Jyoti CNC Automation IPO opens today: Should you subscribe to the issue?

Jyoti CNC Automation's initial public offering (IPO) opens for bidding on Tuesday, January 9, 2024, marking the inaugural mainboard IPO of the new calendar year. The company has set a price band for the issue at Rs 315-331 per share, with a lot size of 45 equity shares.

Jyoti CNC Automation, established in January 1991, is a leading manufacturer and supplier of CNC machines, based in India. The company is specialized in a diverse range of CNC machines, offering 200 types across 44 series. CNC machines are computer numerical control machines, which play an important role in the manufacturing industry.

The company is looking to raise Rs 1,000 crore through IPO, which is entirely a fresh share sale of 3,02,11,480 equity shares. Notably, the offering includes a reserved portion of shares worth Rs 5 crore for eligible employees, who will get a discount of Rs 15 per share during the bidding process. The subscription period concludes on Thursday, December 11, 2024.

The net proceeds from the IPO will be allocated to various purposes, including the full or partial repayment of certain company borrowings, funding long-term working capital requirements, and general corporate needs. The anchor book for the IPO is scheduled to open on Monday, December 8.

Jyoti CNC Automation has raised Rs 447.75 crore from anchor investors as it finalised allocation of 1,35,27,190 equity shares at a price of Rs 331 apiece. Marquee names like Goldman Sachs, Nomura Funds, Natixis International Funds, Neuberger Berman Emerging Markets Equity Fund, Optimix Wholesale Global and The Master Trust Bank of Japan participated in the anchor book.

Jyoti CNC boasts a notable customer base, counting Indian Space Applications Center (ISRO), BrahMos Aerospace Thiruvananthapuram, Turkish Aerospace, and others among its clients. The company's production capacity was 4,400 machines per year in India and 121 machines per year in France as of June 30, 2023.

The company distributes its products globally through Huron's established dealer network and maintains 29 sales and service centers in countries such as Romania, France, Poland, Belgium, Italy, and the UK. With three manufacturing facilities, two located in Rajkot, Gujarat, and one in Strasbourg, France, the company is well-positioned for global operations.

For the period ending on September 30, 2023, Jyoti CNC reported a net profit of Rs 3.35 crore with a revenue of Rs 510.53 crore. In the financial year ending March 31, 2023, the company posted a net profit of Rs 15.06 crore and revenue of Rs 952.60 crore, marking a significant improvement from the reported loss of Rs 29.68 crore in FY22.

Of the net offer, 75 per cent shares have been reserved for qualified institutional bidders (QIBs), while 15 per cent shares have been allocated for non-institutional investors (NIIs). Remaining 10 per cent of the net offer shall go to retail investors of the issue.

Equirus Capital, ICICI Securities, and SBI Capital Markets serve as the book running lead managers for the Jyoti CNC Automation IPO, with Link Intime India acting as the registrar. The company's shares are set to be listed on both the BSE and NSE on Tuesday, January 16, 2024. Here's what a host of brokerage firms say about the IPO of Jyoti CNC Automation:

Anand Rathi Research
Rating: Subscribe for long-term
At the upper price band company is valuing at P/E of 374.22 times, EV/EBITDA 85.59 times with a market cap of Rs 7,527.4 crore post issue of equity shares and return on net worth of 18.35 per cent. Since the company is using majority of its IPO proceeds to repay its debt which is going to reduce interest cost and hence it will have a positive impact on profitability, said Anand Rathi.

Apart from that there is revenue visibility for company due to its order book size and company operates under niche segment and majority of the revenue is from aerospace and defense industry which is high growth sector, we believe that the IPO is fairly priced and recommend a 'subscribe for long term' rating to the IPO," it added.

Sushil Finance
Rating: Avoid
"The company recently turned profitable in FY23 & H1FY23. In FY23, the Company reported an exceptional gain of Rs 30.4 crore, due to waiver of loan. If we exclude these exceptional gains, the company would end up in losses of Rs 15.34 crore. However, there can be certain questions regarding the consistency," said Sushil Finance.

The company has net debt of Rs 650 crore and plans to repay Rs 400 crore using IPO proceeds. The company faces key delivery and execution risk. Looking at all the factors, risks, opportunities and an issue with very high valuation, investors can avoid
the issue as of now, it added.

Reliance Securities
Rating: Subscribe for long term
The market for global CNC machines is driven by increased embracing of automation and  advanced software solutions by key industries such as automotive and heavy industries to meet  their customer needs apart from lack of skilled labor at competitive costs which is expected to  grow at a CAGR of 10.3 per cent from 2023-2027, said Reliance Securities.

"With improved market share, growing  industry demand, diversified presence, augmenting capacities at regular intervals and  improving financial risk profile by repaying certain debt, strong order book of Rs 3,310 crore to be executed over the span of next few years augurs well for the company. Hence we  suggest a 'subscribe for long term' rating," it added.

Swastika Investmart
Rating: Avoid
Jyoti CNC Automation is one of the world’s leading manufacturers of CNC machines. In the last three years, the company has supplied over 8,400 CNC machines to more than 3,500 customers in India and across Asia. The company's global customer base is well-diversified and offers a wide range of products, said Swastika Investmart.

"However, Jyoti has previously experienced losses and a negative return on equity as a result. The company has been at a loss in FY 2022 and FY 2021. The company's P/E valuation is currently approximately 324.5 times, which is highly priced when compared to the industry average Due to its current financial condition and other risk factors, we will Avoid this IPO," it added.

Marwadi Shares & Finance
Rating: Subscribe
Considering the FY23 EPS of Rs 0.66 on a post-issue basis, the company is going to list at a P/E of 500 times with a market cap of
Rs 7,527.5 crore, whereas its peers namely Elgi Equipments, Lakshmi Machine Works, Triveni Turbine, TD Power Systems, Macpower CNC Machines are trading at a P/E of 35-46 times, said Marwadi Shares & Finance.

"We assign 'subscribe' rating to this IPO as the company is one of the leading CNC machine manufacturing companies globally with a well-diversified global customer base spread across end-user industries," it added.

SMC Global
Rating: Neutral
With expertise built over 2 decades and R&D capabilities, it delivers customized solutions to industries including aerospace and defence, auto and auto components, general engineering, EMS, dies and moulds and others, said SMC Global in its IPO note.

"However, a failure to innovate product offerings and adapt to technological advancements and changes may have an adverse effect on its market share and results of operations. A high risk taker investor may opt the issue," it added.

Mehta Equities
Rating: Subscribe for long-term
"We believe the company's commitment to technological advancement is evident in its diverse product range, spanning from entry-level CNC machines to sophisticated multi-axis models. If we analyse it based on price-to-book value, which stands at 6.2 times of FY24, compared to the industry average of 8-9 times which seems this IPO is reasonably priced to its peers," said Mehta Equities.

"Hence, considering industrial and company’s future growth rationales along with the primary objective of reducing the debt which could lighten interest burdens which can improve the bottom lines in coming years. Considering all the factors, we recommend investors to subscribe to Jyoti CNC Automation IPO for a long term perspective only," it added.

 

Disclaimer: Business Today provides stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.

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