Unimech Aerospace coming with IPO to raise upto Rs 527 crore

Unimech Aerospace and Manufacturing

• Unimech Aerospace and Manufacturing is coming out with a 100% book building; initial public offering (IPO) of 67,11,409 shares of Rs 5 each in a price band Rs 745-785 per equity share.
• Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
• The issue will open for subscription on December 23, 2024 and will close on December 26, 2024.
• The shares will be listed on BSE as well as NSE.
• The face value of the share is Rs 5 and is priced 149.00 times of its face value on the lower side and 157.00 times on the higher side.
• Book running lead managers to the issue are Equirus Capita ad Anand Rathi Advisor.
• Compliance Officer for the issue is Krishnappayya Desai.

Profile of the company

Unimech Aerospace and Manufacturing is an engineering solutions company specializing in manufacturing and supply of critical parts such as aero tooling, ground support equipment, electro-mechanical sub-assemblies and other precision engineered components for aerospace, defence, energy, and semiconductor industries. It possesses “build to print” capabilities, wherein it manufactures products based on client designs, and “build to specifications” capabilities, wherein it assists clients in designing the products to be manufactured basis specifications. The company supplies high precision and critical components to major OEMs and their licensees worldwide. Its export-oriented business has a diverse product portfolio and strong focus on quality and timely delivery. 

The company’s product portfolio includes, inter alia, engine lifting and balancing beams, assembly, disassembly and calibration tooling, ground support equipment, airframe assembly platforms, engine transportation stands, mechanical & electro-mechanical turnkey systems, and precision components. It is a key link in the global supply chain for global aerospace, defence, semi-conductor and energy OEMs and their licensees for the supply of critical parts like aero tooling, ground support equipment, electro-mechanical sub-assemblies and other precision engineered components. The company’s key clients include top global airframe and aero-engine OEMs and their approved licensees.

The salient features of its products are complexity and a high-mix, low volume nature, characterized by high mix products which are not mass manufactured. It offers a wide range of products (SKUs) but produce relatively small quantities of each based on specific customer requirements. Its ability to efficiently manufacture even single units of a particular SKU provides it with the flexibility to optimize pricing and maintain high profit margins. Factors such as on-time delivery and product quality significantly influence its pricing strategy. It adheres to stringent quality standards and measures as per AS9100D & BS EN ISO 9001:2015, being the industry norms for aerospace. Between Fiscals 2022 and six months period ended September 30, 2024, it has manufactured 2,999 SKUs in tooling and precision complex sub-assemblies’ category and 760 SKUs in the precision machined parts category, supplying to more than 26 customers across 7 countries. 

Proceed is being used for:

• Funding of capital expenditure for expansion through purchase of machineries and equipment by the company
• Funding working capital requirements of the company
• Investment in its Material Subsidiary for (i) purchase of machineries and equipment; (ii) funding its working capital requirements; and (iii) repayment / prepayment, in full or part, of certain borrowings availed by its Material Subsidiary
• General corporate purposes

Industry Overview

India's aviation industry is a collective sector encompassing all aspects of civil aviation within the country. It includes various components, such as airlines, airports, aircraft manufacturing, aviation services, and regulatory authorities. India has emerged as the third-largest domestic aviation market in the world, after the USA and China. The aircraft market is split almost equally between Airbus and Boeing with account for the lion’s share of all aircraft purchases globally. Airbus accounting for 12,500+ aircrafts and Boeing for 10,000 aircraft globally in 2023, Embraer also accounts to a total fleet of around 2,000 aircraft. The most popular aircraft families of Airbus are A320 and for Boeing it is B737. Majority of the historical deliveries were in Americas and Europe, however the next two decades are expected to be dominated by deliveries in Asia Pacific region.

Meanwhile, the total number of defence aircrafts delivered in 2023 were 188 units, which includes fighters, transport and special mission aircraft. Of these, 155 were fighter aircrafts of the F35 program delivered to the USA. The second highest delivered defence aircraft in 2023 were 22 units of the F18. The P-8 from Boeing accounted for 11 deliveries in 2023. The increase of geopolitical conflict coupled with increase in indigenous programs in countries like India and South Korea are expected to be the key drivers in this market. Countries like India are developing their own fighter jets like the HAL Tejas combat aircraft to increase the ‘Make in India’ drive and reduce reliance on imports. Another key trend is the indigenisation of specific components of the imported platforms seen across multiple countries in APAC.

