ASK AUTOMOTIVE LIMITED IPO: ALL YOU NEED TO KNOW

The second IPO that opens for subscription this week is ASK Automotive Limited (AAL). Earlier, we saw PETL getting opened for subscription. AAL opens for subscription on the 7th and closes on the 9th of November. 

In this article, we will look at the various aspects related to the company. It will help you decide whether to subscribe or invest in the IPO for the long term. 

ASK Automotive Limited IPO: Key Details

Below are the key details related to the AAL IPO:

• Issue Size: Rs 834 crore
• Price Band: Rs 368 - Rs 282
• Issue Details: Only Offer For Sale (OFS)
• Market Cap: At the upper price band, Rs 5,559.42 crore
• Minimum Investment: Rs 14,946

ASK Automotive Limited IPO: About the business

AAL is the largest manufacturer of brake-shoe and advanced braking (AB) systems for two-wheelers in India, with a market share of approximately 50% in FY23 in terms of production volume for original equipment manufacturers (OEMs) and the branded independent aftermarket (IAM), on a combined basis. 

The company has been supplying safety systems and critical engineering solutions for more than three decades with in-house designing, developing, and manufacturing capabilities. Their offerings are powertrain agnostic, catering to electric vehicles (EV) and internal combustion engine (ICE) OEMs. Its brand ASK is recognized as the leading brand in the 2W IAM in terms of production volume for FY23 in India.

They supply their products to all of the top six 2W OEMs (in terms of production volume and value in FY23) in India, the largest motorized 2W market in the world, with domestic sales of 16.25 million units during FY23.

In addition to its customers in India, AAL also increasingly caters to customers overseas, both in the automotive and non-automotive sectors through the export of AB systems and ALP solutions.

As of June 30, 2023, they operate 15 manufacturing facilities across five states in India, the majority of which are strategically located near their OEM customers. They recently commenced commercial manufacturing operations at their 16th manufacturing facility in Bhiwadi (Rajasthan) in July 2023.

ASK Automotive Limited IPO: Products

The company started its operations in 1989 by manufacturing brake shoe products for 2Ws and has since diversified its operations to include the products below:

• AB systems
• Aluminum lightweight precision (ALP) solutions, where they are a prominent player for 2W OEMs in India with a market share of 9% in FY23 in terms of production volume
• wheel assembly to 2W OEMs
• Safety control cables (SCC) products

They supply their portfolio of AB systems, ALP solutions, wheel assembly, and SCC products to OEMs in:

• the automotive sector for 2Ws, three-wheelers (3Ws), passenger vehicles, and commercial vehicles.
• the non-automotive sector for all-terrain vehicles, power tools, and outdoor equipment.

ASK Automotive Limited IPO: Industry Overview

The two-wheeler segment dominates the Indian auto industry and primarily dictates its tone. The industry saw a decline of 4.3% CAGR (between FY18 and FY23) in total 2W sales, along with a marginal CAGR in the PVs and commercial vehicles segments. The industry grew in FY23 due to healthy pent-up demand created by two years of slump in sales volumes, owing to a pandemic-induced disrupted supply chain. In FY23, the 2W industry recorded a growth of 18.7%, whereas 3Ws, PVs, and CVs grew by 87.8%, 26.8%, and 34.5% year-on-year, respectively. 

CRISIL Research estimates domestic auto-component production revenue to increase by 9-11% in FY24, despite a higher base of FY23 of 24-26% due to robust recovery in the OEM segment. OEM production revenue is estimated to grow by 12-14%, led by the TW, PV, and CV segments. 

CRISIL MI&A expects the auto component market size to grow at a 12-14% CAGR between FY23 and FY28, comparable to the 8% CAGR observed between FY18 to FY23.

ASK Automotive Limited IPO: Listed Peers

AAL has several listed peers, and they are Uno Minda, Endurance Technologies, Suprajit Engineering, and Bharat Forge. Let us look at the financials of ASK and listed peers to get an idea of where the company stands against its peers. We will compare the crucial parameters of FY23 to give you an understanding of the financials of ASK Automotive Limited. Here is the comparison:

• In terms of revenue, Bharat Forge is the largest player followed by Uno Miinda. ASK Automotive is at the bottom of the list.
• If we compare the EBITDA margins of all the companies, AAL is at the bottom, with the highest margins reported by Bharat Forge.
• The debt-to-equity ratio is lowest for Endurance Technologies and ASK is at the middle of the table.
• Return on Net Worth (RoNW) is highest for ASK at 19.10%, followed by 15.73%.
• The average earning per share (EPS) of listed peers is around 17, while that of ASK Automotive is only 6.18.

ASK Automotive Limited IPO: Financials

Let us now look at the most crucial part that one needs to consider while evaluating a new company (or old one). Below are the financial numbers of AAL over the last three financial years:

• The company has reported a revenue of Rs 1,543.99 crore, Rs 2,013.08 crore, and Rs 2,555.17 crore for FY21, FY22, and FY23, respectively. Revenue has grown at a healthy 28.64% CAGR in this period. 
• AAL has reported an EBITDA of Rs 210.11 crore, Rs 182.26 crore, and Rs 247.54 crore for FY21, FY22, and FY23, respectively. In the same period, the EBITDA margins were 13.40%, 9%, and 9.65%, respectively. The margins have declined in this period.
• They have reported a net profit of Rs 105.76 crore, Rs 83.59, and Rs 122.94 crore for FY21, FY22, and FY23. The bottomline has not grown in line with revenue growth because of a fall in profit in FY22.
• For the last three financial years, AAL has reported an average EPS of Rs 5.32 and an average RoNW of 16.75%. 
• If we annualized FY24 earnings and attribute it to the post-IPO paid-up equity capital of the company, then the asking price is at a P/E of 39.89.
• The Return on Capital Employed (ROCE) for the last three financial years was 21.98%, 16.78%, and 22.06%, respectively.
• The debt-to-equity ratio has increased from FY21 to FY22. In FY21, the ratio was 0.13 and increased to 0.49 in FY23.
• Working Capital Days has come down from 28.82 days in FY21 to 27.74 days in FY23.

What are the competitive strengths of ASK Automotive Limited?

As per the company, their competitive strength is as below:

• They are a well-established manufacturer of safety systems and critical engineering solutions for some of India’s largest original equipment manufacturers.
• Robust production model driven by research, development, and design with an emphasis on advanced material knowledge to customize systems and products based on customer specifications and engineering lighter precision products.
• Technology and innovation-driven manufacturing process, with an extensive suite of systems and solutions for EV and ICE sectors.
• They have long-standing customer relationships with both Indian and global OEM players.

Risks associated with ASK Automotive

Below are the risks associated with the AAL:

• A significant portion (more than 80%) of their revenue from operations in the last three financial years is attributable to the Indian two-wheeler automotive sector.
• They are dependent on their top three customers, who contribute more than 50% of their revenue, with the single largest customer contributing approximately 30% or more of their revenue in the last three financial years. Loss of any of these customers or a reduction in purchases by any of them could adversely affect their business.
• Their business and profitability are substantially dependent on the availability and cost of raw materials, including Aluminium, and any disruption to the timely and adequate supply of raw materials, or volatility in the prices of raw materials may adversely impact the business.

AAL may not be successful in implementing its growth strategies, particularly in increasing market share in the evolving electric vehicle market, which could hurt the business.