TechEra Engg NSE SME IPO review (May apply)

• IPO Details
• Docs
  • RHP
  • DRHP
  • Anchor Investor Link
• Reviews
• Subscription
• Calculator
• News
• GMP
• Allotment
• BoA
• Messages

Review By Dilip Davda on September 21, 2024

•    The company is engaged in providing critical components and supply of precision tooling etc. for aerospace and defence industries.
•    The company posted loss for FY22, but thereafter it gained ground and posted growth in its top and bottom lines.
•    It has few long term orders for aerospace and defence sectors and additional MRO servicing contracts.
•    Based on FY24 earnings, the issue appears fully priced. 
•    Well0informed investors may park moderate funds for medium term.

ABOUT COMPANY:
TechEra Engineering Ltd. (TEL) the company established in October 2018, engages in the design, manufacture, and supply of precision tooling, components for the aerospace and defence industries, and automation system solutions. The company's product portfolio includes assembly toolings, jigs, fixtures, maintenance, repair, and overhaul (MRO) toolings, ground support equipment, and precision machined components. 

It utilizes advanced manufacturing technologies, such as 5-axis machining and 3-D modelling for design visualization, to meet the requirements of its target sectors. The Company is ISO 9001:2015 and AS9100D:2018 certified, reflecting its adherence to quality management systems. It has participated in notable projects, including the manufacture of tooling for the commercial aircraft vertical fin assembly line and fighter wing skin layup tool, indicating its capability to execute complex engineering projects. The company aims to contribute to technological advancement and the upliftment of the sectors it serves, through continuous improvement and innovation in its processes and offerings.

TEL operates within the aerospace and defence market, a sector characterized by high technological complexity, stringent regulatory standards, and significant capital investment. This market is globally distributed, with major hubs in North America, Europe, Asia-Pacific, and other regions, reflecting the international demand for aerospace and defence products and services. The aerospace segment encompasses the manufacturing, design, and maintenance of aircraft and spacecraft, ranging from commercial airliners and cargo transport aircraft to military fighters and unmanned aerial vehicles. This segment is driven by factors such as global air traffic growth, advancements in aerospace technology, and increasing defence spending by countries seeking to modernize or expand their military capabilities. 

The defence segment includes the development and production of a wide array of military hardware, software, and services, including vehicles, weapons systems, and surveillance and communication technologies. The market is influenced by several key trends. Firstly, there is a growing emphasis on digital transformation and the adoption of Industry 4.0 technologies, such as automation, data analytics, and interconnected systems, to enhance manufacturing efficiency, product quality, and operational flexibility. Secondly, sustainability and environmental considerations are increasingly prioritized, leading to innovations in fuel efficiency, emissions reduction, and the development of electric and hybrid propulsion systems. Another significant trend is the expansion of the maintenance, repair, and overhaul (MRO) sector, fuelled by the aging global aircraft fleet and the need for regular maintenance to ensure safety and regulatory compliance. 

The MRO market is becoming a hub for service innovation, including predictive maintenance powered by artificial intelligence and big data analytics. Global geopolitics and defence policies heavily influence the defence segment, with shifts in international relations and security concerns driving changes in defence spending and procurement strategies. The increasing focus on unmanned systems, cyber security, and advanced electronics reflects the evolving nature of modern warfare and defence needs. TEL is positioned within this complex and dynamic environment, where its specialized capabilities in design, manufacturing, and supply of aerospace and defence tooling, precision components, and automation solutions align with the sector's demands. The company's focus on advanced manufacturing technologies and engineering services places it at the intersection of traditional manufacturing excellence and cutting-edge technological innovation. 

However, the aerospace and defence market is also subject to challenges, including cyclical demand, high barriers to entry due to regulatory and certification requirements, and the need for continuous investment in technology and skills to keep pace with evolving industry standards and customer expectations. The competitive landscape includes a range of players from large, established defence contractors and aerospace manufacturers to specialized engineering firms and innovative technology start-ups. As of the date of filing this offer document, it had 177 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 4377600 equity shares of Rs. 10 each to mobilize Rs. 35.90 cr. (at the upper cap). It has announced a price band of Rs. 75 - Rs. 82 per share. The issue opens for subscription on September 25, 2024, and will close on September 27, 2024. The minimum application to be made is for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.50% of the post-IPO paid-up capital of the company. From the net proceeds of the fresh equity issue, the company will utilize Rs. 20.00 cr. for capex on new plant and machinery, Rs. 6.00 cr. for working capital, Rs. 5.00 cr. for repayment/prepayment of certain borrowings, and the rest for general corporate purposes.

The issue is solely lead managed by SKI Capital Services Ltd., KFin Technologies Ltd. Is the registrar to the issue, while Acme Capital Market Ltd., and SKI Capital Services Ltd. are the market makers. 

Having issued initial equity shares at par so far, the company issued/converted further equity shares in the price range of Rs. 23 - Rs.294.80 per share between September 2021 and January 2024. It has also issued bonus shares in the ratio of 4 for 1 in February 2024. The average cost of acquisition of shares by the promoters is Rs. 3.71, Rs. 4.46 and Rs. 8.20 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 12.14 cr. will stand enhanced to Rs. 16.52 cr. Based on the upper cap of IPO price band, the company is looking for a market cap of Rs. 135.47 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit/ - (loss) of Rs. 7.37 cr. / Rs. - (6.29) cr. (FY22), Rs.  26.59 cr. / Rs. 1.31 cr.  (FY23), Rs. 39.08 cr. / Rs. 4.82 cr. (FY24). The quantum jump in financial performance for the pre-IPO year i.e. FY24 raises the eyebrows and concern over sustainability of the margins. 

For the last three fiscals, it has reported an average EPS of Rs. - (2.94) and an average RoNW of 8.37%. The issue is priced at a P/BV of 6.26 based on its NAV of Rs. 13.09 as of March 31, 2024, and at a P/BV of 2.62 based on its post-IPO NAV of Rs. 31.35 per share (at the upper cap).

If we attribute FY24 super earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 28.08. Based on FY23 earnings, the P/E stands at 103.80. Thus the issue relatively appears fully priced. Super performance in a pre-IPO year raises eyebrows and concern over its sustainability, as the company is operating in a highly competitive and fragmented segment. 

The company reported PAT margins of - (87.59) % (FY22), 4.94% (FY23), 12.45% (FY24), and RoCE margins of - (29.42) %, 9.71%, 23.47% for the referred periods, respectively.

According to the management, they have received five years contract for supply of components and tools for aerospace/defence segment and hopes to perform better in coming years. With the things in pipeline, the company hopes to cross three figure top line in next two fiscals.

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy based on its financial performance and future prospects. (It paid a dividend of Rs. 0.06 lakh on CCPS for FY24).

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown Paras Defence and Azad Engineering, as their listed peers. They are trading at a P/E of 115.0, and 129(as of September 20, 2024). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 2nd mandate from SKI Capital in the ongoing fiscals. The only listing that took place so far opened at a premium of 28% on the listing date. Please note that it withdrew the IPO of Avax Apparels which was scheduled to open in this month before this IPO.

TechEra Engineering IPO FAQs