New Swan Multitech
- New Swan Multitech is coming out with initial public offering (IPO) of 5,016,000 shares of Rs 10 each in a price band Rs 62-66 per equity share.
- The issue will open on January 11, 2024 and will close on January 15, 2024.
- The shares will be listed on BSE SME platform.
- The face value of the share is Rs 10 and is priced 6.20 times of its face value on the lower side and 6.60 times on the higher side.
- Book running lead manager to the issue are Hem Securities and Share India Capital Services.
- Compliance Officer for the issue is Tanveer Kaur.
Profile of the company
Incorporated in 2014, New Swan Multitech is an engineering-led manufacturer of (i) complex and critical precision engineered components and parts used in automotive sector (auto components) and (ii) agricultural farm machineries designed to meet the diverse needs of modern farming (agricultural implements). Within the automotive sector, it manufactures, procures and supplies a range of precision machined tubular assemblies, welded assemblies, precision brackets and sheet metal parts. The company’s wide range of offerings in this segment includes link assembly engine hangers, hinge body covers, front cover stay components, seat catch components, fuel filler cap components, main stand complete assemblies, front fender stay assemblies, engine guard plates, rear brake arm assemblies, separator breather, cable guide assemblies, battery tray components and many other parts, that are critical for the two-wheeler vehicles and various type of brackets such as cooling recovery reservoir brackets, exhaust tailpipe brackets, fuse block brackets, floor panel brackets, air cleaner inlet hose brackets for the passenger car vehicles.
Within the agricultural implements sector, the company designs, manufactures and supplies a comprehensive range of agricultural implements that cater to different aspects of farming such as soil preparation, sowing, crop management, harvesting and crop residue management. The company’s wide range of offering in this segment includes various type of rotovators, seeders, super seeders, weeders, potato planter, potato digger, fertilizer spreader, mulcher, puddler, laser land leveller, disc ploughs and many other agricultural implements. It manufactures agricultural implements from its manufacturing unit located at Village Raian, Ludhiana, Punjab. The said unit was established in FY 2014-15 and is located at a plot area of 6.74 acres, and is equipped with various machineries such as Broach Machine, Center Facing Machine, Beam Furnace, Deburring Machine, Gear Hobbing, Gear Shaver, Hydraullic Press, Laser Machine, Milling Machine, Plasma Machine, Power Grid, Cylindrical Grinder Machine, Drill Machines, Diameter Grinder, Laser Marking Machine etc.
Proceed is being used for:
- Funding of capital expenditure towards purchase of certain machineries for existing manufacturing unit located at Raian, Ludhiana.
- Repayment of a portion of certain borrowing availed by the company.
- Meeting working capital requirements.
- General Corporate Purpose.
Industry overview
India is one of the major players in the agriculture sector worldwide and it is the primary source of livelihood for 55% of India’s population. India has the world's largest cattle herd (buffaloes), the largest area planted for wheat, rice, and cotton, and is the largest producer of milk, pulses, and spices in the world. It is the second-largest producer of fruit, vegetables, tea, farmed fish, cotton, sugarcane, wheat, rice, cotton, and sugar. The agriculture sector in India holds the record for second-largest agricultural land in the world generating employment for about half of the country’s population. Thus, farmers become an integral part of the sector to provide it with a means of sustenance. Consumer spending in India will return to growth in 2021 post the pandemic-led contraction, expanding by as much as 6.6%. The Indian food industry is poised for huge growth, increasing its contribution to world food trade every year due to its immense potential for value addition, particularly within the food processing industry. The Indian food processing industry accounts for 32% of the country’s total food market, one of the largest industries in India and is ranked fifth in terms of production, consumption, export and expected growth.
Meanwhile, India has become the fastest-growing economy in the world in recent years. This fast growth, coupled with rising incomes, a boost in infrastructure spending and increased manufacturing incentives, has accelerated the automobile industry. The two-wheeler segment dominated the automobile industry because of the Indian middle class, with automobile sales standing at 19.45 million units in FY23. Significant demand for automobiles also led to the emergence of more original equipment and auto components manufacturers. As a result, India developed expertise in automobiles and auto components, which helped boost international demand for Indian automobiles and auto components. Hence, the Indian automobile industry has a considerable impact on the auto component industry.
