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Last Updated : Sep 14, 2016 04:57 PM IST | Source: Moneycontrol.com

GNA Axles IPO opens: Should you subscribe or avoid?

The IPO is fairly priced to its nearest peer (Talbros Automotive Components), KR Choksey says.

 
 
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GNA Axles, the rear axle shafts manufacturer, opened its 63 lakh shares' public issue for subscription with a price band of Rs 205-207 per share. It aims to raise maximum Rs 130 crore through IPO that will close on September 16.


The Jalandhar-based company already raised Rs 37.88 crore from three mutual fund houses under its anchor investors' portion on September 12.


It intends to utilise the net issue proceeds for purchase of plant & machinery (Rs 80 crore); working capital requirements (Rs 35 crore); and general corporate purposes.


Check out what the brokerage houses say about the issue:


Motilal Oswal


Motilal Oswal believes the IPO offers listing gains, given its leadership position in manufacturing of axle shafts in India; diverse product range of axle shafts and spindles; strong long term customer relationships & diversified customer base; experienced Management & skilled employee base; strong engineering, product development & technological capabilities; and attractive financial performance.


The valuations at the offer price are at a around 10 percent discount to the valuation of Talbros Engineering (the only comparable peer in the listed space). However, GNA Axles has a superior financial profile compared to Talbros Engineering with FY16 margin of 16.4 percent (versus Talbros's 8.4 percent), return on capital employed-ROCE of 22.6 percent (versus 15.7 percent) and return on equity-ROE of 18.8 percent (versus 9.9 percent).


Moreover, the commercial vehicle sales are expected to grow over the next five years on improvement in industrial activity and the government's focus on infrastructure project execution.


Implementation of GST and good monsoons will also support the company's growth going ahead.


Concerns according to the brokerage house are weakness in global market and high sensitivity to currency movement as GNA's exports accounted for around 54 percent for FY16 revenue.


KR Choksey


The IPO is fairly priced to its nearest peer (Talbros Automotive Components), KR Choksey says.


Given the improving export share, revival in domestic demand and implementation of BS norms, it advises investors to subscribe the IPO and remain invested in GNA's long term story.


Ajcon Global


At the upper end of the price band of Rs 207, the IPO is cheaply valued, said Ajcon Global which recommends subscribing the issue.


The company has witnessed a topline CAGR of 13 percent over the period FY13-16. In the same period, EBITDA has registered a decent CAGR of 23 percent to Rs 82.8 crore in FY16. PAT has seen impressive CAGR of 75 percent over FY13-16.


In Fiscal 2016, GNA Axles domestic sales and export sales constituted 45.29 percent and 54.71 percent of revenue.


Established in 1993, the company is engaged in manufacturing and supplying a diverse range of rear axle shafts, other shafts and spindles for the on-highway segment (commercial vehicles and other transport vehicles) and the off-highway segment (agricultural tractors and machinery, forestry and construction equipments etc).


Its customers primarily include original equipment manufacturers such as Mahindra & Mahindra, John Deere, Tractors and Farm Equipment, and tier-1 suppliers to OEMs such as Automotive Axles, Meritor HVS AB and Dana.


The company has two manufacturing facilities both located in Punjab with a total annual capacity of 2.30 million rear axle shafts, 0.4 million other shafts and 0.3 million spindles.


Nirmal Bang


On the valuation front, Nirmal Bang believes the issue is reasonably priced in comparison to its peers. It recommends subscribing to the issue for listing as well as long term gains.


Emkay Equity Advisory


GNA has consistently maintained its profitability and robust margin profile, due to strong operations and focus on profitable customers, said Emkay, which believes high dependence on commercial vehicle segment, lack of product diversification and recent slowdown in North American class 8 market (around 46 percent of export market) would be major concerns for earnings.


It also believes future valuation upgrades will be dependent on balance sheet, cash flow and quality of earnings improvement.


GEPL Capital


GNA Axles stands to gain from operating leverage and also rise in the on highway side and off highway side business, GEPL feels.


At a P/E of 12.1x, it believes that GNA is at a discount to its domestic peers. It assigns a subscribe rating to the IPO.


ICICIdirect


ICICIdirect believes GNA has a decent business model (strong customer base & diversified revenue) and financial performance. However, it believes the company is fairly valued at the IPO price.


Arihant Capital Markets


"The issue looks fairly valued against its competitor. We have "2 star" rating for the issue," Arihant says.

High dependence on certain clients and currency exchange rate fluctuations as exports generate about 55 percent of the revenue could have an adverse effect, it feels.

First Published on Sep 14, 2016 03:20 pm
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