ASK Automotive IPO: 5 Things to Know

The automotive industry is currently undergoing a significant global transformation, with a strong shift towards electric mobility.

This trend is also taking root in India, where the government is placing a substantial emphasis on promoting electric vehicles (EVs) and reducing emissions. As a result of these initiatives, the EV sector is poised for substantial growth.

Major Indian automakers and startups are actively engaged in the development and production of EVs. They are positioning themselves strategically to capture a significant share of the growing EV market.

Given the sector's increasing prominence, investors are on the lookout for early opportunities in the stock market.

For such investors, a prominent player in the two-wheeler Original Equipment Manufacturer (OEM), ASK Automotive, is scheduled to launch its Initial Public Offering (IPO) on 7 November 2023.

#1 About the company

ASK Automotive Limited, Incorporated in 1988, is a manufacturer of advanced braking systems for two-wheelers in India.

The company started by producing brake shoe products for two-wheelers (2Ws), and over time, it has diversified its portfolio to include a range of other products.

These products include advanced braking (AB) systems, lightweight aluminium precision (ALP) solutions, wheel assembly for 2W manufacturers, and safety control cables (SCC) products.

It has versatile offerings, that serve the needs of both electric vehicle (EV) and internal combustion engine (ICE) original equipment manufacturers (OEMs), making them a valuable resource in the automotive industry.

The company also caters to the independent aftermarket and export market by utilizing its manufacturing facilities located across different regions of the country.

#2 Factors Setting this IPO Apart

• ASK Automotive is a key player in the Indian automotive aftermarket, which is experiencing rapid growth. The demand for the company's products and services is on the rise, and this positions it favourably to capitalize on the continued expansion of the Indian automotive industry.
• ASK Automotive boasts the title of being the largest manufacturer of advanced braking systems for two-wheelers, with a substantial market share of more than 50%. This dominance in the critical area of braking systems underscores its industry leadership.
• The company's portfolio includes 52 proprietary formulations used in the manufacturing of braking systems. This intellectual property and technical expertise contribute to the uniqueness and innovation of their products.
• The company has a notable presence in the Original Equipment Manufacturer (OEM) segment for two-wheelers in India. In Fiscal 2023, it held a market share of 9% in terms of production volume.
• Furthermore, the company supplies its products to prominent EV OEMs in India, including TVS Motor Company Limited, Ather Energy Private Limited, and Hero MotoCorp, highlighting its influence in the evolving electric vehicle sector.

These factors collectively make ASK Automotive's IPO a distinctive IPO, with a strong position in a growing market, a diverse product offering, and an established foothold in the OEM and electric vehicle sectors.

Here are the key details of the IPO...

Issue period: 7 November 2023 to 9 November 2023

Type of issue: Book Built Issue

Price band: Rs 268 to Rs 282 per share

Face value: Rs 2 per equity share

Lot size: NA

Application limit: Maximum thirteen lot for retail investors. Retail investors can make an application for a minimum of one lot for Rs 14,946 and their maximum investment would be 13 lots of Rs 194,298.

Tentative IPO allotment date: 15 November 2023

Tentative listing date: 20 November 2023

#3 A Look at its Financials

The company has demonstrated substantial revenue growth, with a compounded annual growth rate (CAGR) of 18.3% over the period spanning from the financial year 2021 to 2023.

This remarkable performance can be credited to the growing customer base and continuous growing EV demand.

While there was a good increase in revenue, the net profit of the company has only increased from Rs 1,062.0 million (m) in March 2021 to Rs 1,229.5 m in March 2023.

ASK Automotive Financial Snapshot (2021-23)

Particulars	31-Mar-21	31-Mar-22	31-Mar-23
Revenues (Rs in m)	15,439.9	20,130.8	25,551.7
Revenue Growth (%)	-	30.4	46.9
Net Profit (Rs in m)	1,062.0	826.6	1,229.5
Net profit margin (%)	6.8	4.1	4.8

Data Source: Company's Draft Red Herring Prospectus (DRHP)

Looking ahead, the company has plans to expand its business to international markets and increase its market share in India.

#4 Peer Comparison

As per the company's red herring prospectus, these are the industry peers of ASK Automotive.

Peer Comparison

Company	Revenue from Operations (2023) (Rs in m)	EPS (Basic) (in Rs)	Return on Net Worth (%)
ASK Automotive	25,551.7	6.2	19.1
Endurance Technologies	88,040.5	34.1	10.9
Uno Minda	112,364.9	11.4	15.7
Suprajit Engineering	27,523.6	10.9	12.4
Bharat Forge	129,102.6	11.4	7.9

Data Source: Company's Red Herring Prospectus (RHP)

#5 Risk Factors

• A significant portion of the company's revenue (50%) comes from its top three customers, with one customer contributing 30%. Losing any of these major customers could have a detrimental impact on the business.
• ASK Automotive relies on third-party suppliers for raw materials without any exclusive arrangements. The loss of these suppliers could disrupt the company's operations.
• The company does not own its registered office and land on which some of its manufacturing facilities are located. A failure to renew its existing lease arrangements at commercially favourable terms or at all may have a material adverse effect on its business.
• The company has significant power, fuel and water requirements to run its operations. Any disruption in these requirements or increase in its cost could adversely affect its business.
• The company relies on contract labour for certain ancillary tasks in its operations. A disruption in the supply of such labour could adversely affect the business.

Conclusion

The auto ancillary sector is currently in a growth phase, and it is anticipated to maintain a double-digit CAGR growth between 2019 to 2026.

Fortunately, the Indian automobile industry holds the position of being the fourth-largest globally, with India ranking as one of the largest producers of cars and commercial vehicles.

According to the Automobile Component Manufacturers Association (ACMA), exports of automobile components from India are projected to reach US$ 80 billion (bn) by 2026.

The Indian auto components industry has set ambitious goals, aiming to achieve US$200 bn in revenue by 2026.

These developments are expected to significantly enhance the company's performance. It remains to be seen what kind of response the company gets in this public offer.

For more information on IPOs, check out the list of upcoming IPOs.

Until next time...

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...