The automobile component industry turnover stood at Rs 4.20 lakh crore ($56.5 billion) between April 2021-March 2022 the industry had revenue growth of 23% as compared to 2020-21. The turnover of the automotive component industry grew 34.8% to Rs 2.65 lakh crore ($33.8 billion) during April-September 2022 compared to the first half of the previous year. Domestic OEM supplies contributed 81.1% to the industry’s turnover, followed by domestic aftermarket (17.7%) and exports (1.2%), in FY22. The component sales to OEMs in the domestic market grew by 46% to $27.27 billion (Rs 2.23 lakh crore). By 2026, the automotive aftermarket segment in India is expected to reach US$ 32 billion. India’s auto components aftermarket witnessed a 15% growth from $8.70 billion in FY21 to $10 billion in FY22. In H1 2022-23, the aftermarket witnessed a growth of 8% to $5.1 billion (Rs 42,007 crore) from $4.7 billion (Rs 38,895 crore) in H1 2021-22. Aftermarket turnover increased at a CAGR of 8.02% from $8.70 billion in FY16 to $10 billion in FY22 and is expected to reach $32 billion by 2026.
Pros and strengths
In-house manufacturing capabilities: The company has two manufacturing units. Its Automotive manufacturing facility is located at Survey No. 351 Village Vithlapur, Ahmedabad, Gujarat and agricultural implements manufacturing unit is located at Kohara Machiwara Road, Village Raian, Ludhiana, Punjab. The said manufacturing premises are owned by the company. The in-house manufacturing operations enable it to stream line inventory management and production process resulting into maintenance of high-quality production standards, minimizing production time and bringing cost effectiveness.
Wide range of products: The company has two manufacturing units engaged in the production of Auto components and agricultural implements. The company’s wide range of offering in agricultural implements segment includes various type of rotovators, seeders, super seeders, weeders, potato planter, potato digger, fertilizer spreader, mulcher, puddler, laser land leveller, disc ploughs etc. It also owns 5 design registrations relating to its agricultural implements i.e. Mulcher, power weeder, crop planter, potato harvester and potato planter which are registered with the Patent Office, Government of India. Within the automotive sector, it offers a wide range of precision forged & machined tubular assemblies, welded assemblies, precision brackets and sheet metal parts such as link assembly engine hangers, hinge body covers, front cover stay components, seat catch components, fuel filler cap components, main stand complete assemblies, front fender stay assemblies, engine guard plates, rear brake arm assemblies, separator breather, cable guide assemblies, battery tray components and many other parts.
Large base of dealers and customers along with strong relationship: Within the domain of agricultural implements, the company’s product distribution encompasses an extensive network of over 200 dealers, covering 11 states in India i.e. Punjab, Rajasthan, Jammu & Kashmir, Karnataka, Tamil Nadu, Haryana, Uttar Pradesh, Madhya Pradesh, Bihar, Jharkhand and Maharashtra. In addition, it has entered into product supply agreements with Mahindra and Mahindra Limited and John Deere India Private Limited. In the two-wheeler vertical, it has relationship spanning over 6 years with Honda Motorcycle and Scooter India (HMSI), which is its largest customer in terms of revenue for Fiscal 2023, over 3 years with MG Motors to which it supplies passenger car components and over 3 years with Mahindra & Mahindra to which it supplies agricultural implements.
Risks and concerns
Maximum revenues come from few clients: The company is dependent on few key customers, especially Honda Motorcycle and Scooter India (HMSI), in the automotive sector. For Fiscals 2023 and 2022, HMSI contributed 50.12% and 46.00% of its revenue from operations, respectively, and its top five customers contributed 71.21% and 60.59% of its revenue from sale of products, respectively. The loss of these customers or a loss of revenue from sales to these customers may materially affect its business, financial condition, results of operations and cash flows. Further, as it is common for large automotive companies or OEMs to source their required components from a relatively small number of vendors, its customers often undertake vendor rationalisation to reduce costs related to procurement from multiple vendors. As a result, the volume of sales to its customers may vary due to changes in its customers sourcing strategies. The company cannot assure that it will be able to significantly reduce customer concentration in the future.
