Aeroflex Industries IPO opens for booking. Should you subscribe to the issue?

Aeroflex has a strong domestic presence with major supplies of its product to Oil & Gas players (IOCL, BPCL, ONGC), Large steel players (TATA Steel etc.) and Aviation Players (HAL etc).

Analysts are mostly upbeat about Aeroflex Industries, which makes and supplies environment-friendly metallic flexible flow solution products. The issue opened for subscription on August 22.

Analysts cite its dominant market share in the business, strong clientele, strong research and development team and decent return ratios as key reasons behind their confidence.

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“The company has a unique business model in the flexible flow solution area. With decent return ratios and margins, the risk reward ratio for long\-term investors looks favourable. The investors can subscribe to the IPO for a long-term investment perspective,” SBICAP Securities said in a note.

The company is valued at a PE multiple of 46.3x based on its FY23 earnings at the upper price band on post-issue capital. The company doesn’t have any listed peers in India, making it difficult to gauge its performance and valuation.

The company’s product list includes braided hoses, unbraided hoses, solar hoses, gas hoses, vacuum hoses, braiding, interlock hoses, hose assemblies, lancing hose assemblies, jacketed hose assemblies, exhaust connectors, exhaust gas recirculation (EGR) tubes, expansion bellows, compensators and related end fittings collectively known as flexible flow solutions catering to global as well as domestic markets.

Aeroflex has a strong domestic presence with major supplies of its product to oil and gas players such as IOCL, BPCL and ONGC, large steel players like TATA Steel, and aviation companies like HAL. It exports products to more than 80 countries with some of the major international clients including Victaulic. More than 50 percent hose exported from India are by Aeroflex Industries, placing it uniquely among competitors.

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With this IPO, the Mumbai-based firm intends to raise Rs 351 crore through the public issue at the upper price band. The IPO comprises fresh issuance of shares worth Rs 162 crore, and an offer-for-sale (OFS) of 1.75 crore shares by promoter entity SAT Industries. The fresh issue proceeds, excluding offer expenses, will be used for repaying certain borrowings amounting to Rs 32 crore, working capital requirements of Rs 84 crore, and the remaining general corporate purposes and acquisitions.

“The company is likely to benefit from growth prospects in traditional industrial segments like manufacturing, automotive and oil and gas as well as emerging industries like solar, lithium-ion battery  management and robotics. Moreover, a strong track record of commercialising and scaling up new products and R&D capabilities puts the company in a good position to capture the requirements of diverse end-user industrial sectors,” said Vikas Jain, Senior Research Analyst at Reliance Securities.

“In view of diversified product portfolio, strong financials, global footprint, focus on expanding its capacities, products and R&D capabilities, we recommend subscribing to the issue,” Jain said.

The company's manufacturing facility is located at Taloja, Navi Mumbai, and is spread across nearly 3.6 lakh sq ft. The company have an in-house design and research and development team of seven members which assists in designing the products.

The price band for the book-built issue has been fixed at Rs 102-108 per share. Investors can bid for a minimum of 130 equity shares and in multiples of 130 shares thereafter. Hence, the minimum investment by retail investors would be Rs 14,040 for one lot (130 shares multiplied by the issue price of Rs 108 per share) and Rs 1,96,560 (14 lots) would be the maximum.

Aeroflex has recorded a healthy financial performance in the past years, with revenue from operations posting a CAGR of 36.43 percent in FY21-FY23 to Rs 269.5 crore in the year ended March FY23. Profit recorded a CAGR of 124 percent in the same period to Rs 30.15 crore and EBITDA jumped at a CAGR of 55.54 percent to Rs 54.03 crore. The EBITDA margin expanded to 20.05 percent in FY23, from 19.39 percent in FY22 and it was at 15.43 percent in FY21.

“Aeroflex Industries has exhibited impressive financial growth and established strong client relationships, holding a dominant market position in India. With the support of seasoned promoters, prominent HNI investors, and a forward-looking strategy, it is excellently poised for enduring success within the burgeoning flexible flow solutions sector,” said AUM Capital in a note.

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