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A global supplier for off – highway market ….

Uniparts India Ltd (UIL), incorporated on September 26, 1994, is a global manufacturer of engineered systems and solutions and are one of the leading suppliers of systems and components for the off-highway market in the agriculture and construction, forestry and mining and aftermarket sectors with a presence across over 25 countries (Source: CRISIL Report). The major product portfolio includes, 3- point linkage systems for tractors and precision machined parts. Other product like Power take off (PTO), fabrications and hydraulic cylinders are at nascent stage. UIL has 6 manufacturing facilities (5 in India and 1 in U.S) with an average capacity utilisation of ~71% (as of June 2022) and 3 warehouses (2 in U.S and 1 in Europe) and one distribution facility in India.

• The global 3PL (three-point linkage) market and the demand for PMP (precision machined parts) are expected to grow at a CAGR of 6% - 8% between FY21-26E, led by strong growth in tractor production and construction equipments in the key markets. (Source: CRISIL)

• UIL has a leading position in the markets, globally with ~16.7% market share of the 3PL market, and ~5.9% market share of the PMP market in the CFM (Construction, forestry and mining) sector in FY22, in terms of value. (Source: CRISIL)

• Despite the pandemic and lockdown restrictions, UIL’s revenue from operations clocked a CAGR of ~16% to Rs. 1,227cr and its PAT grew by ~63% CAGR from Rs.167cr over FY20-FY22, led by better volumes and margin expansion.

• The EBITDA margin expanded from ~10.6% in FY20 to 21.8% in FY22, led by favourable sales mix (more focus on margin accretive business) and more localisation.

• The sustainability of margins at current levels is key for long term growth. However, this is justifiable through localisation, leveraging existing customers, and a focus on a superior product mix.

• UIL has a healthy balance sheet position with a low D/E of 0.2x as of Q1FY23 and Avg. RoE stood at ~18.2% over FY20-22.

• At the upper price band of Rs.577, UIL is available at a P/E of 15.6x (on FY22 EPS), which appears reasonably priced compared to peers. Considering its strong earnings growth, improving margins and positive industry outlook, we assign a “Subscribe” rating on a short to medium term basis.

Purpose of IPO

The IPO consists of only an offer for sale. The objects of the offer are to (i) achieve the benefits of listing the equity shares on the stock exchanges and (ii) carry out the offer for sale of up to 14,481,942 equity shares by the selling shareholders.

Key Risks

• Dependent on limited number of customers. For 3PL business ~75.7% of the total business came from its top ten customers as of FY22.

• The issue is only OFS (offer for sale) and UIL will not receive any proceeds from the IPO.

• Sustainability of EBITDA margin above long term average.

• ~70% of revenue from operations as of June 2022 is from outside India. Hence, risk of recession in US, Europe markets and foreign currency risks may impact the business.

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