Azad Engineering IPO - Subscribe For Listing Gains: Motilal Oswal

Motilal Oswal Report

Azad Engineering Ltd.'s launched its initial public offering on Dec 20 and the offer will be concluded on Dec 22. The manufacturer of critical high-precision components has fixed a price band in the range Rs 499 to Rs 524 . The minimum order lot is 28 shares.

The Rs 740 crore IPO consists of fresh issue of Rs 240 crore and Rs 500 crore offer for sale (by promoter and investors), which would result in promoter stake reducing to 65.9% (78.6% pre-IPO).

The market value at upper end of price band will be Rs 3100 crore.

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We like Azad Engineering given its presence in the high growth niche segment with high entry barriers, diversified product/client portfolio and robust financials.

It would benefit from industry tailwinds especially in A&D space which could improve its revenue mix. IPO is priced at 57.6 times H1 FY24 price/earning (on an annualized and diluted basis).

We recommend 'Subscribe' for listing gains, given its unique business model and buoyant primary market.

Risk and concerns

• Top five customers contributed 61% of H1 FY24 revenues. Cancellation by customers or reduction in their orders could have adverse effect on the business.

• Azad Engineering derives the entire portion of its revenue from its Hyderabad, Telangana facilities. Any disruptions, breakdown or shutdown of facilities could have adverse effect on the business.

• Top five suppliers account for 83% of total raw material purchase. Cancellation by any supplier or reduction in their supply could have adverse effect on the business.

• 90% of its revenue comes from export.

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