Emmforce Autotech coming with IPO to raise upto Rs 53.90 crore

Emmforce Autotech 

• Emmforce Autotech is coming out with initial public offering (IPO) of 5,499,600 shares of Rs 10 each in a price band Rs 93-98 per equity share.  
• The issue will open for subscription on April 23, 2024 and will close on April 25, 2024.
• The shares will be listed on BSE SME Platform.
• The face value of the share is Rs 10 and is priced 9.30 times of its face value on the lower side and 9.80 times on the higher side.
• Book running lead manager to the issue is Beeline Capital Advisors.
• Compliance Officer for the issue is Parul Gupta.

Profile of the company

The company is engaged in the business of manufacturing niche automotive drivetrain parts like Differential Housings, Differential Lockers, Differential Covers, 4WD Locking Hubs, Spindles, Axles & Shafts, Gear Shifters, Yokes, Differential Spools, Differential Tools and various differential forged / cast parts primarily for 4-wheel Drive and performance racing vehicles. The company has been engaged in exports ever since its inception. It has established itself as a manufacturer of Drivetrain Parts in India and is one stop shop for quality cost competitive drivetrain parts and providing out-of-the-box solutions to its customers through designing and development of complex / special parts. 

Huge inventory of tooling for forging and machining, jigs and fixtures for machining, extra focus on engineering gives Emmforce an edge over the competition to develop new parts in a much faster time than competition. The company helps to accelerate performance and improving profitability through faster product development, shorter lead time, on time delivery, comprehensive product range and competitive pricing. 

It offers fully integrated engineering solutions from conceptualization, development and validation to implementation and manufacturing of its products. The conceptualization stage involves acquiring market intelligence, assessing customer requirement and formulating customized strategy for individual customers. The development phase includes product designing, material procurement and processing. This is followed by the validation phase, which involves prototyping, testing and feasibility analysis. Its in-house manufacturing and implementation competencies include forging, machining, fabrications, heat treatment, surface finish, logistics, quality and testing, design and validation.

Proceed is being used for:

• Investment in Subsidiary Company i.e. Emmforce Mobility Solutions (EMSPL) in form of equity or debt for meeting the requirement of working capital and margin money for term loan of Subsidiary Company. 
• Meeting working capital requirement.
• General corporate purpose.

Industry overview

India has become the fastest-growing economy in the world in recent years. This fast growth, coupled with rising incomes, a boost in infrastructure spending and increased manufacturing incentives, has accelerated the automobile industry. The two-wheeler segment dominated the automobile industry because of the Indian middle class, with automobile sales standing at 19.45 million units in FY23. India’s auto component industry is an important sector driving macroeconomic growth and employment. The industry comprises players of all sizes, from large corporations to micro entities, spread across clusters throughout the country. The auto components industry accounted for 2.3% of India’s GDP and provided direct employment to 1.5 million people. 

The automobile component industry turnover stood at Rs 5.6 lakh crore between 2022-23 the industry had revenue growth of 32.8% as compared to 2021-22. Domestic OEM supplies contributed around 66% to the industry’s turnover, followed by domestic aftermarket (around 12%) and exports around 22.3%), in FY23. The component sales to OEMs in the domestic market grew by 39.5% to $57.62 billion. Between 2022- 23, exports of auto components grew by 5.2% to Rs 1.61 lakh crore. The aftermarket for auto components 104 grew by 15% in 2022-23 reaching Rs 85,333 crore.

The rapidly globalising world is creating newer opportunities for the transportation industry, especially while shifting towards electric, electronic and hybrid cars, which are deemed more efficient, safe and reliable modes of transportation. Over the next decade, this will lead to newer verticals and opportunities for auto component manufacturers. To help them adjust to the shifting dynamics of the sector, the Indian government has already offered various production incentives. India is also investing heavily in electric car infrastructure. In December 2020, Power PSU JV EESL announced a plan to install about 500 EV charging stations in the country. The number of charging stations stood at 1,800 in March 2021 and is expected to reach 4 lakh by 2026. This would make it easier for the auto component industry to take advantage of the EV opportunity and expertise in EV components manufacturing, thus helping India on a global scale. The Indian government is exempting imports of capital goods and machinery essential to produce lithium-ion cells used in EV batteries from customs duty. This, coupled with the shift in global supply chains, will help the Indian global automotive component trade to expand 4-5% to $80 billion by 2026. Moreover, the Indian auto component industry is predicted to become the third largest in the world.

