Pavna Industries coming with an IPO to raise up to Rs 30 crore

22 Feb 2021

Pavna Industries

  • Pavna Industries is coming out with an initial public offering (IPO) of 18,00,000 Equity Shares of face value of Rs 10 each for cash at a fixed price of Rs 165 per equity share.
  • The issue will open on February 24, 2021 and will close on March 01, 2021.
  • The shares will be listed on the Emerge platform of NSE.
  • The share is priced 16.50 times higher to its face value of Rs 10.
  • Book running lead manager to the issue is Aryaman Financial Services.
  • Compliance Officer for the issue is Divyani Koshta.

Profile of the company

The company along with its subsidiaries is engaged in the business of manufacturing of automotive parts, providing solutions for automobile applications and serving automobile & other applications worldwide. Its focus is manufacturing quality & customer-oriented components, catering to Original Equipment Manufacturers (OEM) & providing automotive after-market solutions. It is engaged in manufacturing of wide range of automotive components for reputed Original Equipment Manufacturers (OEMs) as per their requirements primarily catering to various vehicle segments, including, passenger vehicles, two-wheelers, three-wheelers, heavy and light commercial vehicles and off-road vehicles. The company has a varied client base and it is committed to continuing to diversify its product offerings, customer base and geographical footprint, thereby minimizing its exposure to individual geographies and industry sectors.

The company along with its subsidiaries has a diversified product portfolio, which consists of high-quality reliable parts such as Ignition Switches, Fuel Tank Caps, Latches, Auto Locks, Handles, Switches, Oil Pump, Carburetor, Throttle Body, Fuel Cocks, Injection System, Casting Components etc. It also provide aftermarket sales and services. Its aftermarket products include products manufactured by it such as filters, clutch plates, bearings, wiper blades and brake shoes. The company has ultra-modern manufacturing plants in India, located in Aligarh (Uttar Pradesh), Aurangabad (Maharashtra), & Pantnagar (Uttarakhand). Its facilities are located in key auto-clusters and some of the facilities are in close proximity to the plants of its OEM customers. The proximity of its facilities to the plants of its OEM customers also facilitates greater interaction with its customers, thereby enabling it to respond to their requirements in a timely manner.

Proceed is being used for:

  • Part repayment of loans
  • General corporate purpose

Industry overview

The automobile industry in India is the world‘s fourth largest. India was the world's fourth largest manufacturer of cars and seventh largest manufacturer of commercial vehicles in 2019. Indian automotive industry (including component manufacturing) is expected to reach Rs 16.16-18.18 trillion ($251.4-282.8 billion) by 2026. The industry attracted Foreign Direct Investment (FDI) worth $ 24.21 billion during April 2000 to March 2020 according to the data released by Department for Promotion of Industry and Internal Trade (DPIIT). Domestic automobile production increased at 2.36 per cent CAGR between FY16-FY20 with 26.36 million vehicles being manufactured in the country in FY20. Overall, domestic automobiles sales increased at 1.29 percent CAGR between FY16-FY20 with 21.55 million vehicles being sold in FY20.

Two wheelers and passenger vehicles dominate the domestic Indian auto market. Passenger car sales are dominated by small and mid-sized cars. Two wheelers and passenger cars accounted for 80.8 percent and 12.9 percent market share, respectively, accounting for a combined sale of over 20.1 million vehicles in FY20. Overall, automobile export reached 4.77 million vehicles in FY20, growing at a CAGR of 6.94 percent during FY16-FY20. Two wheelers made up 73.9 percent of the vehicles exported, followed by passenger vehicles at 14.2 percent, three wheelers at 10.5 percent and commercial vehicles at 1.3 percent. Domestic automobiles production increased at 2.36 per cent CAGR between FY16-20 with 26.36 million vehicles being manufactured in the country in FY20. Overall, domestic automobiles sales increased at 1.29 per cent CAGR between FY16-FY20 with 21.55 million vehicles being sold in FY20.

The Indian auto-components industry has experienced healthy growth over the last few years. The auto-components industry expanded 10.6 per cent to reach $56.52 billion in FY19. Auto-components industry account for 2.3 percent of India‘s Gross Domestic Product (GDP) and employs as many as 1.5 million people directly and indirectly each. A stable government framework, increased purchasing power, large domestic market, and an ever-increasing development in infrastructure have made India a favourable destination for investment.

Pros and strengths

Diversified product portfolio: The company is automotive component manufacturing company having varied product segments. Its diversified product portfolio caters to different automotive segments including passenger vehicles, two-wheelers, three-wheelers, heavy and light commercial vehicles and off-road vehicles. It has been able to become an integral part of its customers‘ manufacturing supply chains by offering multiple products, increasing its range of products and increasing its share of business with them. A diverse product portfolio also enables the company to achieve significant scale to overcome entry barriers in new markets.

Well established manufacturing facility: The company’s manufacturing units are located in Aligarh (Uttar Pradesh), Aurangabad (Maharashtra), & Pantnagar (Uttarakhand). Its facilities are located in key auto-clusters and some of the facilities are in close proximity to the plants of its OEM customers. Apart from allowing the company to optimise delivery to its customers, the proximity of its facilities to the plants of its OEM customers also facilitates greater interaction with its customers, thereby enabling it to respond to their requirements in a timely manner. The facilities have been laid out to match best plant engineering standards housing various machineries and suitable infrastructure and quality control setup to handle the product portfolio as its plants are busy producing automotive products in large quantities as per exacting standards. Its units are ISO 9001:2015, ISO 14001:2015, OHSAS 18001:2007 and IATF 16949:2016 certified. It has five units located in Aligarh close to each other thereby increasing the flexibility and reducing the overheads and costs.

