Techera Engineering (India) coming with IPO to raise Rs 35.90 crore

Techera Engineering (India)

• Techera Engineering (India) is coming out with an initial public offering (IPO) of 43,77,600 equity shares in a price band Rs 75-82 per equity share.
• The issue will open on September 25, 2024 and will close on September 27, 2024.
• The shares will be listed on SME Platform of NSE.
• The face value of the share is Rs 10 and is priced 7.50 times of its face value on the lower side and 8.20 times on the higher side.
• Book running lead manager to the issue is SKI Capital Services.
• Compliance Officer for the issue is Pratiksha Kumbhare.

Profile of the company

Techera Engineering (India), established in October 2018, engages in the design, manufacture, and supply of precision tooling, components for the aerospace and defence industries, and automation system solutions. The company's product portfolio includes assembly toolings, jigs, fixtures, maintenance, repair, and overhaul (MRO) toolings, ground support equipment, and precision machined components. It utilizes advanced manufacturing technologies, such as 5-axis machining and 3-D modelling for design visualization, to meet the requirements of its target sectors.

The company is ISO 9001:2015 and AS9100D:2018 certified, reflecting its adherence to quality management systems. It has participated in notable projects, including the manufacture of tooling for the commercial aircraft vertical fin assembly line and fighter wing skin layup tool, indicating its capability to execute complex engineering projects. The company aims to contribute to technological advancement and the upliftment of the sectors it serves, through continuous improvement and innovation in its processes and offerings.

Proceed is being used for:

• Funding capital expenditure for the purchase of new machinery
• Funding working capital requirements of the Company
• Prepayment or repayment of a portion of certain outstanding borrowings availed by the company
• General corporate purposes
• Meeting the Issue expenses

Industry Overview

The aerospace and defence sector in India is a rapidly expanding field, marked by a blend of public and private enterprises. It is characterized by significant investments in research and development, production, and the procurement of advanced technologies. This sector is crucial for the nation's defence capabilities and has a growing role in the global aerospace market, driven by initiatives to increase domestic production, modernize military equipment, and enhance space exploration efforts. India's strategic partnerships, policy reforms, and focus on innovation are pivotal in its aspiration to become a key player in the international aerospace and defence industry.

According to the Global Power Index, the Indian defence sector ranks fourth in terms of firepower with a score of 0.0979 (with 0.0 being the perfect score). The Indian government has set the defence production target at $25 billion by 2025 (including $5 billion from exports by 2025). India is one of the world’s biggest defence spenders with a total outlay of Rs 5.25 lakh crore ($66 billion), accounting for 13.31% of the total budget and indicating an increase over the budget estimates of 2021-22 by Rs 46,970 crore ($5.9 billion).

The Indian government is focussing on innovative solutions to empower the country’s defence and security via ‘Innovations for Defence Excellence (iDEX)’, which has provided a platform for start-ups to connect to the defence establishments and develop new technologies/products in the next five years (2021-2026). Working through partner incubators, iDEX has been able to attract the start-up community to participate in the Defence India Start-up Challenge (DISC) programme. In an effort to boost the defence sector and increase the infusion of FDI, the government in September 2020 revised the regulations and permitted FDI under the automatic route up to 74% and 100% through the government route in any area, where it is likely to provide access to contemporary technologies. The Defence Ministry has set a target of 70% self-reliance in weaponry by 2027, creating huge prospects for industry players.

Pros and strengths

Specialized expertise in aerospace and defence sector: The company demonstrates expertise in aerospace and defence manufacturing, emphasizing products such as assembly toolings, jigs, fixtures, and precision machined components. The focus on niche markets is a key characteristic.

Technical capabilities: Investment in advanced manufacturing technologies, including 5-axis machining and augmented reality/virtual reality for design visualization, positions the company for projects requiring high precision and complexity.

Recognitions and certifications: Receipt of awards and certifications from reputable organizations indicates a commitment to quality and excellence in the company's operational domain. 