The Aerospace market is segmented into Space and Commercial Aviation, space covers all launch vehicles and satellite systems, and commercial aviation constitutes all aircrafts produced by Airbus, Boeing and other manufacturers. The space segment for precision tooling market is estimated at $8.19 billion in 2024 and is expected to grow to $15.70 billion in 2028 at a CAGR of 17.66%. The commercial aviation segment is estimated at $48.57 billion in 2024 and is expected to grow to $88.97 billion in 2028. The privatization of the space services allowing the participation of private players are the key drivers in the space segment. Further, India’s power consumption is on a steep climb, fuelled by a booming economy, rising living standards, and rapid urbanization. The Indian power consumption has increased from 1,215.00 billion Kwh in 2018 to 1,582.81 billion Kwh in 2023 and is expected to further grow to 2,346.16 billion Kwh by 2028F. The energy mix in India is skewed to Steam those accounts for around 75%-80% of the power generated. This is followed by renewable and hydro which accounts to 13% and 10%, respectively in 2023. The share of renewable energy is expected to surpass 25% by 2030 and coal fire. There is a growing focus on renewable energy sources like solar and wind. The government is actively promoting renewable energy projects due to their cost-effectiveness and environmental benefits. This focus on renewables is expected to play a crucial role in meeting India’s future energy needs in a sustainable manner.

Pros and strengths

Advanced manufacturing capabilities: The company is a global high precision engineering solutions company specializing in manufacturing of complex products with “build to print” and “build to specifications” offering, which involves machining, fabrication, assembly, testing and creating new products basis the specific requirements of its clients for the aerospace, defence, energy and semi-conductor industries. Its manufacturing capabilities include machining capabilities such as turning, milling, double column milling, electro discharge machining and grinding. Its turning capabilities include vertical turning of up to 1.50 metres, horizontal turning up to the diameter of up to 0.7 metres and length of up to 2.00 metres and turn mill up to 200 mm. Its milling capabilities include 5 axis of diameter of up to 600 mm, 3 axis machine of length up to 1.50 metres, 4 axis of diameter up to 600 mm.

Digital-first manufacturing company with a robust infrastructure facilitating: It deploys a range of digital manufacturing systems which integrates the complete process from order origination to order delivery. Its digital manufacturing system captures all inspection requirements and measurements underpinning its commitment to the high standards of quality. It developed an in-house ERP system which plans and tracks every step of the product manufacturing process, from inception to completion, including the movement of all components to external vendors, thereby assisting in timely delivery of its products. The company leverages digital manufacturing systems to streamline operations, ensure high-quality output, and deliver projects on time. This approach involves various steps, integrating digital tools and processes to enhance efficiency and precision. The digital manufacturing journey begins with the quotation process. This initial step sets the stage for accurate project planning and resource allocation.

Established player with unique capabilities in a sector with high barriers to entry: The company manufactures complex tooling, mechanical assemblies, electro-mechanical turnkey systems, and precision components. Its varied product offerings and continuous product development efforts have enabled it to cater to multiple industries and customers, enhancing its ability to attract new customers. Between Fiscals 2022 and six months period ended September 30, 2024, it has manufactured 2,999 SKUs in tooling and precision complex sub-assemblies’ category and 760 SKUs in the precision machined parts category, supplying to more than 26 customers across 7 countries. It supplies an array of products including engine lifting, balancing beams, ground support equipment, airframe assembly platforms, complex electromechanical assemblies, engine transportation stands etc. which are of high mix, and are highly complex and of low volume in nature. It adheres to stringent quality standards and measures for its products as per AS9100D & BS EN ISO 9001:2015, being the industry norms for aerospace.

Export driven player with a global delivery service model: The company is a leading exporter of aerospace components, with exports significantly contributing to its overall revenue. Over 90% of its sales come from export to global OEMs and their licensees. Its revenue from sales to global customers were Rs 1,154.27 million, Rs 2,038.49 million, Rs 896.45 million, and Rs 331.01 million as of six months period ended September 30, 2024 and for Fiscal Years 2024, 2023 and 2022 respectively. It caters to a diverse range of clientele spanning across both domestic and international markets. Its global customer base is spread across USA, Germany and United Kingdom.