Cyclical and seasonal nature of automotive sales: Within the automotive sector, the company manufactures and supplies a range of precision machined tubular assemblies, welded assemblies, precision brackets and sheet metal parts. The company’s operations in the auto components segment are cyclical because its sales are directly dependent on the level of automotive production (particularly two-wheelers) and is also affected by inventory levels of automotive manufacturers. The automobile industry is also subject to seasonal characteristics. Generally, demand for its products increases during the automotive industry’s festive selling season from September until January. Demand for its products generally decreases during the months of May to August each year due to the impact of scheduled customer plant shutdowns and inventory rationalization at OEMs for vacations and changeovers in production lines for new models in December. The company risks losing potential orders from its customers if it is unable to meet their increased demands. As a result, its relationship with its customers may be impacted and its product sales may be adversely affected and result in loss of revenue and reduced margins. Any cancellation or delay in production could have an adverse effect on its business and financial condition.
Agricultural implements business is subject to climatic conditions: The company’s agricultural implements business is sensitive to weather conditions such as drought, floods, cyclones and natural disasters, as well as events such as pest infestations. The company’s results of operations are significantly affected by weather conditions in the agricultural regions in which its products are used particularly Maharashtra and Punjab. Adverse conditions early in the season, especially drought conditions, can result in significantly lower than normal plantings of crops and therefore lower demand for agricultural implements products. This can result in its sales in a particular region varying substantially from year to year. Weather conditions can also result in earlier or later plantings and affect the levels of pest infestations, which may affect both the timing and volume of its sales or the product mix. The increasing concern over climate change could also result in enhanced legal and regulatory requirements. In the event that such regulations are enacted and are more aggressive than the sustainability measures that it is currently undertaking, it may experience significant increases in its costs of operations.
Outlook
New Swan Multitech specialises in the manufacture of precision-engineered components and parts for two sectors: the automotive industry and modern farming. The company's product portfolio for the automotive industry includes assembly engine hangers, hinge body covers, front cover stay components, fuel filler cap components, main stand complete assemblies, engine guard plates, rear brake arm assemblies, separator breathers, cable guide assemblies, battery tray components, and many other parts that are important for two-wheeler vehicles. It also designs and manufacture various types of brackets, such as cooling recovery reservoir brackets, exhaust tailpipe brackets, fuse block brackets, floor panel brackets, and passenger car air cleaner inlet hose brackets. On the concern side, the company’s business is dependent on the sale of its products to few key customers. The loss of any of these customers or loss of revenue from sales to these customers could have a material adverse effect on its business, financial condition, results of operations and cash flows. Moreover, the cyclical and seasonal nature of automotive sales and production could adversely affect its auto-components business.
The company is coming out with an IPO of 5,016,000 equity shares of face value of Rs 10 each. The issue has been offered in a price band of Rs 62-66 per equity share. The aggregate size of the offer is around Rs 31.10 crore to Rs 33.11 crore based on lower and upper price band respectively. On performance front, the company’s total income for the financial year 2022-23 stood at Rs 15,142.17 lakh whereas in Financial Year 2021-22 the same stood at Rs 14,552.40 lakh representing an increase of 4.05%. The main reason of increase in total income was, rise in revenue from Automotive components from Rs 7,695.41 lakh in FY 2021-22 to Rs 9,175.71 lakh in F.Y. 2022-23, representing an increase of 10.24% (y-o-y). Moreover, the company reported profit after tax for the financial year 2022-23 at Rs 991.93 lakh in comparison to Rs 363.14 lakh in the financial year 2021-22, representing an increase of 173.15%. The company intends to enhance its manufacturing capabilities of agricultural implements through three key initiatives. Firstly, it intends to bring production for deep-drawn parts in-house using a hydraulic press machine, expecting cost savings and improved quality. Secondly, it intends to install four power press machines to automate rototvator assembly, boosting productivity and reducing handling costs. Thirdly, it intends to acquire another Fiber Laser machine will not only increase production capacity but also serve as a valuable contingency plan for precision cutting of steel plates used in various farm machinery. Thus, going forward, the company intends to continue making investments in capacity expansions and modernization of its equipment and facilities.
