IPO Analysis: Uniparts India Ltd

IPO Rating: Invest for long term

About the issue: 

Uniparts India, one of the leading suppliers of systems and components for the off-highway market in the agriculture and construction, forestry and mining ("CFM") and aftermarket sectors is coming out with its initial public offering (IPO) of equity shares of the face value of Rs 10 per equity share. The price band of the issue has been fixed at Rs 548 to Rs 577 per equity share. The issue size is Rs 835.61 crore at higher price band.  

The IPO opening date is November 30, 2022, and it will be closing on December 2, 2022. The issue is likely to be listed on the exchange on December 12, 2022. The IPO market lot size is 25 Shares and in multiple thereof. A retail-individual investor can apply up to a maximum of 13 lots (325 shares or Rs 1,87,525 at upper price band). 

Objects of the Issue 

The company will not receive any proceeds from the offer and all such proceeds will go to the selling shareholders. 

Promoter holding  

The pre issue shareholding is 75.54 per cent, post the IPO the promoter stake will be 65.79 per cent.  

About the company: 

Uniparts India Ltd. (UIL) is a global manufacturer of engineered systems and solutions and is one of the leading suppliers of systems and components for the off-highway market in the agriculture and construction, forestry and mining ("CFM") and aftermarket sectors on account of its presence across over 25 countries.  

UIL is a concept-to-supply player for precision products for off-highway vehicles ("OHVs") with a presence across the value chain. Its product portfolio includes core product verticals of 3-point linkage systems ("3PL") and precision machined parts ("PMP") as well as adjacent product verticals of power take-off ("PTO"), fabrications, and hydraulic cylinders or components thereof. It has a leading presence in the manufacture of 3PL and PMP products globally on account of serving some of the largest global companies. Most of UIL's products are structural and load-bearing parts of the equipment and are subject to strict tolerances, specifications, and process controls. A series of precision engineering process steps converge into the manufacturing of these products.  

UIL has an estimated 16.68 per cent market share of the global 3PL market in Fiscal 2022 in terms of value and an estimated 5.92 per cent market share in the global PMP market in the CFM sector in Fiscal 2022 in terms of value. It also caters to the aftermarket segment, especially for the 3PL product range. The company provides replacements of 3PL parts to organised aftermarket retailers and distributors in the North America, Europe, South Africa, and Australia. 

UIL offers fully integrated engineering solutions from conceptualization, development, and validation to the implementation and manufacturing of products. The conceptualization stage involves acquiring market intelligence, assessing customer requirements, and formulating a customized strategy for individual customers. The development phase includes product designing, material procurement, and processing. By means of servicing aftermarket segment customers, its products find indirect access to a large set up of retail stores across geographies for aftermarket components. Within the aftermarket category, it is focused on the 'will-fit' parts segment, sold to distributors and retail chain stores. 

As of June 30, 2022, UIL has a global footprint and served customers across countries in North and South America, Europe, Asia, and Australia, including India. In India, it has five manufacturing facilities, two at Ludhiana, Punjab, one at Visakhapatnam, Andhra Pradesh, and two at Noida, Uttar Pradesh. It has also set up a distribution facility in Noida, Uttar Pradesh. In the United States, UIL has a manufacturing, warehousing, and distribution facility at Eldridge, Iowa, acquired pursuant to the acquisition in 2005 of Olsen Engineering LLC, now known as Uniparts Olsen Inc. ("UOI"), and a warehousing and distribution facility at Augusta, Georgia. It has also set up a warehousing and distribution facility in Hennef, Germany, which serves as its base for serving key European customers. Each of UIL's facilities is strategically located in proximity to several global OEMs in the OHV industry. 

Financial  

On the financial performance front, for the last three fiscals, UIL has (on a consolidated basis) posted a turnover/net profit of Rs 938.84 crore/Rs 62.64 crore (FY20), Rs 947.69 crore/Rs 93.15 crore (FY21), and Rs 1231.04 crore/Rs 166.89 crore (FY22). For Q1 of FY23, it earned a net profit of Rs 50.52 crore on a turnover of Rs 347.76 crore. Thus, for the last 15 months, it has marked sharp improvements in its top and bottom lines.  

Valuation and Outlook 

For the last three fiscals, UIL has reported an average EPS of Rs 27.68 and an average RoNW of 19.97 per cent. The issue is priced at a P/BV of 3.65x based on its NAV of Rs 158.15 as of June 30, 2022. If we annualize FY23 earnings and attribute it to post-IPO paid-up equity capital, then the asking price is at a P/E of around 12.89x. The company paid a dividend of 33 per cent (FY21) and 92 per cent (FY22). It will adopt a prudent dividend policy post-listing, based on its financial performance and future prospects. The operating profit margin of the company has improved from 13.3 per cent in FY21 to 21.8 per cent in FY22 and the net profit margin from 10.1 per cent in FY21 to 13.8 per cent in FY22. The company is a niche market player and is improving its market share in the industry. 

Due to attractive valuation, positive future outlook, improving margins we recommend investors to invest for long term in this IPO.