What you must know about Jyoti CNC Automation IPO?

Jyoti CNC Automation Ltd was incorporated in the year 1991 for the manufacture and supply of CNC machines. Its range of machines include the CNC turning centres, CNC turning-milling centres, CNC vertical machining centres (VMCs), CNC horizontal machining centres (HMCs), simultaneous 3-axis CNC machining centres, simultaneous 5-axis CNC machining centres and multi-tasking machines. The company has an impressive client base from the defence sector and this includes Space Application Centre (ISRO), BrahMos Aerospace, Turkish Aerospace, Tata Advances System, Tata Sikorsky Aerospace, Bharat Forge, Shreeram Aerospace & Defence, Harsha Engineers, Bosch Ltd etc. In the last 3 years, Jyoti CNC Automation Ltd has supplied more than 7,200 machines to over 3,000 customers across the globe. It has delivered a total of 30,000 plus CNC machines since 2004. For global distribution, Jyoti CNC Automation Ltd leverages the established dealer network of Huron, which as sales and service centres across Romania, France, Poland, Belgium, Italy, and UK.

Jyoti CNC Automation Ltd has a total of 3 manufacturing facilities. While two of the facilities are located in Rajkot in Gujarat, the third facility is located at Strasbourg, France. It has a total manufacturing capacity of around 4,521 CNC machines, of which it can produce 4,400 machines annually in India and 121 machines annually at its Strasbourg in France. Its order book stands at an impressive level of Rs3,143 crore. Jyoti CNC Automation Ltd is one of the world’s leading manufacturers of CNC machines with second and twelfth largest market share, in India and globally, respectively. The company is the second largest CNC machine manufacturer in India and accounted for approximately 8% of the market share. Jyoti CNC Automation Ltd is also a prominent manufacturer of simultaneous 5-Axis CNC machines in India and supplier of one of the most diverse portfolios of CNC machines in India.

The fresh issue portion will be largely utilized to repay or prepay some of its loans availed by the company. In addition, the company is also looking to use the funds for financing long term capital requirement and for general corporate purposes. The IPO will be lead managed by Equirus Capital Private Ltd, ICICI Securities Ltd, and SBI Capital markets. Link Intime India Private Ltd will be the registrar to the issue.

Highlights of the IPO issue of Jyoti CNC Automation Ltd

Here are some of the key highlights to the public issue of Jyoti CNC Automation IPO.

• Jyoti CNC Automation IPO will be open from January 09th, 2024 to January 11th, 2024. The stock of Jyoti CNC Automation IPO has a face value of ₹2 per share and the price band for the book building IPO has been set in the band of ₹315 to ₹331 per share. The final price will be discovered within this band through the process of book building.
   
• The IPO of Jyoti CNC Automation Ltd will be entirely comprising of a fresh issue of shares with no offer for sale (OFS) component in the issue. As you would be aware, a fresh issue tends to bring in fresh funds into the company, but is also EPS and equity dilutive. On the other hand, OFS is just a transfer of ownership and does not entail dilution of equity or of EPS.
   
• The fresh issue portion of the IPO of Jyoti CNC Automation Ltd comprises the issue of 3,02,11,480 shares (302.11 lakh shares approximately), which at the upper price band of ₹331 per share will translate into a fresh issue size of ₹1,000 crore.
   
• Since there is no offer for sale (OFS), the fresh issue portion will also double up as the overall issue size. Hence, the overall IPO of Jyoti CNC Automation Ltd will also comprise of the issue of 3,02,11,480 shares (302.11 lakh shares approximately), which at the upper price band of ₹331 per share translates into total IPO size of ₹1,000 crore.

The IPO of Jyoti CNC Automation Ltd will be listed on the NSE and the BSE on the IPO mainboard.

Promoter holdings and investor quota allocation quota

The company was promoted by Parakram Sinh Ghanshyam Sinh Jadeja, Sahdevsinh Lalubha Jadeja, Vikramsinh Raghuvirsinh Rana, and Jyoti International LLP. Currently the promoters hold 72.66% stake in the company, which will get diluted post the IPO to 62.95%. As per the terms of the offer, not less than 75% of the net offer is reserved for the qualified institutional buyers (QIBs), while not more than 10% of the net offer size is reserved for the retail investors. The residual 15% is kept aside for the HNI / NII investors. The table below captures the gist of the allocation to various categories.

