What you must know about Aeroflex Industries IPO?

Aeroflex Industries Ltd was incorporated in the year 1993 and the company is into the manufacture of environment-friendly metallic flexible flow solution products made of stainless steel. Its product catalogue includes braided hoses, un-braided hoses, solar hoses, gas hoses, vacuum hoses, interlock hoses, hose assemblies, lancing hose assemblies, jacketed hose assemblies, exhaust connectors, exhaust gas recirculation tubes, expansion bellows, and related end fittings. The company has more than 1,700 Product SKUs (Stock Keeping Units) in its product catalogue. Its manufacturing plant is located at Taloja, Navi Mumbai. Its client list includes distributors, fabricators, Maintenance Repair and Operations Companies (MROs), Original Equipment Manufacturers (OEMs), and companies in a host of other industry groups.

Aeroflex Industries Ltd has established itself as one of the leading manufacturers globally of flexible hoses and currently exports its products to more than 80 countries. Stainless steel hoses, in which Aeroflex Industries Ltd specializes, is capable of handling high temperatures as well as shocks and vibrations. The demand for stainless steel hoses is expected to increase by 50-60% in the next 3 years, the business volumes are expected to expand rapidly. SAT Industries, which is listed on the NSE and on the BSE, is the holding company of Aeroflex Industries Ltd. The issue will be lead managed by Pantomath Capital Advisors Private Ltd. Link Intime India Private Ltd will be the registrar to the issue.

Highlights of the Aeroflex Industries IPO issue

Here are some of the key highlights to the public issue of Aeroflex Industries IPO.

• Aeroflex Industries IPO has a face value of ₹2 per share while the price band for the book building IPO has been set in the band of ₹102 to ₹108. The final price will be discovered within this band based on the book built via bidding
   
• The IPO of Aeroflex Industries Ltd will be a combination of a fresh issue and an offer for sale (OFS). The fresh issue portion comprises the issue of 1,50,00,000 shares (1.50 crore shares), which at the upper price band of ₹108 per share will translate into fresh issue size of ₹162 crore.
   
• The offer for sale (OFS) portion of the IPO comprises the issue of 1,75,00,000 shares (1.75 crore shares), which at the upper price band of ₹108 per share will translate into an offer for sale (OFS) size of ₹189 crore.
   
• Therefore, the overall IPO portion will comprise of the issue of 3,25,00,000 shares (3.25 crore shares), which at the upper price band of ₹108 per share will translate into a total IPO issue size of ₹351 crore.

While the fresh issue will be capital and EPS dilutive, the offer for sale portion will only result in transfer of ownership. The entire OFS portion of 1.75 crore shares will be offered by SAT Industries Ltd, the holding company of Aeroflex Industries Ltd. The proceeds of the fresh issue portion will be used to repay / prepay outstanding loans availed by Aeroflex Industries Ltd and also for routine working capital needs.

Promoter holdings and investor allocation quota

The company was promoted by SAT Industries Ltd. Currently the promoters hold 91.09% of the company, which will get diluted post the IPO to 66.99%. As per the terms of the offer, 50% of the net offer is reserved for the qualified institutional buyers (QIBs), while 35% of the total issue size is reserved for the retail investors. The residual 15% is kept aside for the HNI / NII investors. The stock of Aeroflex Industries Ltd will be listed on the NSE and on the BSE. The table below captures the gist of the allocation to various categories.

Lot sizes for investing in the Aeroflex Industries IPO

Lot size is the minimum number of shares that the investor has to put in as part of the IPO application. The lot size only applies for the IPO and once it is listed then it can be even traded in multiples of 1 shares since it is a mainboard issue. Investors in the IPO can only invest in minimum lot size and in multiples thereof. In the case of Aeroflex Industries Ltd, the minimum lot size is 130 shares with upper band indicative value of ₹14,040. The table below captures the minimum and maximum lots sizes applicable for different categories of investors in the IPO of Aeroflex Industries Ltd.

It may be noted here that for the B-HNI category and for the QIB (qualified institutional buyer) category, there are no upper limits applicable.

Key dates for Aeroflex Industries IPO and how to apply?

The issue opens for subscription on 22nd August 2023 and closes for subscription on 24th August 2023 (both days inclusive). The basis of allotment will be finalized on 29th August 2023 and the refunds will be initiated on 30th August 2023. In addition, the demat credits are expected to happen on 31st August 2023 and the stock will list on 01st September 2023 on the NSE and the BSE. Aeroflex Industries Ltd offers a very unique combination. It has an established and tested business model; and is one of the most prominent organized players in the steel hose industry. Also, the business vertical is expected to grow at the rate of 40-45% in the next 2-3 years, so there is a huge market potential opening up. Let us now turn to the more practical issue of how to apply for the IPO of Aeroflex Industries Ltd.

Investors can apply either through their existing trading account or the ASBA application can be directly logged through the internet banking account. This can only be done through the authorized list of self-certified syndicate banks (SCSB). In an ASBA application, the requisite amount is only blocked at the time of application and the necessary amount is debited only on allotment. Investors can apply in the retail quote (up to ₹2 lakh per application) or in the HNI / NII quota (above ₹2 lakh). Minimum lot sizes will be known after pricing.

Financial highlights of Aeroflex Industries Ltd

The table below captures the key financials of Aeroflex Industries Ltd for the last 3 completed financial years.

Data Source: Company RHP filed with SEBI (All ₹ figures are in crores)

Check Aeroflex Industries IPO GMP

There are few key takeaways from the financials of Aeroflex Industries Ltd which can be enumerated as under

1. In the last 2 years, the revenues growth has been robust, almost doubling sales over the last couple of years. This is indicative of the potential that the steel hoses segment has in terms of its market share in India and abroad. Purely on the strength of the prospects of the sector and the potential for 40% to 45% growth in the next 3 years, there is a fundamental story favouring the business of Aeroflex Industries.
    
2. The latest year profit margins and the return on assets are fairly impressive and have built heft over the last 2 years. However, this is a business where a lot of costs get front-ended but once these costs are defrayed, the profits can grow quite rapidly. That is the big bet int this case. Its average diluted EPS for the last 3 years stands at ₹2.21 per share, so the upper band price of ₹108 discounts the earnings at around 45X earnings. It would be much cheaper if looked at in terms of the forwards P/E. Since it is a very niche player, there are no immediate sectoral P/E benchmarks available.
    
3. The company has maintained an impressive rate of sweating assets as is evident from the asset turnover ratio. It has consistently averaged above 1.2X, which is a very good sign for a capital intensive business like steel hose manufacturing. Also, this sector does face a lot of competition from the unorganized sector, where costs are lower.

While pricing of the IPO does matter here, what is more critical is the eventual PAT margins that will sustain and how the business growth happens. For now, the signals are good. In the past, the group has shown good traction in terms of building a global brand and that should start showing the payback now. A lot will depend on how the company is able to scale and adhere to the highest quality standards. Purely from the perspective of the model and the track record, it is an issue worth investing from a long term perspective. However, this would be more suitable for investors with a larger risk appetite.