Ajax Engineering Ltd - IPO Note
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Ajax Engineering Ltd - IPO Note
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Stock Info
Shareholding (Pre IPO)
Shareholding (Post IPO)
Company Description
Ajax Engineering Ltd. (AEL) is a leading concrete equipment manufacturer with a comprehensive range of concrete equipment, services and solutions across the concrete application value chain. As of September 30, 2024, it has developed over 141 concrete equipment variants catering to the concrete application value chain, and over the last ten years, it sold over 29,800 concrete equipments in India. Since its inception 32 years ago, the company has developed a comprehensive product portfolio that includes equipment such as self-loading concrete mixers (“SLCMs”) and batching plants for the production of concrete, transit mixers for the transportation of concrete, boom pumps, concrete pumps and self-propelled boom pumps for the placement of concrete, slip-form pavers for the paving of concrete and 3D concrete printers for depositing concrete.
SLCMs are versatile self-loading machines capable of mixing and transporting concrete ingredients, enabling on-site production of concrete. These machines are equipped with, among others, (i) self-loading arms with a hatch bucket to ensure smooth flow of concrete ingredients into the drum in order to minimize spillage, and (ii) concrete batch controllers to accurately measure all the ingredients in order to produce high quality concrete. During Financial Year 2024, approximately 14% of all concrete produced in India was processed through SLCMs, reflecting their growing importance in meeting the demand for faster and more reliable construction methods. Moreover, between Financial Year 2022 and the six months’ period ended September 30, 2024, its SLCM sales have experienced a CAGR of 45.70%, underscoring the rapid adoption and success of SLCMs in the construction sector.
AEL is a leading manufacturer of SLCMs in India, with an approximately 77%, 75%, 77% and 86% market share in the SLCM market in India in terms of number of SLCMs sold during the six months’ period ended September 30, 2024 and Financial Years 2024, 2023 and 2022, respectively. Moreover, during Financial Year 2024, 12% of the concrete production in India was through its SLCMs. It also continues to assist customers throughout the life of the equipment, and with that aim, it provides spare parts for the equipment sold and facilitate the provision of after-sales service by its dealers.
In addition to SCLM portfolio, they have a large and diverse range of non-SCLM equipment that caters to various aspects of the concrete production, transportation, placement and paving processes. Their non-SLCM product portfolio includes batching plants for concrete production, transit mixers for concrete transportation, boom pumps, concrete pumps, self-propelled boom pumps for concrete placement, and slip-form pavers. They have been steadily gaining market share in non-SLCMs, driven by commitment to innovation and quality.
Competitive Strengths
Market leader in a large and fast-growing SLCM market:
AEL is a leading manufacturer of SLCMs in India, with an approximately 77%, 75%,
77% and 86% market share in the SLCM market in India in terms of number of SLCMs
sold during the six months period ended September 30, 2024 and Financial Years 2024,
2023 and 2022, respectively. They have a diverse range of applications and end-uses
and are used pan-India, based on after-sales data available. During the last 10
years, they have sold over 25,000 SLCMs in India, which is the largest among leading
concrete equipment companies in India during this period. Their SLCMs also command
the highest resale value as on Financial Year 2024 among leading concrete manufacturers
in India on account of a number of factors, including first-mover advantage, the
high quality and reliability of products, and strong after-sales service. The SCLMs
are sold under Agro brand. We believe that AEL is well positioned to benefit from
the growth opportunity in the concrete equipment market in India.
Leading concrete equipment company with over 141 concrete equipment variations,
and offering services and solutions across the concrete application value chain:
AEL is a leading concrete equipment manufacturer with a comprehensive range of concrete
equipment, services and solutions across the concrete application value chain. Their
portfolio includes equipment such as SLCMs and batching plants for the production
of concrete, transit mixers for the transportation of concrete, boom pumps, concrete
pumps and self-propelled boom pumps for the placement of concrete, slip-form pavers
for the paving of concrete and 3D concrete printers for depositing concrete. As
of September 30, 2024, they have over 141 concrete equipment variants catering to
the concrete application value chain.
During the last 10 years, they have sold over 29,800 concrete equipments to over 18,900 customers in India. SLCMs have diverse use cases and are deployed across a range of projects. Other concrete equipment products such as batching plants, concrete pumps, boom pumps, transit mixers and self-propelled boom pumps find application in large scale infrastructure projects (such as dams, highways and bridge construction) and are being deployed in upcoming infrastructure projects including the construction of prefabricated structures for metro projects and bridges, ports and airports. Thus, we believe they are well-positioned to supply a range of concrete equipment with capabilities to efficiently handle small to large scale construction projects. Further, the company is focused on leveraging leadership position in the SLCM market to grow sales of non-SLCM equipment through a number of targeted initiatives such as a dedicated team to focus on the non-SLCM business, use of the existing dealer network to sell non-SLCM equipment, educational and sales initiatives to enhance the benefits of using such products to their customers.
