Evaluating Gala Precision Engineering Ltd IPO opportunity; Should you invest?
The company commands a significant position in the DSS market for the renewable industry, with 70 per cent of the domestic market and about 3 per cent of the global market.
About the Issue:
Gala Precision Engineering Ltd is preparing to launch its Initial Public Offering (IPO) for equity shares. See the issue details below.
| IPO Details |
| IPO Opening Date |
September 02, 2024 |
| IPO Closing Date |
September 04, 2024 |
| Issue Type |
Book Built Issue IPO |
| Face Value |
Rs 10 per equity share |
| IPO Price |
Rs 503 to Rs 529 per equity share |
| Min Order Quantity |
28 shares |
| Listing At |
BSE, NSE |
| Total Issue |
3,174,416 shares of FV Rs 10* |
| (Aggregating up to Rs 167.93 Cr)* |
| Fresh Issue |
2,558,416 shares of FV Rs 10* |
| (Aggregating up to Rs 135.34 Cr)* |
| Offer for Sale |
616,000 shares of FV Rs 10* |
| (Aggregating up to Rs 32.59 Cr)* |
| QIB Shares Offered |
50% of the Offer |
| Retail Shares Offered |
35% of the Offer |
| NII (HNI) Shares Offered |
15% of the Offer |
| *At Upper Price Band |
|
Objects of the Issue
The offer encompasses both the fresh issue and the offer for sale. It's important to note that the company will not accrue any proceeds from the offer for sale. The company plans to allocate the net proceeds raised from the fresh issue for the following purposes:
1. Setting up a new facility at Vallam-Vadagal, SIPCOT, Sriperumbuddur, Tamil Nadu for manufacturing high tensile fasteners and hex bolts
2. Funding capital expenditure requirements towards purchase of equipment, plant and machinery at Wada, Palghar, Maharashtra
3. Repayment/ prepayment, in full or part, of certain borrowings availed by the company
4. General corporate purposes.
Promoter holding
Kirit Vishanji Gala and Smeet Kirit Gala are the promoter of the company. The promoters and promoter group currently hold a pre-issue shareholding stake of 74.56 per cent in the company.
Company profile
The company specializes in precision components, including technical springs such as disc and strip springs (DSS), wedge lock washers, coil and spiral springs, and custom fastening solutions. These products are supplied to original equipment manufacturers (OEMs), Tier 1 suppliers, and channel partners across sectors such as renewable energy (including wind turbines and hydro power plants), industrial applications (electrical, off-highway equipment, infrastructure, and general engineering), and mobility sectors (automotive and railways).
As a leading domestic manufacturer of disc springs, the company holds a 10 per cent market share in India. It commands a significant position in the DSS market for the renewable industry, with approximately 70 per cent of the domestic market and about 3 per cent of the global market.
The company operates from two manufacturing facilities in Wada, Palghar, Maharashtra, and is in the process of establishing a new plant in Vallam-Vadagal, SIPCOT, Sriperumbudur, Tamil Nadu. This new facility will focus on developing high-tensile fasteners and expanding the product portfolio to include new items like bolts.
With a global customer base of over 175 and exports to more than 25 countries, the company serves major markets such as Germany, Denmark, China, Italy, Brazil, the USA, Sweden, and Switzerland.
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Financials
| Rs (in crore) |
FY22 |
FY23 |
FY24 |
| Revenue |
147.96 |
167.08 |
204.38 |
| Profit before tax (PBT) |
11.23 |
27.46 |
25.28 |
| Net Profit |
6.63 |
24.21 |
22.33 |
The company has shown consistent and notable revenue growth over recent years, though its profit for FY24 experienced a minor dip due to increased finance costs. Nonetheless, the company has successfully reduced its debt, and after utilizing the net proceeds for loan repayment, the remaining amount is minimal. From FY22 to FY24, it achieved a Compound Annual Growth Rate (CAGR) of 17 per cent in revenue and 80 per cent in net profit. In FY24, the company reported an impressive Return on Equity (RoE) of 24 per cent and a Return on Capital Employed (RoCE) of 20 per cent.
Valuation and outlook
| Company Name |
P/E |
P/B |
RoE (%) |
| Gala Precision Engineering Ltd |
24 |
3 |
24 |
| Listed Peer |
| Harsha Engineers International Ltd |
40 |
4 |
10 |
| SKF India Ltd |
47 |
9 |
22 |
| Sundram Fasteners Ltd |
53 |
8 |
16 |
| Rolex Rings Ltd |
43 |
7 |
19 |
| Sterling Tools Ltd |
30 |
4 |
13 |
The issue is priced with a P/BV ratio of 5.12 times, calculated using its Net Asset Value (NAV) of Rs 103.30 as of March 31, 2024. At the upper price cap, it is priced at a P/BV ratio of 2.80 times, considering its post-IPO NAV.
When calculating the PE ratio for the company based on FY24 earnings relative to the fully diluted paid-up equity capital, the resulting PE ratio stands at 24. Considering both valuation and returns, the company has significantly outperformed its listed peers.
The sector is set for substantial growth, fuelled by rising demand in key industries like renewable energy, industrial applications, and mobility. The company is strategically positioned to take advantage of this growth, boasting a strong market share both domestically and globally. Its extensive export network, covering over 25 countries, highlights its competitive advantage and potential for further expansion in key markets.
Hence, we advise investors to consider subscribing to the issue with a long-term investment horizon.