GNA Axles IPO – Should you invest in such high risk IPO?

GNA Axles Ltd IPO - Should you invest in this IPOGNA Axles IPO – Should you invest in such high risk IPO?

Jhalandar based, the GNA Axles IPO would open for subscription on 14th September, 2016. GNA Axles Limited is the leading manufacturers of rear axle shafts used in on highway and off-highway vehicular segments in India. The company revenues grew at 18% in FY16 comparing to previous year. It earns 5% margins. What next? Getting tempted with this IPO, just wait. Read the complete analysis before you make your decision. Should you invest in this GNA Axles IPO? What are the hidden factors of the GNA Axles IPO?

About GNA Axles Limited

The company is among the leading manufacturers of rear axle shafts used in on highway and off-highway vehicular segments in India. Since its first supplies in 1995 and its first exports in 2002-2003, we have grown to production levels of more than 2.26 million components in  fiscal 2016. They manufacture and supply a diverse range of rear axle shafts, other shafts and spindles for the on highway segment, i.e. for light commercial vehicles, medium commercial vehicles (“MCVs”) and heavy commercial vehicles  and other transport vehicles such as buses. They also manufacture and supply a diverse range of rear axle shafts and other shafts for the off-highway segment, i.e. for agricultural tractors and machinery, forestry and construction equipments, electric carts and other specialty vehicles used in mining and defense sectors. The company also manufactures solid and hollow spindles used in the axle assembly for various vehicles and equipments in the on-highway segment which we supply to its export customers.

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Issue details of GNA Axles IPO

  • IPO opens: 14-Sep-2016
  • IPO closes: 16-Sep-2016
  • Face Value: Rs 10 per share
  • Issue price band: Rs 205 to 207 per share
  • Issue size: Rs 130 Crores on upper price band
  • Market lot: minimum of 70 shares
  • Minimum investment: Rs 14,350 on lower price band
  • Lead Managers: PNB Investment Services and Ambit Private Limited
  • Listing: BSE / NSE
  • Download GNA Axles IPO  Prospectus at this link.

Objects of the GNA Axles Ltd IPO issue

The Net Proceeds from the Issue will be utilised towards the following objects:

1. Purchase of plant and machinery;

2. To meet working capital requirements; and

3. General corporate purposes.

Company Financials (reinstated-Consolidated)

  • The company generated revenue of Rs 398.66 Crores  for the year ended Mar-12 and Rs 508.94 Crores for the year ended Mar-16.  
  • The company posted a profit of Rs 16.93 Crores for the year ended Mar-12 and profit of Rs 25.95 Crores for the year ended Mar-16.
  • Its restated-consolidated EPS for FY 2016 is Rs 17.12 and last 3 years average EPS Rs 14.76.

GNA Axles IPO - Financials

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Reasons to invest GNA Axles IPO

  • Revenue grew at 6.3% CAGR in last 5 years.
  • Among the Leading Manufacturers of Axle Shafts in India
  • Diverse Product Range of Axle Shafts and Spindles
  • Strong Engineering, Product Development and Technological Capabilities

Reasons not to invest in an GNA Axles Ltd IPO

  • Low margins of 5% in last 2 years. Before FY15, it generated thin margins of 1.4% to 4%.
  • The proposed utilization of the Net Proceeds towards the object of meeting the working capital requirements is based on its internal management estimates, and may be subject to change based on various factors, some of which are beyond company control.
  • Company funding requirements and proposed deployment of the Net Proceeds of the Issue are based on management estimates and have not been independently appraised, and may be subject to change based on various factors, some of which are beyond its control.
  • Winding up petitions against its Company and GNA Gears Limited are currently pending before the High Court of Punjab & Haryana. Any adverse determination in these matters may adversely impact its business, financial position and reputation.
  • There are certain income tax and indirect tax proceedings pending against the Company. Any adverse determination by the tax authorities in these matters could increase its tax liability and subject them to monetary penalties.
  • The holding company of PNBISL, one of the Book Running Lead Managers to the Issue, is one of the bankers to the Company which may result in a potential conflict of interest.
  • The slowdown in the automotive sector, particularly the commercial vehicle segment, and any adverse changes in the conditions affecting the growth of transportation sectors can adversely impact its business, results of operations, financial condition and cash flows.
  • Company business is dependent on certain principal customers and the loss of, or a significant reduction in, purchases of such customers could adversely affect its business.
  • A significant portion of its revenues is dependent on exports to its international customers.
  • Any failure to fulfil the requirements of its international customers may adversely affect its revenues, results of operations and cash flows.
  • Its customers may terminate supply contracts before completion or choose not to renew contracts, which may adversely affect its business and results of operation.
  • High days of sales outstanding (i.e. the average period for which the sales invoice remains outstanding) may increase its collection risk and working capital requirements, which could adversely affect its liquidity.
  • Some of its Group Companies have incurred losses in the last three preceding Fiscals and some of the corporate records of one of its Group Companies are not traceable.
  • Other risk factors (Internal and external) can be viewed in the draft prospectus from Page no. 14 onwards.

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Recommendation / Investment strategy – GNA Axles IPO

  • On the upper price band of Rs 207 and on FY16 EPS of Rs 17.12, P/E ratio works out to 11.9x. Similarly, on last 3 years EPS of Rs 14.76, P/E Ratio works out to 14x. Means company is asking the upper band of issue price of Rs 207 for a P/E ratio between 11.9x to 14x. Its only peer indicated in the prospectus, Talbros Engineering is trading at a P/E ratio of 13.7x. Hence the company issue price is reasonably priced.
  • Company listing would be on T segment, i.e. Trade to trade segment, which gives less scope for speculation of this stock.
  • Company revenues grew at 6% CAGR in last 5 years. It generates low margins. The issue price is reasonably priced. However, one has limited scope to speculate the stock price as it gets listed on T segment. Considering all these risk factors, investors should stay away from such IPO.

Disclaimer: I do not have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy. Please consult your investment advisor before you invest in such high risk investment options.

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GNA Axles IPO – Should you invest in such high risk IPO


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