Uniparts India Limited IPO

About the company

Uniparts India Ltd (UIL) is a global manufacturer of engineered systems and solutions and is one of the leading suppliers of systems and components for the off-highway (rough roads) market in the agriculture and construction, forestry and mining (CFM) and aftermarket sectors with a presence across over 25 countries. It manufactures precision products for off-highway vehicles (OHVs) like tractors, JCB, etc. with a presence across the value chain.

Let us understand the product portfolio in more detail.

1. 3-point linkage systems(3PL) - The 3-PL systems consist of different assemblies that are attached to an agricultural tractor. It forms a group of assemblies allowing attaching an implement like a plough to the tractor at 3 coupling points.
2. Precision machined parts (PMP) - PMP is a group of products that are components requiring stringent material and manufacturing specifications and controls. These include among others, precision machined components such as pins, bushes, and bosses used in articulated joints.
3. Power take-off (PTO) - PTO is a device used to power equipment that needs a mechanical drive from the tractor, such as rotary tillers, mowers, and other machinery.
4. Fabrications - Agriculture as well as construction equipment use fabrications ranging from large structural parts to medium and small parts.
5. Hydraulic Cylinders – Hydraulic cylinders are used in heavy vehicles like JCB to reduce or extend the length of the component attached to them.

Industry Overview

The global market for 3PL, which was valued at USD 360–370 million in 2021, is predicted to expand at a rate of roughly 6-8% between 2021–26, helped along by strong increases in the production volumes of tractors in North America, India, and Europe, as well as consistent growth in China and Japan. A major driver of 3PL demand is tractors and the demand for 3PL is set to grow at a steady, healthy pace. Although India and China have a share of nearly 62% of the world tractor production, their share in global 3PL demand is only around 36%.

The global market for PMP for articulated joints was USD 648mn in 2021, with 80% and above of the demand from four key geographies China, Japan, Europe, and North America. The demand for PMP products is expected to grow at a healthy CAGR of 6-8% between 2021-26, powered by strong volume growth in construction equipment production in key markets such as Japan and Europe.

Objects of the offer

1. Carry out the OFS by the selling shareholders.
2. Achieve the benefits of listing the equity shares on the stock exchange

Financials

Uniparts India Limited’s revenue/EBITDA/PAT grew strongly by 16%/67%/63% over FY20-FY22, while its EBITDA margins expanded sharply from 10.6% in FY20 to 21.8% in FY22. Constant value addition along with backward and forward integration led to such huge margin improvement. Its return ratios too improved substantially with RoE/RoCE at 29%/24% as of FY22.

The company’s major revenue is from two products which are 3PL and PMP. Geography-wise USA and Europe are the major contributors to the revenue. You can see the segment-wise share and geography-wise split of the revenue for FY 22 in below pie charts.

Valuation

As per the RHP, the company has 3 listed peers namely Balkrishna Industries Limited, Bharat Forge Limited, and Ramakrishna Forgings Limited.

The Company is asking for a PE multiple of 20 at the upper price band whereas the industry average is 27.26. If we look at the PB the company is demanding a PBV of almost 3.6 times whereas the average industry PBV comes to around 4.74.

The issue appears to be reasonably priced as per the PE and P/B.

Risks

1. Top 10 customers contributed ~70% to FY22 revenues. Therefore, losing a significant customer could hurt the company's operations.
2. Agriculture and CFM (construction, forestry, and Mining) market which it largely caters to is cyclical in nature.
3. Over ~80% of revenue comes from outside India. Thus, Uniparts India Limited (UIL) is exposed to foreign currency exchange rate fluctuations, which may harm its profitability.

IPO Details

The IPO started on 30^th November 2022 and is open till 2^nd December 2022. The company is coming with a total issue of Rs. 835.61 crores and the issue is completely OFS. The price band of the issue is Rs.548 - 577 per share and a retail investor can apply for a maximum of 13 lots. As of releasing the blog, the GMP is ~11.44% and the overall subscription is 1.28 times.