Sharp Chucks and Machines coming with IPO to raise Rs 16.84 crore

Sharp Chucks and Machines

• Sharp Chucks and Machines is coming out with an initial public offering (IPO) of 29,04,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 58 per equity share.
• The issue will open for subscription on September 29, 2023 and will close on October 4, 2023.
• The shares will be listed on NSE Emerge Platform.
• The share is priced 5.80 times higher to its face value of Rs 10.
• Book running lead managers to the issue is Fedex Securities.
• Compliance Officer for the issue is Rajat Kathpalia.

Profile of the company

The company is engaged in the manufacturing of forging and graded casting machined components of tractors and other automobiles, and are also engaged in power chucks, lathe chucks, drill chucks, and other machine tools accessories it supplies to automobile industries in India and OEMs industries. Its manufactured products have diverse applications for tractor, automobiles, material handling & earth moving equipment, railways, defense, machine tools, DIY industry, etc. It also manufactures customized components as per customer specific requirements and use, with high degree of precision both in quality and time with personalized services to its strong customer base in India and overseas. 

The company has necessary instruments for checking the quality of its raw materials and finished goods for measuring the sizes and shapes in order to match the standards based on the standardized dimensions as well as customer specifications. If the raw materials purchased through the purchase orders fail to confirm to the required standards for manufacturing its products, the same are liable to be rejected and are returned to the suppliers/vendors. The finished products are also tested in-house to ensure that the same is of relevant standards and design as specified by the customer; the products are then packed and dispatched to the end users or customers.

Proceed is being used for:

• Funding its working capital requirements
• General corporate purposes

Industry overview

The automotive manufacturing industry comprises the production of commercial vehicles, passenger vehicles, three-wheelers and two-wheelers. The Indian auto industry is expected to record strong growth in FY23, post recovering from the effects of the COVID-19 pandemic. Electric vehicles, especially two-wheelers, are likely to witness positive sales in FY23. India accomplished a significant milestone, with the sale of 1 million EVs in FY22. A report by India Energy Storage Alliance estimated that the EV market in India is likely to increase at a CAGR of 36% until 2026. In addition, a projection for the EV battery market is forecast to expand at a CAGR of 30% during the same period. Two-wheelers and passenger vehicles dominate the domestic Indian auto market. Passenger car sales are dominated by small and midsized cars. Two-wheelers and passenger cars accounted for 74.81% and 18.35% of market shares, respectively, in FY23. Indian automobile exports of two-wheelers stood at 36,52,122 in FY23.

The Machine Tool industry is considered as the mother industry as it supplies machinery for the entire manufacturing sector. The manufacturers of machine tools are mostly SMEs, few of them are mid-sized manufacturers which have an annual turnover varying between ` 300-500 crore. The types of machine tools currently manufactured are general/special purpose machines, standard Computer Numerical Control (CNC) machines, gear cutting, grinding, medium size machines, electrical discharge machining (EDM), presses, press brakes, pipe bending, rolling, bending machines, etc.

The initiatives like Make in India, the Automotive Mission Plan 2026 and NEMMP 2020 will give a huge boost to the sector. In July 2021, India inaugurated the national automotive test tracks (NATRAX), which is Asia’s longest high-speed track to facilitate automotive testing. From April 2000-December 2022, the automobile sector received around 5.45% ($34.11 billion) of the total equity FDI inflows to India.

Pros and strengths

Customer Diversification: It sells its products both in the domestic as well as international markets. In the domestic market, it sells its products to the OEMs, manufacturers as well as traders while in the international market it supplies its products through traders in the International market. It has been exporting since incorporation and as on March 31, 2023, some of the countries it is exporting to including but not limited to USA, Russia, Italy, Germany, Sweden, Venezuela and Croatia., etc.

Effective quality control checks: It has developed quality control processes for inspecting the raw materials as well as the final products. The raw materials undergo a quality check and for this purpose it has even implemented internal procedures for procurement of the raw material as the quality of the final product is dependent on them. Its Units have dedicated personnel responsible for monitoring the parameters of equipment, strength of materials, reporting any irregularities in the manufacturing process and making adjustments accordingly.

Wide product range and customized product offering: It has started its business activities with manufacturing of drill chucks and lathe chucks and have since branched out to manufacturing of customized casting which has enabled it to diversify its product portfolio manifold and further it had diversified into the business of forging i.e. DIY tools. Having a wide range of products not only enables it to meet the trends and ever-changing demands of its customers but also gives the company an edge to efficiently compete with its competitors.

Risks and concerns

Dependents on top five customers: Its top five customers account for a substantial portion of its sales and consequently its revenue and it expects that such key customers will continue to represent a substantial portion of its revenue from sale of products in the foreseeable future. Its total sales to its top 5 customers are 73.78%, 65.58% and 68.55% to a substantial portion of its revenues from operations Financial Year ended March 31, 2023, Financial Year ended March 31, 2022, Financial Year ended March 31, 2021. Since it is largely dependent on certain key customers for a significant portion of its sales, the loss of any one of its key customers or a significant reduction in demand from such customers could have a material adverse effect on its business, financial condition, results of operations and future prospects.

Future funds requirements: It may requires additional capital from time to time depending on its business needs. Any issue of shares or convertible securities would dilute the shareholding of the existing shareholders and such issuance may be done on terms and conditions, which may not be favorable to the then existing shareholders. If such funds are raised in the form of loans or debt, then it may substantially increase its interest burden and decrease its cash flows, thus prejudicially affecting its profitability and ability to pay dividends to its shareholders. 

Dependents on third parties for the transportation: It relies on third parties for the transportation services for the timely delivery of its products to its customers located in India. Its domestic operations use road transportation. Therefore, it faces a risk that there could be deficiency or interruption in these third-party services.

Outlook

The company is engaged in the manufacturing of forging and graded casting machined components of tractors and other automobiles, and are also engaged in power chucks, lathe chucks, drill chucks, and other machine tools accessories it supplies to automobile industries in India and OEMs industries. On the concern side, it operates in an industry which is highly competitive and fragmented and it competes with a range of organized and unorganized players, both at the national and regional level. Further, while it has an expanding portfolio of products, its competitors may have the advantage of focusing on concentrated products. Further, it competes against established players also, which may have greater access to financial, technical and marketing resources and expertise available to them than it in the products and services in which it competes against them.

The company is coming out with an IPO of 29,04,000 equity shares of Rs 10 each at a fixed price of Rs 58 per share to mobilize Rs 16.84 crore. On performance front, the company’s total revenue increased by Rs 2679.22 lakh to Rs 17,931.45 lakh for Fiscal 2023 from Rs 15,252.23 lakh for Fiscal 2022. This was primarily attributable to increase in demands and development of new components. The profit after tax increased by 11.90% to Rs 506.50 lakh for Fiscal 2023 from Rs 452.62 lakh for Fiscal 2022. Meanwhile, it aims to continue to improve profitability by constant cost optimization, improving product mix by enhancing contribution of higher-value added machined products and increasing capacity utilization. It also constantly aims to identify opportunities to implement product improvements and dedicated research and development resources to optimize production processes.