It may be noted here that the Net Offer above refers to the quantity net of employee quota, as mentioned above, which is capped at ₹5 crore in value. The anchor portion, will be carved out of the QIB portion and the QIB portion available to the public will be reduced proportionately.

Lot sizes for investing in the IPO of Jyoti CNC Automation IPO

Lot size is the minimum number of shares that the investor has to put in as part of the IPO application. The lot size only applies for the IPO and once it is listed then it can be even traded in multiples of 1 shares since it is a mainboard issue. Investors in the IPO can only invest in minimum lot size and in multiples thereof. In the case of Jyoti CNC Automation Ltd, the minimum lot size is 45 shares with upper band indicative value of ₹14,895. The table below captures the minimum and maximum lots sizes applicable for different categories of investors in the IPO of Jyoti CNC Automation Ltd.

It may be noted here that for the B-HNI category and for the QIB (qualified institutional buyer) category, there are no upper limits applicable.

Key dates for Jyoti CNC Automation Ltd IPO and how to apply?

The issue opens for subscription on 09th January 2024 and closes for subscription on 11th January 2024 (both days inclusive). The basis of allotment will be finalized on 12th January 2024 and the refunds will be initiated on 15th January 2024. In addition, the demat credits are expected to also happen on 15th January 2024 and the stock will list on 16th January 2024 on the NSE and the BSE. Jyoti CNC Automation Ltd will test the appetite for the defence support stocks in India. The credits to the demat account to the extent of shares allotted will happen by the close of 15th January 2024 under ISIN (INE980O01024). Let us now turn to the practical issue of how to apply for the IPO of Jyoti CNC Automation Ltd.

Investors can apply either through their existing trading account or the ASBA application can be directly logged through the internet banking account. This can only be done through the authorized list of self-certified syndicate banks (SCSB). In an ASBA application, the requisite amount is only blocked at the time of application and the necessary amount is debited only on allotment. Investors can apply in the retail quote (up to ₹2 lakh per application) or in the HNI / NII quota (above ₹2 lakh). Minimum lot sizes will be known after pricing.

Financial highlights of Jyoti CNC Automation Ltd

The table below captures the key financials of Jyoti CNC Automation Ltd for the last 3 completed financial years.

Data Source: Company RHP filed with SEBI (FY refers to Apr-Mar period)

There are few key takeaways from the financials of Jyoti CNC Automation Ltd which can be enumerated as under

1. In the last 3 years, revenue growth has been robust and growing. However, what stands out about Jyoti CNC Automation Ltd is that the net profits have just about turned around in the latest year after losses in the previous two years. Hence, a lot will depend on the ability of the company to sustain these profits.
    
2. Even the ROE and the ROA would only be relevant for the latest year as the company had made losses in the previous two years. In fact, the previous year had negative equity also. For the latest year net margins are tepid at 1.58% while ROE is robust at 41.5%.
    
3. The company has had low sweating of assets, as it has remained under 1 all through due to a much higher asset base. For the business model of Jyoti CNC Automation Ltd, it is more the client base and the client margins that would matter. The company will surely benefit from the rapid growth in the defence demand of the government.

Let us turn to the valuations part. On the latest year diluted EPS of ₹1.02, the stock is available in the IPO at a P/E of 324 times. That is a fairly steep P/E ratio if you compare with the similar P/E ratio of the peer group. The weighted average P/E may not add much value as the company was making losses in the previous years. The bet is on the company sharply improving its profitability in the coming years so as to justify its rather steep valuations to begin with.

Let us look at some of the qualitative advantages that Jyoti CNC Automation Ltd brings to the table.

• It is a market leader in India in the manufacture of CNC machines and among the major players in the world in this space
   
• It has a wide array of customers in India and abroad with deep-set customer relationships going back a long way
   
• Vertically integrated operations from end to end enable the company to deliver customization and production efficiencies
   
• Proven track record in execution of large scale projects for clients

It is a high growth business and can be seen as a good proxy for the growth of the defence business in India. The pricing may look a little ambitious but investors in the IPO can look at this as a proxy play on the rapid growth in defence orders. Most defence stocks have been outperformers so that is likely to spill over. Investors can look at the stock with the explicit understanding of the valuation risks involved.