Jyoti CNC Automation IPO Opens For Subscription: Should You Invest Or Not?

The Gujarat-based Jyoti CNC Automation Ltd.'s initial public offering of Rs 1,000 crore is set to open for public subscription from Jan. 9-11.

The company has fixed a price band of Rs 315-331 per share for the IPO. The issue is entirely a fresh offering of equity.

Proceeds from the issue will be used for debt payment, funding long-term working capital requirements of the company and for general corporate purposes.

Jyoti CNC Automation is engaged in manufacturing metal cutting computer numerical control machines. The company, with an approximate 10% market share in FY23, was the third-largest in its sector in India.

After the issue, the promoters' stake in the company will reduce to 62.5% from 72.1%, while that of the public will increase to 37.5%.

Jyoti CNC's net profit stood at Rs 15 crore for FY23, as against a loss of Rs 48 crore in FY22, while revenue rose to Rs 929 crore from Rs 746 crore over the same period.

The company's profit in the first half of FY24 stood at Rs 3 crore, on a revenue of Rs 510 crore.

At the upper end of the price band, the company is valued at a price-to-earnings ratio of about 324 times, with an implied market capitalisation of Rs 7,527 crore.

"At the upper price band, the company is valued at P/E of 374.22 times, EV/Ebitda 85.59 times and return on net worth of 18.35%," according to a note by Anand Rathi. "Since the company is using majority of its IPO proceeds to repay its debt, which is going to reduce interest cost and hence, it will have positive impact of profitability going forward."

The brokerage expects revenue visibility for the company due to the size of its order book. And, as the company operates in a niche segment and majority of the revenue is from the aerospace and defence industry—which is a high growth sector—"we believe that the IPO is fairly priced and recommend a 'Subscribe-Long term' rating to the IPO", it said.

Its customer base includes the Indian Space Research Organisation, BrahMos Aerospace Pvt., Turkish Aerospace Inc., Uniparts India Ltd., Tata Advanced Systems Ltd., Tata Sikorsky Aerospace Ltd., Bharat Forge Ltd., Shakti Pumps India Ltd., Shreeram Aerospace and Defence LLP, among others.

"With improved market share, growing industry demand, diversified presence, augmenting capacities at regular intervals and improving financial risk profile by repaying certain debt, strong order book of Rs 3,310 crore to be executed over the span of next few years augurs well for the company. Hence, we suggest a 'Subscribe' rating for the long-term," said analysts at Reliance Securities.