Ahlada Engineers Ltd. (AEL) started commercial operations in February 2006 manufacturing cleanroom equipment and furniture.
BUSINESS
In 2008, it started manufacturing steel doors which catered to the then existing customers of cleanroom equipment and furniture. Gradually company started expanding the customer base for products manufactured to healthcare, entertainment and real estate vertical.
During these years, it gradually started shifting its focus from clean room products to steel doors and windows manufacturing. Currently AEL’s facilities spread across 3 manufacturing units in addition to one assembling unit and stock yard, with an area admeasuring 34,211 square yards on the outskirts of Hyderabad.
Having expanded its facility to current status in last one decade, it has now capacity to manufacture 11000 doors per month.
AEL supplies steel doors/windows to other industrial customers besides Tata group.
In order to expand its business and customer base, AEL has on August 22, 2017, entered into a Master Manufacturing and Supply Agreement (MMSA) with Tata Steel Limited (TSL), whereby TSL has assured off take of doors manufactured and shall work with AEL to improve process and line efficiency.
This has become its biggest strength indicating bright prospects ahead.
Pursuant to the said agreement, the company is manufacturing and supplying steel doors of decorative, wood finished, RAL colour, to be used for independent house building and/or steel doors of decorative and wood finished, RAL colour for external door/ internal door / toilet door to be used in housing, residential and commercial sector and other related parts for Tata and under the brand name of Tata (i.e.” Pravesh”) and /or as directed by Tata from time to time.
AEL shall provide the Products as per purchase orders issued from time to time and Tata has committed to order minimum quantity of 11.75 lac doors during the term of the agreement.
This Agreement is valid for an initial term of 48 months from the date of signing, and may be extended for an additional period of 11 months (Extension Period).
The Agreement may be renewed by executing a fresh agreement on mutually acceptable terms for another 4 years (Renewed Period).
The price shall be as set out in the Agreement, which shall be revised and mutually agreed to in writing every 3 months from the date of last product addendum.
AEL and Tata shall jointly endeavour to identify cost reduction opportunities with the objective to reduce the net price of the Product by a minimum percentage to be mutually agreed.
Our Company shall pass on all cost improvements achieved during the term of the Agreement to Tata.
Tata is the sole owner of the Product and owns or has rights to all intellectual property relating to the Product, except for patents, technology and know-how owned or controlled as of the date by ael.
All materials, inventions, concepts, Product variations, improvements, know-how, trademarks, copyrights, information, data, writings and other property in any form, including the brand name “Pravesh” and other names , logos, graphics, marks, designs, patents and/or trademarks etc. that may require AEL to use, insert, impress, design etc. which is provided to it on behalf of Tata or used by the company with respect to performance of obligations under the Agreement, and which is owned by Tata prior to being provided to Tata, and any improvements thereto, shall remain the property of Tata and Tata grants AEL a non-exclusive right to use such property solely for the purpose of giving effect to the Agreement.
Additionally, any improvements or modifications to such property and any creative ideas, proprietary information, inventions etc. shall be the exclusive property of Tata.
This agreement can be terminated by either party in the event of material breach, insolvency of either party, alteration in the character of AEL, or no reason by giving 6 months advance notice.
ISSUE
To part finance its plans for repayment of certain loans, purchase of machinery and equipments, working capital and general corpus fund needs, AEL is coming out with a maiden book building IPO of 3405000 equity shares of Rs. 10 each.
It has fixed a price band of Rs. 147-Rs. 150 per share, AEL mulls to mobilize Rs. 50.05 cr. – Rs. 51.08 cr. (based on lower and upper price bands).
Issue opens for subscription on 11.09.18 and will close on 18.09.18. Minimum application is to be made for 1000 shares and in multiples thereon, thereafter.
Post allotment, shares will be listed on NSE SME Emerge. Issue is solely lead managed by Saffron Capital Advisors Pvt. Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue. Issue constitutes 26.35% of the post issue paid up capital of the company.
AEL has reserved 40.01% for QIBs, 15% for HNIs and 35% for Retail investors. Having issued initial equity at par, AEL raised further equity in the price range of Rs. 20 to Rs. 134 per shre between October 2008 and May 2018.
It did pre-IPO placement at Rs. 134 per share. It has also issued bonus shares in the ratio of 2 for 1 in July 2008 and 1 for 1 in January 2018. Average cost of acquisition of shares by the promoters is Rs. 18.45 per share. Post issue, its current paid up equity capital of Rs. 9.52 cr. will stand enhanced to Rs. 12.92 cr.
PERFORMANCE
On performance front, for last three fiscals, AEL has posted turnover/net profits of Rs. 111.47 cr. / Rs. 3.07 cr. (FY16), Rs. 118.55 cr. / Rs. 3.27 cr. (FY17) and Rs. 127.89 cr. / Rs. 8.09 cr. (FY18).
Sudden jump in bottom line for FY18 is due to shift of major business from clean room to doors/windows manufacturing. Clean room business dropped from Rs. 74.24 cr. in FY16 to Rs. 31.44 cr. in FY18 while doors and windows business grew from Rs. 36.83 cr. in FY16 to Rs. 96.34 cr. in FY18.
For last three fiscals, it has posted an average EPS of Rs. 6.45, and an average RoNW of 16.97%. Issue is priced at a P/BV of 3.61 on the basis of NAV of Rs.41.57 as on 31.03.18 and at a P/BV of 1.98 on the basis of post issue NAV of Rs. 75.57 (both P/BV is considered on higher price band).
If we take FY18 earnings and attribute it to fully diluted equity post issue, then asking price is at a P/E of around 24. It has no listed peers to compare with.
According to management, currently it is supplying around 8000 doors per month now. It has expanded its capacity to 18000 doors and will reach supply to this level very soon.
To complete Tata Steel order, it is augmenting to reach the capacity of 36000 doors per month with IPO proceeds.
On Merchant banker’s front, this is 3rd mandate from its stable in last two years. It withdraws IPO of Sorich. The only listing took place so far, that of Cadsys, opened at a premium of 20% on the day of listing.
INVESTMENT STRATEGY
Growth in financial performance for past three years and shift of business from clean room (low margin) to steel doors and windows (high margin) in tie up with Tata Steel augurs well.
Although issue appears fully priced, it will have first mover advantage in steel doors/windows segment and will attract fancy going forward. Investors may consider investment for short to long term.