Risks and concerns

Maximum revenue comes from aerospace sector: The company’s business has been and continues to be concentrated on manufacturing products pertaining to aero engine tooling and airframe tooling and is therefore heavily dependent on the performance of the aerospace sector. A significant portion of its total revenue from operations i.e. 98.25%, 99.35%, 94.70% and 95.84% in the six months period ended September 30, 2024, Fiscal 2024, Fiscal 2023 and Fiscal 2022, respectively is attributable to the aerospace sector wherein it manufactures products pertaining to aero engine tooling and airframe tooling. Any adverse changes in the aerospace sector could adversely impact its business, results of operations and financial condition.

Significant revenue comes from limited customers: The company derived more than 90% of its total revenue from operations from the sale of products to its top five customers. The company’s top five customers who contribute to 94.62%, 96.80%, 93.88% and 88.97% of its total revenue from operations in the six months period ended September 30, 2024, Fiscal 2024, Fiscal 2023 and Fiscal 2022, respectively. The loss of any of these customers or a significant reduction in purchases by any of them could adversely affect its business, results of operations and financial condition.

Dependent on exports and the performance of geographies: The company is primarily an export oriented business and more than 90% of its total revenue from operations in six months ended September 30, 2024, and in each of the last three Fiscals came from export. Its primary export markets include the United States of America, Germany and United Kingdom. Its export business is dependent on the performance of its customers who operate in industries such as aerospace, defence, semi-conductors and energy. 95.67%, 97.64%, 95.20% and 91.06% of its total revenue from operations in the six months period ended September 30, 2024, Fiscal 2024, Fiscal 2023 and Fiscal 2022, respectively came from exports. Any adverse changes in the conditions affecting the industries in global markets in which its products are supplied, including its key markets such as United States and Germany, can adversely impact its business, cash flows, results of operations and financial condition.

Substantial part of its operations through its Material Subsidiary: The company conducts a substantial part of its operations through its Material Subsidiary, Innomech. Its Material Subsidiary is engaged in the manufacturing of aero-tooling, GSTE and MRO tooling for the aerospace sector. Additionally, being located in a Special Economic Zone (SEZ) near Bangalore International Airport, its Material Subsidiary places emphasis on export sales. A significant part of its operations i.e. 83.46%, 89.35%, 73.50% and 68.06% in the six months period ended September 30, 2024, Fiscal 2024, Fiscal 2023 and Fiscal 2022, respectively were conducted through its Material Subsidiary, Innomech Aerospace Toolings Private Limited (Innomech), and it is dependent on the operating income and cash flows generated by Innomech. Any loss or reduction in the business attributable to its subsidiary, or a change in its shareholding in Innomech, could have a material adverse effect on its business, prospects, results of operations, cash flows and financial condition on a consolidated basis.

Outlook

Unimech Aerospace and Manufacturing Limited is engaging in the manufacturing of complex tools like mechanical assemblies, electro-mechanical systems, and components for aeroengine and airframe production. The company has advanced manufacturing capabilities capable of delivering high precision engineering solutions. It also has robust vendor ecosystem and strong sub-contractor management with proven execution capabilities. On the concern side, a significant portion of its total revenue from operations is attributable to the aerospace sector wherein it manufactures products pertaining to aero engine tooling and airframe tooling. Any adverse changes in the aerospace sector could adversely impact its business, results of operations and financial condition. Moreover, the company is dependent on its top five customers for majority of its revenue and the loss of any of these customers or a significant reduction in purchases by any of them could adversely affect its business, results of operations and financial condition.

The company is coming out with a maiden IPO of 67,11,409 equity shares of Rs 5 each. The issue has been offered in a price band of Rs 745-785 per equity share. The aggregate size of the offer is around Rs 500.00 crore to Rs 526.85 crore based on lower and upper price band respectively. On performance front, the company’s revenue from operations comprising revenue from sale of products, sale of services and other operating income increased by 121.71% to Rs 2,087.75 million for Fiscal 2024 from Rs 941.66 million for Fiscal 2023, primarily due to increase in its total annualized capacity (including capacity of its Material Subsidiary) and increase in number of purchase orders. Moreover, the company has reported 154.83% rise in net profit at Rs 581.34 million in FY24 as compared to Rs 228.13 million in FY23.

The company is a key link in the global supply chain for global aerospace, defence, semiconductor, and energy OEMs and their licensees for the supply of critical parts like aero tooling, ground support equipment, electro-mechanical sub-assemblies and other precision-engineered components. The overall capacity and capacity utilization of the company and its Subsidiaries has grown considerably over the last three Fiscal Years and the six months period ended September 30, 2024. Going forward, the company is in process of further expanding its existing Unit II facility in Bangalore by increasing production capacity to meet the growing demand from its existing customers.