Diversified customer base with longstanding relationships in the concrete equipment
market:
The company’s equipment is sold through dealers in and outside India to a
diverse range of end customers, including individual contractors, small and mid-sized
contracting companies, rental companies, large construction companies and government
construction agencies. Their customer base is tailored to the specific applications
of equipment and also spans specialized sectors such as transportation infrastructure
and irrigation and infrastructure projects, where it works with contractors who
require specialized solutions. They have built longstanding relationships with many
of these customers, reflecting ability to meet the diverse needs across various
sectors of the construction industry. As of September 30, 2024, they have sold concrete
equipment and spare parts to, and maintain relationships with, over 19,000 customers,
from over 15,700 customers as of March 31, 2024, over 12,100 customers as of March
31, 2023 and over 11,100 customers as of March 31, 2022. During the Financial Years
2024, 2023 and 2022, no single end-customer contributed to more than 5.00% of total
revenue from operations. The company’s broad, yet targeted customer base enables
them to develop an efficient and stable business model and presents significant
potential for further sales growth.
Technology-led assembly and manufacturing processes and robust supplier network:
The company’s technology-led assembly and manufacturing processes, supported
by robust supplier network, positions the company as the second largest company
in terms of annual sales volume among leading concrete equipment manufacturers in
India. It currently assembles equipment and manufacture boom arms using horizontal
boring machines at manufacturing facilities, all of which operate under a lean assembling
and manufacturing model. It operates four assembling and manufacturing facilities
at Obadenahalli, Gowribidanur and Basethahalli in the state of Karnataka, each specializing
in distinct product lines, with the Obadenahalli Facility, with an area of 39,660.38
square meters. The Obadenahalli Facility of Ajax Engineering is among the three
largest SLCM facilities globally in terms of area as on March 31, 2024. Their assembling
and manufacturing facility at Adinarayanahosahalli (Karnataka), which is currently
under construction and expected to become operational in August 2025, will feature
fungible capabilities to address additional demand, and positions them to effectively
meet the diverse needs of customers.
Peer Comparison
| Name of the company | Revenue (Rs. In cr) | ROE (%) | ROCE (%) | P/E (x) | EBITDA Margin (%) |
|---|---|---|---|---|---|
| Ajax Engineering Ltd | 1780.00 | 24.53% | 32.82% | 32.0 | 15.82% |
| Action Construction Equipment Ltd | 2991.00 | 26.69% | 37.03% | 46.13 | 13.84% |
| BEML Ltd | 4096.00 | 10.56% | 15.36% | 54.24 | 10.91% |
| Escorts Kubota Ltd | 9248.00 | 11.47% | 15.02% | 35.73 | 12.25% |
Key Risks & Concerns
Slowdown in demand for self-loading concrete mixers:
AEL
derives significant majority of revenues from the sale of self-loading concrete
mixers (85.13% of revenue from operations for the Financial Year 2024). Any decrease
in sales of SLCMs or demandfor concrete equipment in India could adversely affect
their business, results of operations, financial condition and cash flows.
Business cyclical in nature:
The concrete equipment industry in
India iscyclical in nature and influenced by government spending on public infrastructure
and overall economic conditions affecting private infrastructuresincethe demand
for concrete equipment is primarily driven by government infrastructure initiatives
and investments from the public sector. Economic slowdowns, reduced investment in
infrastructure, or delays in the implementation of government projects can result
in decreased demand for concrete equipment.
Fluctuations in raw material prices:
Fluctuations in prices of
materials, and disruptions in the timely availability of materials could have an
adverse effect on their business, results of operations, financial condition and
cash flows.
Change in industry norms to impact volumes:
The construction equipment vehicle (CEV) industry in India has transitioned from
CEV-IV to CEV-V norms wef January 1, 2025. As per government guidelines, the production
of CEV-IV vehicles has been stopped from December 31, 2024, whereas the registration
of these CEVs (old norm compliant) is still allowed for six months upto June 2025.
