AJAX ENGINEERING IPO

Ajax Engineering Limited IPO

The budget discussion is over, and even though the market is still unstable, the overall picture looks better than in January. Needless to say, the IPOs are lined up for subscriptions in February.

The first one we will cover is Ajax Engineering Limited (AEL). They manufacture various concrete equipment and services across the value chain. The issue opens for subscription on 10 February and closes on 12 February. Let us look at the various aspects of AEL's business to help you decide whether to subscribe or invest in the IPO.

Below are the key details related to the AEL IPO:

• Issue Size: Rs 1269.35 crore
• Price Band: Rs 599 - Rs 629
• Lot Size: 23 Shares
• Issue Details: Only Offer for Sale
• Market Cap: At the upper price band, Rs 7196.19 crore
• Retail Share Offered: 35%
• Minimum Investment: Rs 14,467

Ajax Engineering IPO: The Business

AEL is a leading concrete equipment manufacturer with a comprehensive range of concrete equipment, services, and solutions across the concrete application value chain. As of September 30, 2024, they have developed over 141 concrete equipment variants catering to the concrete application value chain, and over the last ten years, they have sold over 29,800 concrete equipment in India.

Since its inception 32 years ago, the company has developed a comprehensive product portfolio that includes equipment such as self-loading concrete mixers (SLCMs) and batching plants for the production of concrete, transit mixers for the transportation of concrete, boom pumps, concrete pumps, and self-propelled boom pumps for the placement of concrete, slip-form pavers for the paving of concrete and 3D concrete printers for depositing concrete.

AEL is a leading manufacturer of SLCMs in India, with an approximately 77%, 75%, 77%, and 86% market share in the SLCM market in India in terms of the number of SLCMs sold during the six months ended September 30, 2024, and FY24, FY23, and FY22, respectively). Moreover, during FY24, 12% of the concrete production in India was through SLCMs. They also continue to assist customers throughout the life of the equipment, and with that aim, they provide spare parts for the equipment sold by them and facilitate the provision of aftersales service by dealers.

Their equipment is sold through their dealers in and outside India to a diverse range of customers, including individual contractors, small and mid-sized contracting companies, rental companies, large construction companies, and government construction agencies. Their customer base is tailored to the specific applications of their equipment and also spans specialized sectors such as transportation infrastructure and irrigation and infrastructure projects, where they work with contractors who require specialized solutions.

Ajax Engineering IPO: Industry Overview

Infrastructure development is a crucial driver of India's economic growth and is projected to increase at ~8% CAGR from FY24 to FY29. This will necessitate the increased consumption of materials such as concrete. While manual mixing remains common in the country, the rapid pace of growth is accelerating the penetration of mechanization of concrete, which is projected to increase from ~25% in FY24 to ~41% in FY29.

This trend is projected to further propel the demand for mechanized concrete equipment in India and grow the industry from Rs ~61 billion ($731 million) to ~ Rs 178 billion ($2,148 million) from FY24 to FY2029. Players that concentrate on key success factors will be well-positioned to capture

SLCMs drive ~14% of total concrete consumption in India as of FY24, up from ~10% in FY19. Driven by the inherent benefits, the share of SLCMs is projected to grow to ~24% by FY29. As the number of smaller and mid-scaled infrastructure projects in both urban and hinterland India continue to increase, this will require the need for efficient, quality, and cost-effective methods of concrete production, thereby enabling the growth of SLCMs.

Ajax Engineering IPO: Listed Peers

In the RHP, AEL has mentioned three listed peers - Action Construction Equipment, BEML, and Escorts Kubota. In this section, we will compare the financial numbers of all four companies (FY24) and see where AEL stands among its peers. Let us get started:

• In revenue terms, Escorts is the largest player, followed by BEML, Action Construction, and AEL (revenue one-fifth that of Escorts).
• All the peers have high earnings per share (EPS). The average EPS of peers is Rs 64.01, while that of AEL is Rs 19.58, the lowest among peers.
• Action Construction (26.65%) has the highest return on net worth (RoNW) among peers followed by AEL's 19.39%.

For more details, you can check the below table.

Ajax Engineering IPO: Financials

Below are the financial numbers of the company from the recent financial years:

• Ajax Engineering reported a revenue of Rs 763.29 crore, Rs 1151.13 crore, and Rs 1741.40 crore for FY22, FY23, and FY24, respectively. The revenue has grown at a CAGR of 51.04% in this period.
• The revenue from sales of SLCMs as a percentage of total revenue has increased from 77.44% in FY22 to 85.13% in FY24.
• The EBITDA for FY22, FY23, and FY24 were Rs 90.48 crore, Rs 170.74 crore, and Rs 277.55 crore, respectively. The EBITDA margins for the same period were 11.85%, 14.83%, and 15.82%, respectively.
• The company has posted a restated profit of Rs 66.21 crore for FY22, Rs 135.90 crore for FY23, and Rs 225.15 for FY24. The PAT margins for the same period were 8.58%, 11.59%, and 12.65%, respectively.
• For the last three financial years, the company has posted an average EPS of Rs 8.83 (basic) and an average RoNW of 15.77%.
• If we attribute FY25 annualized earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 35.61. Based on FY24 earnings, the P/E stands at 31.96.
• Return on Capital Employed (ROCE) for FY22, FY23, and FY24 was 15.52%, 25.31%, and 32.82%, respectively.

Ajax Engineering IPO: Competitive Strengths

Below are the competitive strengths of the company that make it worth considering:

• They are a leading manufacturer of SLCMs in India, with an approximately 77%, 75%, 77%, and 86% market share in the SLCM market in India in terms of the number of SLCMs sold during the six-month period ended September 30, 2024, and FY24, FY23, FY22, respectively.
• AEL is a leading concrete equipment company with over 141 concrete equipment variations, offering services and solutions across the concrete application value chain.
• They are an Engineering-focused concrete equipment company with strong in-house design and development capabilities.
• Their technology-led assembly and manufacturing processes, supported by their robust supplier network, position them as the second largest company in terms of annual sales volume among leading concrete equipment manufacturers in India.

Ajax Engineering IPO: Risks

Below are some risks associated with the company (as per the RHP):

• AEL derives a significant majority of its revenue from the sale of self-loading concrete mixers (85.13% of its revenue from operations for FY24). Any decrease in sales of SLCMs or demand for concrete equipment in India could adversely affect business, results of operations, financial condition, and cash flows.
• The business is seasonal in nature and any decrease in sales during certain quarters could have an adverse impact on the company's financial performance.
• Fluctuations in prices of materials, and disruptions in the timely availability of materials could have an impact effect on their business, results of operations, financial condition, and cash flows.
• All their assembling and manufacturing facilities are located in the state of Karnataka, which may expose them to regional risks that could impact the business.

For more details about the IPO and the company, you can check the company's RHP.