PE investors don't want a full exit, IPO gives them liquidity, says SEDEMAC Mechatronics

SEDEMAC Mechatronics to launch its Rs 1,087-crore maiden public issue on March 4.

• SEDEMAC Mechatronics to launch Rs 1,087 crore IPO via OFS
• IPO aims for scale, not capital; strong revenue and margins
• Company expands into power tools and EVs

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As auto parts manufacturer SEDEMAC Mechatronics prepares to hit the public markets, the firm's founder and IIT Bombay professor Shashikanth Suryanarayanan noted that scale, instead of the need to raise capital, is the driving reason behind the issue.

The  Rs 1,087 crore IPO is entirely an offer for sale (OFS) of 80.43 lakh equity shares, with no fresh issue component.

Q: What's the rationale behind coming to market now?

We've done Rs 650 crore of revenue last year, Rs 770 crore in nine months this year. We have millions of vehicles and generators using our products, marquee customers, and strong numbers. This is historically the scale at which IPOs happen. We think we're ready.

Q: The IPO is entirely OFS. What's the investment case for an investor typically wary of OFS-heavy offerings?

The first question is whether the company needs money. If it doesn't, I will not take one paisa. Why dilute unnecessarily?

We're generating 20% EBITDA margins and over Rs 125 crore of operating cash flow in nine months. For every Rs 200 crores of incremental revenue, we need roughly Rs 40 crore of capex which is well within our internal accruals. Our debt-to-equity is 0.17, so we have room to borrow if ever needed. There is simply no need to raise primary capital right now.

As for the OFS, if I'm not raising money and the promoters aren't selling, the financial investors have to sell to create a public market. Notably, all PE investors are selling exactly 30% each. That's not a coincidence. They don't really want a full exit, they want liquidity optionality. The IPO creates that market.

Q: Your customer concentration is high, with TVS being a 75% of your revenue. How do you mitigate that risk?

It's a real risk, yes. But TVS is large for us today for the same reason Mahindra was large ten years ago: they were the first large adopters of our latest technology. This pattern repeats across industries. When Qualcomm brought CDMA or Bosch brought ESP, one or two early adopters always dominated the initial phase.

Over time, as confidence spreads, other OEMs adopt too. We're already seeing Bajaj's share grow. As we expand into CVs and Power Tools, diversification happens naturally. We have no doubt this concentration will come down on its own.

Q: R&D spend has declined from 12-13% to 6-7% of revenue and has been flat in absolute terms. For a differentiated technology company, shouldn't you be spending more?

We will do what is necessary, not what looks good as a percentage. What matters is the quality of the input, not the number. Our key input is high-caliber engineers, particularly from IITs, and that headcount is growing consistently. The output is control-intensive ECUs. Smart people building great products that produce revenue - that is the company. The percentage doesn't concern me.

Q: You're entering Power Tools as a new vertical. Can you walk us through the typical development cycle?

The first hurdle is having something genuinely special. A Western Power Tools OEM already has established suppliers and they won't look at you unless you bring a technology they believe solves a real problem and can't be easily replicated.

If that spark happens, the journey from initial concept to OEM excitement takes one to three years. Then comes an elaborate testing phase in both our labs and theirs, which is another one to two years. If testing goes well, the next milestone is the first business award and pricing discussion. That first pricing is crucial because it sets the benchmark for all future customers. That is the stage we are currently in.

Q: Your EV revenue share only moved from 1% to 7% recently, despite EV adoption starting earlier. Why the lag?

When EVs were nascent, we weren't yet a dominant motor controller player even in ICE. So early OEM choices went to Bosch, and others who were already available. We weren't the natural choice then. But that has changed and our motor control credentials are established, and our sensorless technology is genuinely differentiated for EVs as well. You don't go from 1% to 7% in a year if you're not relevant.

Our goal isn't to maximize EV share, instead we aim to stay aligned to the market If EV penetration is at 6 or 7%, having 7 or 10% of revenue from EV is fine. At 20% penetration, we'd want 15–25% from EV. We want to be agnostic like that, and relevant in both ICE and EV.

Q: 90% of your revenue is from India. What are your geographical diversification plans?

We don't think in geographies, instead we think in OEMs. TVS, Bajaj, Hero in two-wheelers; while Kirloskar, Cummins, Generac in generators. If those OEMs are headquartered in Europe or the US, it shows up as international revenue but that's not how we're targeting it.

High-quality OEMs are really only concentrated in four places: the US, Europe, Japan, and India/China. Everywhere else is an adopter market with no strong OEM partners. Since we don't retail anything, there's no path for us in those markets anyway.

Q: Your PAT has grown sharply in FY25 and 9MFY26. What happened?

Our PAT spike is largely an accounting effect. Until May 2024, a significant portion of our shares were compulsorily convertible preference shares. These carried a contingent liability, which auditors required to be recorded as a financial liability and expensed as finance cost. When those shares converted to equity in May 2024, the liability vanished and PAT appeared to explode.

Also Read | Control intensive products maker Sedemac Mechatronics to launch Rs 1,087 crore IPO on March 4

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