Given that the new CEV-V vehicles will be 8-10% more expensive than the older version,
Ajax engineering and other industry participants have built a significant amount
of CEV-IV vehicle inventory owing to the change in industry regulations. Based on
previous experience, the management expects the majority of pre-buying to take place
between March and June 2025. However, the following quarters could witness a slowdown
in industry volumes and the demand pick up in H2FY26 would largely depend on government
capex outlay on key infrastructure development schemes and a timely pick-up in awarding
activity. It is important to note that the migration to BS III norms (2011-12) was
followed by a prolonged period of sluggish industry demand.
Outlook and Valuation
Ajax Engineering Ltd. (AEL) is a leading concrete equipment manufacturer with a comprehensive range of concrete equipment, services and solutions across the concrete application value chain. AEL, with a significant presence in the Self-Loading Concrete Mixer (SLCM) segment, with over 75% of the market share, is positioned as a dominant player in the industry. The company follows a seasonal revenue patterns, the company generates around 35% of its revenue in the first half of the year and nearly 60% in the second half, indicating a strong back-ended business cycle.
At the upper end of the price band, the issue is valued at 32x FY24 earnings. While, we believe that the business fundamentals appear robust and the valuation also appears reasonable, there are few concerns which make us cautious on the issue. We believe alteration in industry standards may affect volumes in FY26. Earnings trajectory is anticipated to be irregular due to the changes in industry standards. The second point is the deceleration in infrastructure spending for FY25, coupled with a governmental shift from capital expenditure to consumption, which leads us to adopt a cautious outlook for the entire sector. Hence, considering the above factors, we recommend an AVOID rating to the issue.
Key Information
Use of Proceeds:
The total issue size is Rs.1269.35 cr. The issue is a book built issue withcomplete
offer for sale (OFS) and no fresh issue component; the company will not receive
anyproceeds from the Offer. The objects of the Offer are to (i) to carry out the
Offer for Sale of up to 20,180,446 Equity Shares of face value of Rs.1 each by the
Selling Shareholders; and (ii) achieve thebenefits of listing the Equity Shares
on the Stock Exchanges. Company will not receive any proceedsfrom the Offer and
all such proceeds (net of any Offer related expenses to be borne by the SellingShareholders)
will go to the Selling Shareholders.
Book running lead managers:
ICICI Securities Limited, Citigroup Global Markets India Private Limited, JM Financial
Limited, Nuvama Wealth Management Limited, SBI Capital Markets Limited
Management:
Krishnaswamy Vijay (Whole-timeDirectorand Executive Chairman), Shubhabrata Saha
(Managing Director and Chief Executive Officer), Jacob Jiten John (Whole-time Director),
Parin Nalin Mehta (Non-Executive Director), Rajan Wadhera (Independent Director),
Doddaballapur Prasanna Achutarao (Independent Director), Jayashree Satagopan(Independent
Director), Raghavan Sadagopan (Independent Director), Tuhin Basu (Chief Financial
Officer).
Financial Statement
Profit & Loss Statement:- (Consolidated)
| Particulars (Rs. In cr) | H1FY25 | H1FY24 | FY24 | FY23 | FY22 |
|---|---|---|---|---|---|
| Revenue from operations | 770.00 | 685.00 | 1741.00 | 1151.00 | 763.00 |
| COGS | 536.00 | 500.00 | 1276.00 | 828.00 | 548.00 |
| Gross Profit | 234.00 | 185.00 | 465.00 | 323.00 | 215.00 |
| Gross Margins (%) | 30.39% | 27.01% | 26.71% | 28.06% | 28.18% |
| Employee expenses | 52.00 | 42.00 | 87.00 | 72.00 | 67.00 |
| Other expenses | 63.00 | 42.00 | 103.00 | 80.00 | 58.00 |
| EBITDA | 119.00 | 101.00 | 275.00 | 171.00 | 90.00 |
| EBITDA Margin (%) | 15.45% | 14.74% | 15.80% | 14.86% | 11.80% |
| Depreciation expenses | 5.00 | 5.00 | 10.00 | 8.00 | 8.00 |
| EBIT | 114.00 | 96.00 | 265.00 | 163.00 | 82.00 |
| Other Income | 24.00 | 17.00 | 39.00 | 21.00 | 8.00 |
| Finance costs | 1.00 | 1.00 | 2.00 | 0.70 | 0.40 |
| PBT | 137.00 | 111.00 | 302.00 | 183.00 | 90.00 |
| Tax expenses | 36.00 | 28.00 | 77.00 | 47.00 | 24.00 |
| PAT | 101.00 | 83.00 | 225.00 | 136.00 | 66.00 |
| EPS (Rs.) | 8.79 | 7.22 | 19.58 | 11.88 | 5.79 |