Azad Engineering IPO – Details, Risk Factors and Review

Azad Engineering Limited, a leading manufacturer of aerospace components and turbines, is gearing up for its Initial Public Offering (IPO) scheduled from December 20, 2023, to December 22, 2023. This article provides Azad Engineering IPO details, positive aspects, risk factors and review.

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Azad Engineering IPO Details

IPO Opening Date December 20, 2023
IPO Closing Date December 22, 2023
IPO Listing Date December 28, 2023
Issue Type Book Built Issue IPO
Face Value Rs 2 per equity share
IPO Price band Rs 499 to Rs 524 per equity share
Lot Size 28 Shares
Listing at BSE and NSE
Total Issue Size Rs. 740 Crores
    Fresh issue     Rs. 240 Crores
    OFS     Rs. 500 Crores

Azad Engineering Limited

The company, headquartered in Hyderabad, Telangana, India, has established itself as a key player in supplying highly engineered, complex, and mission-critical components to original equipment manufacturers (OEMs) in the aerospace, defense, energy, and oil and gas industries.

Financial Snapshot

As of September 30, 2023, Azad Engineering Limited reported a revenue of ₹1,142.92 million, primarily from the sale of blades for the energy industry. The company’s financial performance has seen a 31.24% increase in revenue, although the profit after tax (PAT) dropped by -71.24% between the financial years ending March 31, 2023, and March 31, 2022.

Objectives of the IPO

The net proceeds from the IPO contains both fresh issue and OFS.

  • OFS goes to selling share holders
  • Fresh issue would be used for capital expenditure of the company, repayment/prepayment of certain borrowings, and general corporate purposes.

Azad Engineering IPO Price Valuation

  • The IPO price band is Rs 499 to 524 per share
  • P/E Ratio Analysis
    • If we consider the last year FY23 EPS of Rs 1.79, the P/E ratio works out to be 293x
    • If we consider last 3 years weighted EPS of Rs 3.48, the P/E ratio works out to be 151x
    • If we consider 6 months ended Sep-23 EPS and annualise it, the P/E ratio works out to be 48x
  • Comparison with listed peers
    • Dynamatic Technologies Limited trading at P/E 89x (Highest)
    • MTAR Technologies Limited is trading at P/E of 68x (Lowest)
    • Industry average P/E is 77x
  • Hence, the IPO Price band at P/E of 293x to 151x is over-priced

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Positive Factors to Invest in Azad Engineering IPO

  • Global Presence: Azad Engineering caters to a diverse international market, including the USA, China, Europe, the Middle East, and Japan, establishing itself as a vital link in the global supply chain for OEMs.
  • Revenue Growth: The company has showcased robust revenue growth, increasing from ₹1,240.00 million in Financial Year 2020 to ₹2,516.75 million in Financial Year 2023, representing a compound annual growth rate (CAGR) of 27%.
  • High EBITDA Margins: Azad Engineering boasts one of the highest EBITDA margins among key players in machined components, with a margin of 31.61% in Financial Year 2023.
  • Visionary Approach: With a vision to revolutionize the global precision manufacturing industry, Azad Engineering aims to contribute to India’s evolving manufacturing ecosystem with cutting-edge technology.
  • Well known investors: As per Azad Engineering IPO RHP cricket icon Sachin Tendulkar, badminton champions Saina Nehwal and VVS Laxman have reportedly invested in Azad Engineering Limited, further attesting to the company’s appeal and potential in the market. However the IPO price they paid is lower and they would be repeaing the benefits post listing.

Risk Factors of investing in this IPO

  • Issue price is over-priced: If we exclude 6 months ended Sep-23 financial performance, the IPO price is over priced compared to last year and last 3 years weighted average EPS.
  • IPO proceeds contains OFS: The IPO proceeds contains both OFS and fresh issue. OFS portion of the IPO proceeds would go to selling share holders and company would not benefit anything.
  • Customer Dependency: The business heavily relies on key customers, and any loss of these customers or revenue from sales could adversely impact the company’s financial stability.
  • Operational Dependency: The dependence on the Hyderabad facilities for the entire revenue stream poses a risk. Any disruption, breakdown, or shutdown of these facilities may adversely affect operations.
  • Global Competition: In the highly competitive global industry, failure to compete effectively could have a material adverse effect on business, results of operations, and financial condition.
  • Supply Chain Risks: Depending on third-party suppliers for raw materials, plant, machinery, and components introduces risks related to performance, timely delivery, and price volatility.
  • Market Disruptions: The rapidly changing preferences in sectors specific to the industries Azad Engineering caters to, coupled with industry disruptions, pose potential threats to the business.

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Azad Engineering IPO – Should you subscribe?

Azad Engineering Limited’s IPO presents an opportunity to invest in a company with a strong global presence, robust revenue growth, and a visionary approach to precision manufacturing.

However, investors should carefully consider the identified risks, including customer and operational dependencies, global competition, and supply chain vulnerabilities, before making investment decisions.

The issue price is over priced.

Investors who understand pros and cons can invest in such IPO.

Suresh KP

2 comments

  1. Your Insight about IPOs is very thoughtful and very informative. Information provided by you is very comprehensive and understandable. Language used is such that Beginner investing in IPOs would also be able to learn and make good use of it.
    Keep up the good work.
    Thank you for such insightful information.

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