What you must know about ASK Automotive IPO?

ASK Automotive Ltd was founded in the year 1988 to deliver Advanced Braking Systems, Aluminium Lightweight Precision Solutions and Safety Control Cables. It operates through 15  manufacturing facilities backed by a full-fledged design centre, tool manufacturing facility, R&D labs, and testing labs. The Advanced Braking Systems vertical offers braking solutions. This is getting increasingly critical and complex with vehicle speeds increasing with more powerful vehicles being introduced and better road infrastructure. It makes brake panel assembly, brake shoes, disc brake pads, and brake linings for motorcycles, scooters, PVs, and CVs; both with IC engines and for EVs. The Aluminium Lightweighting Precision Solutions vertical focuses on improving vehicle performance, energy efficiency and emissions, and making safer vehicles. Aluminium is critical for lightweighting and improving performance standards, safety, and corrosion resistance. It covers engine parts, body and chassis parts, and transmission parts for all types of vehicles. The Safety Control Cables vertical makes control cables used extensively in motorcycles, scooters, mopeds, and electric vehicles to control their operating mechanisms. Control Cables send signals to control the clutch, throttle, airflow, and help apply brakes.

ASK Automotive Ltd group has 15 manufacturing facilities across India and exports to 48 countries across the world. ASK Automotive Ltd has technical collaborations with a Japanese supplier of asbestos-free brake shoes to Two-wheeler manufacturers globally. It also has a collaboration with HSH Safety Control Cables Ltd, Taiwan to supply control cables to automobile OEMs globally. In addition, ASK Automotive Ltd has a collaboration with NUCAP, Canada, a global player in patented retention systems (mechanical bonding), for disc brake pads in two-wheelers, PVs, and CVs. The company also has a joint venture (JV) with ASK Fras-Le Friction Private Ltd, a global producer of brake pads and linings for commercial vehicle with exports to global OEMs. Being entirely an offer for sale (OFS), there will be no fresh funds coming into the company. The IPO will be lead managed by JM Financial, Axis Capital, ICICI Securities, and IIFL Securities. Link Intime India Private Ltd will be the registrar to the issue.

Highlights of the ASK Automotive IPO

Here are some of the key highlights to the public issue of ASK Automotive IPO.

• ASK Automotive Ltd has a face value of ₹2 per share and the price band for the book building IPO has been set in the band of ₹268 to ₹282. The final price will be discovered within this band through the process of book building.
   
• The IPO of ASK Automotive Ltd will be entirely an offer for sale (OFS) with no fresh issue component in the IPO. As you would be aware, a fresh issue tends to bring in fresh funds into the company, but is also EPS and equity dilutive. However, OFS is just a transfer of ownership and does not entail dilution of equity or of EPS.
   
• The offer for sale (OFS) portion of the IPO of ASK Automotive Ltd comprises the sale of 2,95,71,390 shares (295.71 lakh shares approximately), which at the upper price band of ₹282 per share will translate into an offer for sale (OFS) size of ₹833.91 crore.
   
• The OFS selling will be by the promoter shareholders. Out of the 295.71 lakh shares OFS, promoter Kuldip Singh Rathee will offer 207.00 lakh shares while the other promoter, Vijay Rathee will offer the remaining 88.71 lakh shares in the offer for sale (OFS).
   
• In the absence of any fresh issue component, the OFS portion will also double up as the total size of the IPO of ASK Automotive Ltd. Therefore, the overall IPO of ASK Automotive Ltd will also comprise the sale of 2,95,71,390 shares (295.71 crore shares approximately), which at the upper price band of ₹282 per share will translate into total IPO issue size of ₹833.91 crore overall.

There will only 2 promoter shareholders offering shares under the OFS portion. The shares will be listed on the NSE and the BSE.

Promoter holdings and investor allocation quota

The company was promoted by Kuldip Singh Rathee and Vijay Rathee. Currently the promoters hold 100.00% stake in the company. While the overall equity does not get diluted, the OFS will result in the promoter stake getting diluted from 100% to 85%. As per the terms of the offer, 50% of the net offer is reserved for the qualified institutional buyers (QIBs), while 35% of the total issue 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, if any. The anchor portion, will be carved out of the QIB portion and the QIB portion under the IPO would be reduced proportionately. The anchor allocation will happen one working day ahead of the opening of the IPO; i.e., on 06th November 2023.

Lot sizes for investing in the IPO of ASK Automotive Ltd

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 of 53 shares and in multiples thereof. In the case of ASK Automotive Ltd, the minimum lot size is 53 shares with upper band indicative value of ₹14,946. The table below captures the minimum and maximum lots sizes applicable for different categories of investors in the IPO of ASK Automotive 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 ASK Automotive IPO and how to apply?

The issue opens for subscription on 07th November 2023 and closes for subscription on 09th November 2023 (both days inclusive). The basis of allotment will be finalized on 15th November 2023 and the refunds will be initiated on 16th November 2023. In addition, the demat credits are expected to happen on 17th November 2023 and the stock will list on 20th November 2023 on the NSE and the BSE. ASK Automotive Ltd will be special for more than one reason. It will test the appetite for financial stocks and also whether there is appetite if a slew of mainboard IPOs hit the market. Let us now turn to the more practical issue of how to apply for the IPO of ASK Automotive 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 ASK Automotive Ltd

The table below captures the key financials of ASK Automotive Ltd for the last 3 completed financial years.

Data Source: Company RHP filed with SEBI

There are few key takeaways from the financials of ASK Automotive Ltd which can be enumerated as under

1. In the last 3 years, revenue growth has been steady and also growing. That is evident from the expansion of the revenue pool and that is understandable considering the legacy and the stable business model that the company has been following.
    
2. Profits and ROE are fairly attractive for ASK Automotive. The PAT margins have averaged around 5% in the last 3 years, which is a good number for an auto component company. Also, the ROE has shown a sharp spike in the last couple of years and if it can be sustained around the 19-20% range, then the current valuations can be sustained.
    
3. The company has impressive average sweating assets, which has gotten close to the 2X mark. That is a good starting point to grow the ROE in future.

On the latest year EPS of ₹6.20 for FY23 and annualized EPS of ₹7.20 for FY24, we could be looking at a current P/E of 45.5X and a forward P/E of 39.2X. What would really justify such a P/E would be the ability of the company to sustain the ROE at around the 20% levels and the asset turnover at around the 2X levels. It has a number of qualitative advantages too.

The customer base and the manufacturing process is established and tested. Also, it is well set for the old IC model and the emerging EV model. This gives them a technology and innovation edge. Overall, the valuations may look well priced on comparative terms, but it would be a good bet for the long term investor. It will call for a high degree of patience to be able to benefit from this IPO investment.