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Salient features of the IPO:

* Unimech Aerospace & Manufacturing Ltd. (UAML), a global high precision engineering solutions company specializing in manufacturing of complex products for major original equipment manufacturers (OEMs) and their licensees worldwide in aerospace, defence, energy, and semiconductor industries., is coming up with an IPO to raise around Rs. 500.0cr, which opens on 23rd Dec. and closes on 26th Dec. 2024. The price band is Rs. 745 – 785 per share.

* This public issue is a combination of fresh issue (Rs. 250.0cr) and OFS (Rs. 250.0cr). The company will not receive any proceeds from the OFS portion. From the fresh issue net proceeds, the company will be utilizing Rs. 36.366cr for Funding of capital expenditure for expansion through purchase of machineries and equipment by our Company; Rs. 25.285cr for Funding working capital requirements of our Company; and Investment in the Material Subsidiary of Rs. 43.891cr for Funding of capital expenditure for expansion through purchase of machineries and equipment; Rs. 44.715cr for Funding working capital requirements; and Rs. 40.00cr for Repayment/ prepayment, in full or part, certain borrowings. Residual proceeds will be used for general corporate purposes.

* Some of the promoter & promoter group (P&PG) entities are participating in the OFS and offloading 0.318cr equity shares. Post-IPO, the P&PG and public shareholders will have 79.82% and 20.18% stake in the company, respectively.

Key competitive strengths:

* High-precision engineering solutions through advanced manufacturing capabilities

* Seamless operations integration through a digital-first manufacturing infrastructure

* Established leader with unique capabilities in a sector with high entry barriers

* Export-driven player with a global delivery service model

* Robust vendor ecosystem and strong sub-contractor management with proven execution capabilities

* Skilled and experienced management team with committed workforce

Risk and concerns:

* Dependence on a limited number of customers for revenue

* Reliance on operating income and cash flows generated by material subsidiary, Innomech Aerospace Toolings Pvt. Ltd.

* Financial and operational challenges due to product returns, re-work, and delivery delays

* Exposure to foreign currency exchange rate fluctuations amidst volatile interest rate environments

* Competition

Below are the key highlights of the company:

* The tourism sector is a significant 10.4% contributor to the global economy, generating USD 8.8tn in world GDP and is expected to grow to USD 15.50tn in 2033 and represent to 11.6% of Global economy. As the global tourism and travel market continues to expand, it is driving growth in the aerospace sector. A robust forecast for new passenger and freighter aircraft orders worldwide is fueling the demand for new aerotooling, airframe production, and components.

* Incorporated on 12 Aug, 2016, UAML is an engineering solutions company specializing in manufacturing and supply of critical parts such as aero tooling, ground support equipment, electro-mechanical subassemblies and other precision engineered components for aerospace, defence, energy, and semiconductor industries.

* The company possess “build to print” capabilities, wherein it manufactures products based on client designs, it focus on tools and components which are complex in nature, and are categorized by their high mix, and low volume; and “build to specifications” capabilities, wherein it assists clients in designing the products to be manufactured basis specifications, it aligns with the expectations of the clients in terms of their requirement of product functionalities to deliver a satisfactory product experience to customers. UAML supply high precision and critical components to major OEMs and their licensees worldwide.

* The company’s product portfolio includes, inter alia, engine lifting and balancing beams, assembly, disassembly and calibration tooling, ground support equipment, airframe assembly platforms, engine transportation stands, mechanical & electro-mechanical turnkey systems, and precision components. It is a key link in the global supply chain for global aerospace, defence, semi-conductor and energy OEMs and their licensees for the supply of critical parts like aero tooling, ground support equipment, electro-mechanical sub-assemblies and other precision engineered components.

* The salient features of UAML products are complexity and a “high-mix, low volume nature”, characterized by high mix products which are not mass manufactured. It offers a wide range of products (Stock Keeping Units (“SKUs”)) but produce relatively small quantities of each based on specific customer requirements. Between Fiscals 2022 and six months period ended September 30, 2024, it manufactured 2,999 SKUs in tooling and precision complex sub-assemblies’ category and 760 SKUs in the precision machined parts category, supplying to more than 26 customers across 7 countries.

