IPO Analysis: ASK Automotive Ltd

IPO Rating: Apply for the long-term

About the issue 

ASK Automotive Ltd is a leading manufacturer in the automotive industry, offering a diverse array of products such as advanced braking systems, aluminium lightweight precision components, and wheel assemblies to various OEMs, in addition to safety control cables. The company is gearing up to launch its Initial Public Offering (IPO) for equity shares, each having a face value of Rs 2. The IPO price range is set between Rs 268 and Rs 282 per equity share, resulting in a total issue size of Rs 834 crore at the upper price band. 

The IPO is scheduled to commence on November 07, 2023, and will conclude on November 09, 2023. The market lot size for the IPO is 53 shares, with the option to apply for multiples of this lot. Individual retail investors have the opportunity to apply for a maximum of 13 lots, equivalent to 689 shares or a total investment of Rs 1,94,298 assuming the upper price band.

Objects of the issue 

Considering that the issue is exclusively an offer for sale, it is crucial to emphasize that the company will not directly profit from the offer proceeds. Instead, all offer proceeds will flow to the selling shareholders, distributed in accordance with the number of offered shares they sell as part of the offer. 

Promoter holding 

Kuldip Singh Rathee and Vijay Rathee are the promoters of the company. The promoters currently hold a pre-issue shareholding stake of 90.20 per cent in the company. 

Company Profile 

ASK Automotive Ltd is a prominent manufacturer in the realm of advanced braking systems, producing a diverse range of products like brake panel assemblies, brake shoes, disc brake pads, brake lining, and mission cases. Their offerings cater to various automotive vehicle segments, encompassing motorcycles, scooters, passenger vehicles, and commercial vehicles, across both the internal combustion and electric vehicle sectors. 

Furthermore, the company extends its expertise to aluminium lightweight precision solutions, which include engine parts, body and chassis components, transmission parts, electrical and electronic elements, as well as electric vehicle-specific components. As a safety-focused manufacturer, the company also specializes in the production of safety control cables. These cables cover a wide spectrum of applications, including choke, brake, clutch, throttle, speedometer, fuel, and seat lock cables, emphasising their commitment to safety in the automotive industry. 

ASK Automotive's clientele comprises prominent OEMs such as HMSI, HMCL, Suzuki, TVS, Yamaha, Bajaj, Royal Enfield, Denso, Magneti Marelli, and many others. They serve original equipment suppliers (OES), the independent aftermarket, and the export market, operating through an extensive network of 15 manufacturing facilities strategically located across the country. 

Financials

Outlook and valuation 

In terms of financial performance, ASK Automotive has demonstrated consistent growth, with revenue increasing by 30 per cent in FY22 and 27 per cent in FY23 compared to the previous years. Notably, the profit figures saw a decline in FY22 but rebounded significantly in FY23 and continued to show strong performance in Q1FY24. 

In FY23, the company reported a Return on Average Capital Employed (RoACE) of 22 per cent. The company paid a dividend of 20 per cent to its shareholders in FY21 but skipped it for the subsequent periods. The issue is priced with a P/BV ratio of 8.20 times, calculated using its Net Asset Value (NAV) of Rs 34.41 as of June 30, 2023. When we compute the PE ratio for the company by considering annualised Q1FY24 earnings to the post-IPO fully diluted paid-up equity capital, the resulting PE ratio stands at 40. 

As per its official documents, the company has referenced several listed peers, including Endurance Technologies Ltd, Uno Minda Ltd, Suprajit Engineering Ltd, and Bharat Forge Ltd which are currently trading at PE ratios of 44, 49, 33 and 75, respectively. Hence, it appears that the offering is attractively priced. 

The company has emphasized various risk factors, which include a dependency on the Indian two-wheeler automotive sector, the ever-changing landscape of the EV market, reliance on aluminium as a crucial raw material, and intense competition within the industry. 

On the other hand, the company holds the dominant market share in the brake-shoe and advanced braking segment in India, specifically in terms of production volume (units) for two-wheeler OEMs. In Fiscal 2023, their market share stands at around 50 per cent, combining both OEM and branded independent aftermarket segments. Additionally, the company's robust client base and diverse product portfolio serve as significant growth drivers that have the potential to propel the company's future expansion. Therefore, we recommend investors to subscribe to the issue with a long-term perspective.