The initial public offering (IPO) of auto ancillary player ASK Automotive opened for subscription on Tuesday, November 7. Ahead of the launch, the company raised ₹250 crore from anchor investors, including Morgan Stanley Asia (Singapore) Pte, Copthall Mauritius Investment Ltd, Societe Generale, Goldman Sachs Fund, and SBI Life Insurance Company, among others.

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ASK Automotive has allotted 88.71 lakh equity shares to 25 funds at ₹282 apiece, which is also the upper end of the price band, according to a company circular.

Should you apply or not?

Most analysts have recommended investors consider subscribing to the ASK Automotive IPO due to the company's strong financial performance, promising long-term growth prospects, and attractive valuation.

Swastika Investmart: Subscribe for long-term

"The IPO is coming at a PE (price-earnings) valuation of 45.63 times, which is reasonably priced. Looking at these factors and the long-term growth prospects, we will give a Subscribe rating to this IPO for long term," Swastika Investmart said.

"ASK is a leading player with more than 50% market share as a break shoe and advanced braking systems manufacturer. The company shares strong relations with all the top two-wheeler manufacturers in the country. It has a robust production model and a technology and innovation-based manufacturing process," it said.

Financially, ASK Automotive has shown strong growth in its top-line numbers, while its profitability has also been decent.

However, the brokerage noted that the company is facing some risks related to its dependence on a limited number of clients, the regional concentration of its manufacturing unit, and increasing debt.

Reliance Securities: Subscribe

"ASK will continue to grow better than the industry able to diversify its product basket, offer new solutions for existing products and increase the content per vehicle for its products. Therefore we recommend a 'Subscribe' to the issue," said Reliance Securities in its IPO note.

BP Equities: Subscribe for listing gains

According to BP Equities, the company has achieved further weight reduction, enhanced performance and improved vehicle acceleration via high-performance driveline products and improved efficiencies, positioning it firmly in the market.

"On the valuation front, the issue is valued at a P/E of 39.8 times on the upper price band based on Q1FY24 annualised earnings. We recommend a 'Subscribe' for the benefit of listing gains for the issue, as most of the positives seem priced in the offering," the brokerage said.

Canara Bank Securities too said that the issue is fairly priced with peers. "Hence, we recommend to subscribe the issue for listing gains."

Key concerns

- The company derives more than 50% of its revenue from operations from the sale of products to its top three customers.

- The company’s business and profitability are substantially dependent on the availability and cost of its raw materials.

- The company uses third-party dealers to market, sell, and deliver products in the independent aftermarket.

Know GMP

According to market analysts, ASK Automotive shares are trading at a premium of ₹40 in the unlisted market today.

The grey market is an unofficial platform wherein IPO shares can be bought and sold till the listing. Most investors track the grey market premium (GMP) of a stock to get an idea of the listing price.

About the offer

The issue, which closes on November 9, is completely an offer for sale (OFS) of 2.95 crore equity shares. Net proceeds from the IPO will entirely go to the selling shareholders.

The company has fixed a price band of ₹268-282 per share for its offer. Investors can bid for a minimum of 53 shares in one lot and in multiples thereafter.

Under the OFS, promoters Kuldip Singh Rathee and Vijay Rathee will offload 2.06 crore shares and 88.7 lakh shares, respectively. At present, Kuldip holds a 41.33% stake in ASK Automotive and Vijay owns a 32.3% stake in the firm.

About 50% of the issue is reserved for qualified institutional buyers, 35% for retail investors, and the rest 15% has been set aside for non-institutional investors.

JM Financial, Axis Capital, ICICI Securities, and IIFL Securities are the book-running lead managers to IPO. The shares of the company are proposed to be listed on both the exchanges, on November 20, as per the IPO schedule.

Company profile

ASK Automotive is claimed to be the largest manufacturer of brake-shoe and advanced braking (AB) systems for two-wheelers (2W) in India with a market share of approximately 50% in fiscal 2023 in terms of production volume for original equipment manufacturers (OEMs) and the branded independent aftermarket (IAM), on a combined basis.

The company has recently expanded its operations to cater to the top names in the EV sector such as TVS Motor, Ather, Hero Motocop, Greaves, Bajaj Auto and Revolt, which has further increased its market share.

As of June 30, 2023, the company operated 15 manufacturing facilities across five states in India, the majority of which are strategically located near its OEM customers.

On the financial front, the company reported a turnover of Rs 1,544 crore, Rs 2,013 crore and Rs 2,555 crore for FY21, FY22 and FY23, respectively, on a consolidated basis. It posted a net profit of Rs 106 crore, Rs 83 crore and Rs 123 crore, respectively for the aforementioned period.

Revenues registered a CAGR of 28% while profit was lower FY21-23 at 7.6% with variation in net margins. The revenue split between the three major businesses is ABS (41.8%), and ALPS (38.9). Wheel Assembly (13.8%) and SCC (3.5%) for FY23 and each of the business segments is exploring strong growth opportunities.

First Published:Nov 7, 2023 10:31 AM IST