* UAML’s diverse capabilities allow it to service the customers globally, which has established it as an export-oriented company with customers across USA, Germany and United Kingdom. Its product and service exports aggregated to Rs. 33.101cr, Rs. 89.645cr, Rs. 203.849cr and Rs. 115.427cr, contributing 91.06%, 95.20%, 97.64% and 95.67% of the total revenue from operations for FY22, FY23, FY24 and six-months period ended September 30, 2024, respectively. Global customer base is spread across USA, Germany and UK.

* The company’s orders typically begin with the receipt of purchase orders, along with designs or specifications from the customers. Upon 205 developments of the design, they are converted into 3-D models with the help of software used by the experienced engineers.

* UAML focuses on timely deliveries of the products. The systems and processes ensure efficient order fulfilment and on-time delivery. As on September 30, 2024, its order in-hand was Rs. 80.752cr, with a delivery timeline ranging between 4 to 16 weeks.

Key highlights of the company (Contd…):

* As of six months period ended September 30, 2024, UAML had two manufacturing facilities, Unit I and Unit II, in Bangalore which is spread across an aggregate area of over 1,20,000 sq. ft. and have a combined annual installed capacity of 1,65,945 hours pa, annual actual production of 1,57,123 hours pa and capacity utilization of 94.68% pa.

* The facility in Unit I in Peenya, Bangalore, is spread across an area of over 30,000 sq. ft. and the Unit II facility in Devanahalli is situated in a Special Economic Zone (“SEZ”) near Bangalore International Airport which is spread across an area of over 90,000 sq. ft.

* As an engineering solutions provider, UAML offers a range of capabilities, from product conceptualization to final assembly, which includes (i) design and engineering, (ii) manufacturing, (iii) fabrication, (iv) special process, (v) electrical and electronic integration, (vi) assembly, and (vii) quality inspection. The designers take care of designs for prototypes, manufacturing and serviceability using highend design software and designing platforms. The engineering team undertakes tech-pack creations which include (i) 2D to 3D modelling, (ii) detailing, (iii) process planning, (iv) stage drawings, and (v) inspection planning.

* UAML deploys a range of digital manufacturing systems which integrates the complete process from order origination to order delivery. Its digital manufacturing system captures all inspection requirements and measurements underpinning its commitment to the high standards of quality. It also developed an in-house ERP system which plans and tracks every step of the product manufacturing process, from inception to completion, including the movement of all components to external vendors, thereby assisting in timely delivery of products.

* The company conducts a substantial part of its operations through its material subsidiary, Innomech Aerospace Toolings Pvt. Ltd. This material subsidiary is engaged in the manufacturing of aero-tooling, GSTE and MRO tooling for the aerospace sector. Additionally, being located in a Special Economic Zone (“SEZ”) near Bangalore International Airport (unit II UAML), it places emphasis on export sales. A significant part of the revenue from operations i.e. 83.46%, 89.35%, 73.50% and 68.06% in the six months period ended September 30, 2024, FY24, FY23 and FY22, respectively were conducted through Innomech.

Peer comparison and valuation:

UAML is an engineering solutions company specializing in manufacturing and supply of critical parts such as aero tooling, ground support equipment, electro-mechanical sub-assemblies and other precision engineered components for aerospace, defence, energy, and semiconductor industries. It possess “build to print” capabilities, wherein it manufacture products based on client designs, and “build to specifications” capabilities, wherein it assists clients in designing the products to be manufactured basis specifications. At the upper end of its price range, UAML is demanding a P/E multiple of 68.7x, based on its FY24 EPS of Rs. 11.4, and a EV/Sales multiple of 18.0x, this valuation seems to be at a discount compared to its peers. The company has experienced a significant increase in both its top and bottom lines, driven by expanded capacity and rising customer revenue, resulting in improved margins. Looking forward, we believe UAML holds strong long-term growth potential through global expansion. Thus, we recommend a “SUBSCRIBE” rating for this issue.

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