In-house design capability, product development and technical collaborations: The company has a dedicated team consisting of design engineers, tooling & process engineers. They engineer the product i.e. design, develop, fabricate, and test vehicle components from the concept stage to production stage and the team is equipped with high-end software like CAD-CAM, Auto Cad, CREO etc. for creating the prototypes before actual production. It implements and create access to modern and advanced technology through in-house research and development activities, joint ventures and technical collaborations. Its joint ventures and technical collaborations provide it a competitive advantage by enabling the company to exploit technologies and expertise developed by its partners.

Risks and concerns

Significant employee benefit expenses: The company incur various employee benefit expenses, including workers’ compensation, staff welfare expenses and contribution to provident and other funds. Workers’ compensation costs may increase in the future if states raise benefit levels and liberalize allowable claims. Its employees benefit expenses for the period/ year ended September 30, 2020 and March 31, 2020, March 31, 2019 and March 31, 2018 amounted to Rs 596.12 lakh, Rs 1,637.85 lakh, Rs 928.47 lakh and Rs 543.64 lakh respectively, which represents 11.63%, 12.71%, 7.14% and 5.34% of the total expenses for the respective year and such increase in labour cost may have an adverse impact on its profit margins. Further, its employees are not currently unionized, there can be no assurance that they will not unionize in the future.

Reliance on third parties for certain aspects of business: The company rely on third parties for job work/ contract labour and manpower required for the manufacture of its products, as well as for performance of certain functions and services carried out at its manufacturing and office premises including waste management and facility management functions. Job work charges constituted 2.58 %, 3.12 %, 4.13% and 3.91 % of its total expenses for the period ended September 30, 2020 and year ended March 31, 2020, 2019 and 2018 respectively. It also relies on transporters for transport and logistics support. Its reliance on third parties for certain critical outsourced job works and on transporters for transport and logistics may affect its timelines for making delivery to its customers.

Dependent on continuing operation of manufacturing facilities: Any significant interruption in manufacturing at company’s facilities could have a material adverse effect on its business, results of operations and financial condition. The company manufactures substantially all of the products at its manufacturing facilities located at Aligarh and Aurangabad, which are subject to the normal risks of industrial production, including equipment breakdowns, labour stoppages, natural disasters, industrial accidents, power interruptions etc. In case of any disruption at such facilities, it may adversely affect the manufacturing cycle, and may lead to time over-run in the execution of the project. All of these manufacturing facilities require a significant amount and continuous supply of electricity and any shortage or non-availability of electricity may adversely affect its operations. The manufacturing process of its products requires significant electricity.

Outlook

Incorporated in 1994, Pavna Industries is engaged in the manufacturing of automotive parts and automobile applications solutions. The company manufactures a wide range of automotive components for Original Equipment Manufacturers (OEM) to cater to the requirements of passenger vehicles, 2-wheelers, 3-wheelers, heavy and light commercial vehicles, and off-road vehicles. The company has a well-diversified portfolio including ignition switches, Latches, Fuel Tank Caps, Auto Locks, Handles, Switches, Carburetor, Oil Pump, Throttle Body, Casting Components, etc and aftermarket products i.e. filters, bearings, wiper blades, clutch plates, and brake shoes. It has three manufacturing plants located in Aligarh (UP), Aurangabad (Maharashtra), and Pantnagar (Uttarakhand). It also has an experienced and professional management team with strong execution capabilities and considerable experience in this industry. The team comprises of personnel having technical, operational and business development experience. It has over the years maintained a consistent track record of financial performance. On the concern side, the company compete with various competitors to retain its existing business as well as winning new business for the new and redesigned existing components of its automotive. Its failure to obtain new business or to retain or increase its existing business could adversely affect its financial results. Besides, the company’s business could suffer damage from fire, natural calamities, misappropriation or other causes, resulting in losses, which may not be fully compensated by insurance.

The company is coming out with a maiden IPO of 18,00,000 equity shares of Rs 10 each at a fixed price of Rs 165 per equity share to mobilize Rs 29.70 crore. On the performance front, the company’s total income for the year ending March 31, 2020 was Rs 17,982.84 lakh. In the current period, the revenue earned from operations is Rs 17,696.47 lakh or 99.93% of the total income. Profit after Tax for the year ended March 31, 2020 was Rs 633.74 lakh, of which Rs 428.88 lakh was attributable to the shareholders of the company and the remaining of Rs 204.86 lakh was attributable to the non-controlling interests. The company seeks to grow its marketing reach domestically and internationally to explore hitherto untapped markets and segments as part of its strategy in order to widen growth prospects. It intends to continue its focus on the current product mix and aim to expand and diversify its product portfolio by adding new products like wire harness, blinkers, control cable, brake shoe, mirrors, horns, headlights etc, which will provide further growth opportunities through the retention of existing clients and acquisition of new clients. Profit after Tax for the year ended March 31, 2020 was Rs 633.74 lakh, of which Rs 428.88 lakh was attributable to the shareholders of the company and the remaining of Rs 204.86 lakh was attributable to the non-controlling interests.

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