Pros and strengths

One stop solution for drivetrain parts: It manufactures wide variety of drivetrain parts under one roof. Buying a variety of parts from one supplier helps save a lot of logistics cost and releases the management bandwidth of the customer thus making it the preferred supplier. Its US warehouse through its Group Company strengthens product distribution further and helps in saving the customer from the hassles of importing LCLs (Less than Container Load), longer lead time and spending a lot of time and money in customs clearance. 

Engineering excellence: With in-house research, design and development along with deep knowledge of variety of materials and processes, it is able to provide out-of-the-box market driven innovative & niche automotive products that help grow the business and profitability of its customers. 

Existing client relationship: The Company has earned reputation based upon which it has been successful in retaining its reputed clients. Its existing customer relationship that goes as far as almost two decades helps the company to get repeat business from its customers. This has helped it maintains a long-term working relationship with its customers and improve its customer retention strategy. The company relationship with the existing customers represents a competitive advantage in gaining new customers and increasing its business.

Risks and concerns

Depend on third parties for supply of raw material: The main raw materials which are required by the company to manufacture auto-components are procured by it from various domestic vendors. It is dependent on third party suppliers for the supply of its raw materials. Discontinuation of production by these suppliers, a failure of these suppliers to adhere to any delivery schedule or a failure to provide materials of the requisite quality could hamper its production schedule and therefore affect its business and results of operations. This dependence may also adversely affect the availability of key materials at reasonable prices, thus affecting its margins, and may have an adverse effect on its business, results of operations and financial condition.

Defaults in client payments: it may be subject to working capital risks due to delays or defaults in payment by clients, which may restrict its ability to procure raw materials and make payments when due. In addition, any delay or failure on its part to supply the required quantity or quality of products, within the time stipulated by its agreements, to its customers may in turn cause delay in payment or refusal of payment by the customer. It typically extends credit terms to its large institutional and other customers. It also has sufficient credit risk covered against each overseas customer through Export Credit Guarantee Corporation of India through a comprehensive risk policy. Such defaults/delays by its customers in meeting their payment obligations to it may has a material effect on its business, financial condition and results of operations.

Changes in consumer preferences: Its ability to anticipate changes in technology and regulatory standards and to successfully develop and introduce new and enhanced products on a timely basis is a significant factor in its ability to remain competitive. However, there can be no assurance that it will be able to secure the necessary technological knowledge, through technical assistance agreements or otherwise, that will allow it to develop its product portfolio in this manner. If it is unable to obtain such knowledge in a timely manner, or at all, it may be unable to effectively implement its strategies, and its business and results of operations may be adversely affected. Its failure to successfully and timely develop and manufacture new products in order to cater to the requirements of its customers and industry trends could have a material adverse effect on its business, financial condition, results of operations and future prospects.

Outlook

The company is engaged in the business of manufacturing niche automotive drivetrain parts like Differential Housings, Differential Lockers, Differential Covers, 4WD Locking Hubs, Spindles, Axles & Shafts, Gear Shifters, Yokes, Differential Spools, Differential Tools and various differential forged / cast parts primarily for 4-wheel Drive and performance racing vehicles. It offers fully integrated engineering solutions from conceptualization, development and validation to implementation and manufacturing of its products. The conceptualization stage involves acquiring market intelligence, assessing customer requirement and formulating customized strategy for individual customers.  On the concern side, it faces competition in India and overseas in its business, which is based on many factors, including product quality and reliability, breadth of product range, product design and innovation, technology, manufacturing capabilities, scope and quality of service, price and brand recognition. It competes with global competitors to retain its existing business as well as to acquire new business.

The company is coming out with an IPO of 5,499,600 equity shares of face value of Rs 10 each. The issue has been offered in a price band of Rs 93-98 per equity share. The aggregate size of the offer is around Rs 51.15 crore to Rs 53.90 crore based on lower and upper price band respectively. On performance front, revenue from operations had decreased by 33.84% from Rs 6906.29 lakh in Fiscal 2022 to Rs 4569.08 lakh in Fiscal 2023. The change was primarily due to decrease in sales of products manufactured. The company reported a net profit of Rs 438.85 lakh in Fiscal 2023 as compared to a net profit of Rs 732.58 lakh in Fiscal 2022. Meanwhile, it is planning to make its products available in more countries by expanding its network and reaching new countries. It aims to do this by leveraging its marketing skills and relationships and further enhancing customer satisfaction. It plans to increase its customers by meeting orders in hand on time, maintaining its customer relationship and renewing its relationship with existing buyers.