IPO Analysis - Azad Engineering Ltd

Azad Engineering’s Strong Overview

The business has a proven track record, a compelling business model, and managerial expertise that has yielded successful outcomes in the past. Between FY2021 and FY2023, the company's revenue increased at a CAGR of 43%, while between FY2021 and FY2023, the PAT margin increased at a CAGR of 49%.

What Azad Engineering do?

Azad Engineering Limited is a producer of turbines and parts for aircraft. The business provides its goods to original equipment manufacturers (OEMs) in the oil and gas, aerospace, defense, and energy sectors.

The table below sets out the details of the company’s total revenue from contracts with customers with geographical location outside India

Analysis

The following table demonstrates the sensitivity to a reasonably possible change in the US$ dollar exchange rate (or any other material currency) as of September 30, 2023, with all other variables held constant, of Company’s profit before tax (due to changes in the fair value of monetary assets and liabilities). The company’s exposure to foreign currency changes for all other currencies is not material.

Financial Summary

Interpretation and Trend Analysis    

1. Assets: The increasing trend in assets suggests the company is investing in its operations, which can be seen as positive for investors looking for growth potential.   

2. Revenue: The revenue of the company grew at a CAGR of 43% between FY2021 and FY2023 and PAT margin grew at a CAGR of 49% between FY2021 and FY2023   

3. Profit After Tax: The rising profit after tax is a positive trend, indicating improved operational efficiency or increased demand for the company's products/services. The company's revenue and profitability may be impacted by changes in the market for engineering goods and services brought on by external factors like as industry-specific issues or changes in the economy.
Risks to profitability might include project delays, cost overruns, or contractual conflicts if Azad Engineering Limited engages in project-based business.

4. Reserves and Surplus: The consistent growth in reserves and surplus is a positive indicator, showing that the company is financially stable and has the capacity to withstand economic downturns.   

5. Total Borrowing: The significant increase in total borrowing requires attention. 

Industry Review

Analysis

The global economy is expected to witness a growth rate of 3.0% in 2023. According to IMF, the global slowdown bottomed out in 2022 and the world would likely see a modest growth of ~3% per annum till 2028

What’s the Global Growth Driver?

Global growth will be led by emerging markets and developing economies, with established economies, particularly the United Kingdom and the Eurozone, expected to increase only at 0.4% and 0.9% in 2023, respectively. Because of its proximity to the war zone and greater sensitivity to swings in energy costs, the Eurozone is projected to suffer the greatest impact on growth.
When compared to global GDP growth, emerging markets, and developing economies are predicted to grow at a rate of 4.0% in 2023.

Analysis

With global supply chains getting back to the pre-pandemic order, International Monetary Fund (IMF) predicts that Asia will account for about 70% growth in the world in 2023 and India & China together will contribute towards 50% of global growth.

Peer Comparison of Azad Engineering Ltd

Analysis   

1. The EPS (Basic) of Azad Enginneering is way lower than the average with the peers.
2. The EPS (Diluted) Azad Enginneering is way lower than the average with the peers.
3. The NAV (Per Share) is approximately around the Peers Average, ahead of the ‘Paras Defence and Space Technologies Limited’ and the ‘Triveni Turbine Limited’.
4. The RoNW of Azad Enginneering is way lower than the average with the peers.

The Risk Factors of Azad Engineering Ltd

Analysis

Market Risks: Changes in the demand for engineering products and services, driven by economic shifts or industry-specific factors, can affect how much money the company makes and its overall profitability.

Technological Changes: When technology advances quickly, it might make the company's existing products outdated. To stay competitive, the company might have to spend a lot on research and development.

Supply Chain Disruptions: Since the company relies on a complex supply chain, problems like shortages of raw materials, issues with transportation, or unexpected events in different parts of the world can cause trouble.

Regulatory Compliance: If rules and requirements, especially those related to engineering and manufacturing, change, it can be challenging for the company. They might have to adjust how they operate to meet these new regulations.

Financial Risks: When the economy is not doing well, or if interest rates and currency exchange rates change unfavorably, it can affect how financially stable the company is.

Project Risks: If Azad Engineering Limited works on projects, there's a risk that these projects might get delayed, end up costing more than expected, or lead to disagreements about contracts. These issues can impact the company's profits.

Interesting Facts

1. In a blockbuster deal straight out of the business playbook, the brains behind the Company decided to spice things up by offloading a cool 14,607 equity shares at ₹10 a pop to none other than cricket legend Sachin Ramesh Tendulkar. The grand total? A jaw-dropping ₹49.99 million. Talk about making business moves like a champion!

1. The Company's Promoter, feeling the rhythm of excitement, also decided to dance with the stars. This time, 1,460 equity shares, each worth ₹10, found a new home in the portfolio of badminton sensation Saina Nehwal. The deal sizzled with a hot total of ₹9.99 million, proving that the court isn't the only place where she knows how to score big.

1. Not to be outdone, Mr. VVS Laxman stepped into the spotlight as the Company's Promoter handed him 1,460 equity shares at ₹10 each. The grand price tag? A cool ₹9.99 million. Looks like Laxman's trademark stylish shots extend beyond the cricket pitch and into the world of smart investments. Now that's what we call a boundary-breaking business move!