDP) and employs as many as 1.5 million people directly and indirectly. A stable government framework, increased purchasing power, large domestic market, and an ever-increasing development in infrastructure have made India a favourable destination for investment. The industry can be broadly classified into organised and unorganised sectors. The organised sector caters to original equipment manufacturers (OEMs) and consists of high-value precision instruments while the unorganised sector comprises low-valued products and caters mostly to the aftermarket category.  Automobile component industry’s revenue stood at US$ 49.3 billion in FY20, up from US$ 39.05 billion in FY16. Export of auto components grew at a CAGR of 7.6% to reach Rs. 102,623 crore (US$ 14.5 billion) during the same time. As per Automobile Component Manufacturers Association (ACMA), automobile components export from India is expected to reach $ 80 billion by 2026. The Indian auto components industry is expected to reach $ 200 billion in revenue by 2026.

Pros and strengths

Cost effective, precise and automated solutions: The company is specialized in finishing of Semi-finished Alloy Wheels. Its low-cost infrastructure and high-end precision technology enable it to provide its quality services at competitive pricing compared to some of its competitors, which helps it win the customers.

Repeat customer orders: PML has been receiving repeat orders from its customer. Synergies Castings group is its single largest customer since FY 2019 for all its products and services. It has been receiving annual purchase orders from its customer and it supplies them throughout the year as per their requirements. In addition, it has secured orders for supply of finished alloy wheels along with accessories from USA aftermarket distributor and importer.

Strong professional team: The company’s Promoter, Jayanthi Roja Ramani is a Master of Commerce degree Andhra University passed in 1999 with Banking as special subject. She also holds Master of Business Administration from Andhra University passed in 2001. She has also passed Intermediate examination of ICWAI. She has experience of almost 2 decades in various positions in the fields of accounts and finance in auto component industry. Further she is supported by other team of technical professionals having experience of its various business functions working in the same industry.

Risks and concerns

Dependent upon few suppliers: For the financial year ended March 31, 2021, the company’s top 5 suppliers contributed for approximately 99.63% of its purchases. Its 100% purchases were from 2 suppliers for the financial year ended March 31, 2020 and from 1 supplier during the period ended September 30, 2021. Any problems faced by its suppliers resulting in delays or non-adherence to quality requirements could adversely impact its ability to meet its customer’s requirements in time and its operations would be affected to the extent it is unable to line up supplies from alternate suppliers.

Operate in highly competitive industry: The Auto ancillary market is highly competitive. The company competes with both domestic as well as multinational companies. It also faces competition from various regional players. Price competition in the industry is intense. It expects that the level of competition will remain high, which could directly impact the size of its workforce and therefore potentially limit its ability to maintain or increase its profitability. Its continued success depends on its ability to compete effectively against its existing and future competitors. With the potential influx of new competitors, its ability to retain its existing clients and to attract new clients is critical to its continued success.

Geographical constraints: Currently, all the company’s manufacturing facilities and registered/ corporate offices are situated in the Southern region of India and it is carrying its business mainly from these facilities. Hence its major revenues are generated from operations in this region only. In the event that demand for its services in general reduces or stops by any reason including political discord or instability or change in policies of State, then its financial condition and operating results may be materially and adversely affected. Geographical and functional expansion of its business domain requires establishment of adequate network.

Outlook

Incorporated in 2012, Precision Metaliks is engaged in trading and manufacturing Aluminium Alloy Wheels and finishing Alloy wheels i.e. cleaning, washing, buffing, polishing, testing, and packing. Its manufacturing unit is situated at Visakhapatnam SEZ, Duvada, Visakhapatnam, Andhra Pradesh.  The company converts semifinished / raw wheels to finished wheels by carrying its value added services such as Polishing, Buffing, Testing and Packing for its major client, Synergies Castings Limited, Visakhapatnam. The company is also planning to offer these services to the USA market through Silver MetalX INC, USA by way of supplying finished Alloy Wheels with accessories to cater to the aftermarket. It also provide high-end design Engineering services, Analysis, Product Development, Prototyping, Tooling Design and various other services such as flow forming, skin cut services etc. On the concern side, the company is dependent on external suppliers for procurement of Aluminium alloy, the main raw material for manufacturing auto - ancillary products. If the Company fails to get the required quantity and quality of Aluminium alloy within the required time, the company’s production and delivery schedules may be hampered which may have adverse impact on its business.

The company is coming out with an IPO of 43,00,000 equity shares of Rs 10 each at a fixed price of Rs 51 per equity share to mobilize Rs 21.93 crore. On the performance front, the total income for FY 2021 is Rs 4924.13 lakh as compared to Rs 2217.96 lakh during FY 2020 registering an increase of 122.01%. Profit after Tax and restatement adjustment (PAT) increased from Rs 82.39 lakh for the FY 2020 to Rs 149.35 lakh in FY 2021.The company intends to strengthen its relationships with its existing customers and explore opportunities to grow along the value chain by expanding the array of its existing products and solutions that it provides to its customers across geographies. It intends to win new customer contracts by developing products and solutions aligned with their needs. The company intends to be a significant global player in the high-end precision Aluminium Alloy Wheels supply in aftermarket, and Alloy Castings Segment.