Risks and concerns  

Dependent on the sale of products to key customers: Its top 10 customers contributed around 91.75%, 87.73% and 94.39% of its revenue from operations for year ended on March 31, 2024, March 31, 2023 and March 31, 2022 respectively. There is no guarantee that it will retain the business of its existing key customers or maintain the current level of business with each of these customers and it cannot assures that it will be able to significantly reduce customer concentration in the future. Some of its customer contracts have expired and are due for renewal in the ordinary course of business. Reliance on certain key customers for significant revenue may generally involve several risks and it may have difficulty in securing comparable levels of business from other customers to offset any loss of revenue from the loss of any such key customers.

Depend on third party suppliers for raw materials: It depends on third party suppliers for raw materials and other business inputs, which are on a purchase order basis. Such suppliers may not perform, or be able to perform their obligations in a timely manner, or at all and any delay, shortage, interruption, reduction in the supply of or volatility in the prices of raw materials and other business inputs on which it relies may have a material adverse effect on its business, results of operations, financial condition, cash flows and future prospects.

Highly dependent on a single manufacturing facility: It derives the entire portion of its revenue from operations from a single facility. Any disruptions, breakdown or shutdown of its facility, due to, inter alia, (i) breakdown or failure of equipment, (ii) disruption in power supply or processes, (iii) performance below expected levels of efficiency, (iv) obsolescence, (v) labour disputes, (vi) infectious diseases (such as the COVID-19 pandemic), and (vii) political instability, could result in the damage or destruction of a significant portion of its manufacturing abilities, significant delays in the transport of its products and raw materials and/or otherwise adversely affect its business, results of operations, financial condition, cash flows and future prospects. Further, disruptions, damage or destruction of its facility may severely affect its ability to meet its customers’ demand and the loss of its customers or a significant reduction in demand from such customers could have an adverse effect on its business, results of operations, financial condition, cash flows and future prospects.

Outlook

Techera Engineering (India) provides MRO services for aircraft engines, which are essential for maintaining operational safety and efficiency in the aerospace industry. The company also has capabilities in the automation of manufacturing lines, including the design and optimization of welding lines, packaging lines, assembly lines, and conveyor systems. These automation processes aim to improve manufacturing efficiency in various applications within the aerospace and defence sectors. On the concern side, it faces competition globally in its business against other manufacturers of high precision and mission critical components manufacturing, which is based on many factors, including product quality and reliability, product design and innovation, technology, manufacturing capabilities, price and brand recognition. It competes with competitors to retain its existing business as well as to acquire new business. Some of its competitors may have certain advantages, including greater financial, technical and/ or marketing resources, which could enhance their ability to finance acquisitions, fund international growth, respond more quickly to technological changes and/ or operate in more diversified geographies and product portfolios.

The company is coming out with a maiden IPO of 43,77,600  equity shares of Rs 10 each. The issue has been offered in a price band of Rs 75-82 per equity share. The aggregate size of the offer is around Rs 32.83 crore to Rs 35.90 crore based on lower and upper price band respectively. On performance front, revenue from operations has increased by 46.58%, from Rs 2,643.44 lakh in the fiscal year ended March 31, 2023 to Rs 3,874.88 lakh in the fiscal year ended March 31, 2024. The profit after tax for the fiscal year ended March 31, 2024 was Rs 482.25 lakh as compared to Rs 130.50 lakh in in the fiscal year ended March 31, 2023. Meanwhile, the company operates within the aerospace and defence market, a sector characterized by high technological complexity, stringent regulatory standards, and significant capital investment. This market is globally distributed, with major hubs in North America, Europe, Asia-Pacific, and other regions, reflecting the international demand for aerospace and defence products and services. The aerospace segment encompasses the manufacturing, design, and maintenance of aircraft and spacecraft, ranging from commercial airliners and cargo transport aircraft to military fighters and unmanned aerial vehicles. This segment is driven by factors such as global air traffic growth, advancements in aerospace technology, and increasing defence spending by countries seeking to modernize or expand their military capabilities. The defence segment includes the development and production of a wide array of military hardware, software, and services, including vehicles, weapons systems, and surveillance and communication technologies.