ASK Automotive Limited (Subscribe)

Highlights

ASK Automotive Limited (ASKAL) was incorporated in 1988, which supply safety systems and critical engineering solutions. The company offerings are powertrain agnostic, catering to electric vehicle (EV) as well as internal combustion engine (ICE) original equipment manufacturers (OEMs).

The company products offering includes (i) AB system (ii) Aluminium lightweighting precision (ALP) solutions (iii) Wheel assembly to 2W OEMs and (iv) Safety control cables (SCC) products. ASKAL supply portfolio of AB systems, ALP solutions, wheel assembly, and SCC products to OEMs in (i) the automotive sector for 2Ws, three wheelers (3Ws), passenger vehicles (PVs) and commercial vehicles (CVs), and (ii) the non-automotive sector for all-terrain vehicles (ATVs), power tools and outdoor equipment.

The Company is the largest manufacturer of brake-shoe and advanced braking (AB) systems for two-wheelers (2W) in India with a market share of approx. 50 pct in FY23 in terms of production volume for OEMs and the branded independent aftermarket (IAM) on a combined basis. As of June 30, 2023, ASAKL operated 16 manufacturing facilities across five states in India, majority of which are strategically located near its OEM customers.

ASAKL has products to all the top six 2W OEMs in India. Also, it has long-standing relationships with all six of its top 2W OEM customers ranging from 16 years to 30 years. Its clientele includes Hero Motocorp, Honda Motorcycle and Scooter India, Bajaj, India Yamaha Motor Private Limited, TVS, Suzuki Motorcycle India Private Limited. The company also export its products to overseas companies such as UFI Filters, Federal-Mogul, FDP Virginia Inc, Stanley Black & Decker, Polaris Industries Inc, MTD Products Inc.

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

Out of the total proceeds of Rs. 8,340 mn, the company will not receive any proceeds from the offer and all the offer proceeds will be received by the Selling Shareholders, in proportion to the offered shares sold by the respective selling shareholders as part of the offer.

Key Highlights

• India has the world’s largest motorized two-wheeler market. By volume, it accounts for around 76 pct of the whole market, which includes 2Ws, 3Ws, PVs and CVs, and approximately 16 pct in value terms (nearly Rs. 1,056 bn). Furthermore, India is one of the world’s leading exporters of 2Ws. CRISIL MI&A predicts that 2W exports from India will grow at a 5-7 pct CAGR between FY23 and FY28, up from 5.3 pct between Fiscal 2018 and Fiscal 2023. Furthermore, EVs are gaining ground in India, outpacing ICE vehicles in the 2W, 3W, and 4W segments. The company is well-positioned to gain from the anticipated expansion in the market.
• Over the years company has formed collaboration and Joint Venture with leading global players. In 2001 company has formed technical collaboration with Japanese Manufacturer which is supplier of asbestos-free brake shoes to 2W manufacturers globally. In 2016 the company entered into technical collaboration with NUCAP Industries Inc. which is global player in parented retention system for disc brake pads in 2W, PV, CV segment. Out of 16 manufacturing facilities 1 facilities is with Joint Venture with FRAS-LE company which is a global producer of brake pads and linings for CVs.
• ASKAL R&D efforts are focussed on developing new formulations to address the changing ESG and safety standards. As of June 30, 2023, they had a portfolio of 52 proprietary formulations that they use in the production of AB systems for 2Ws, 3Ws, PVs and CVs, meeting stringent safety, durability and performance specifications of EV and ICE OEMs.
• The company’s growth strategy involves expanding its distribution network with a wide portfolio of technologically advanced critically engineered products for the IAM across India.
• As of FY23 out of the total revenue from operations, Advance braking systems contributes 41.77 pct, Aluminium light weighting precision solutions contributes 38.87 pct of revenue, wheel assembly contributes 13.75 pct of revenue, Safety control cable contributes 3.48 pct of revenue and others contribute 2.13 pct of revenue.
• Sales of the company has grown by 21.64 pct CAGR during the period FY21-23 while EBITDA and Profit increased by 8.1 pct CAGR and 7.58 pct CAGR over the same period. During FY23, company reported revenues of Rs. 15,439 mn which increased by 12.15 pct YoY while EBITDA rise by 35.83 pct YoY to Rs. 2,475 mn as EBITDA margin improved significantly from 9 pct in FY22 to 9.65 pct in FY23. Profit in the FY23 stood at Rs. 1,229 mn, which increased by 48.78 pct YoY. During Q1FY24 company sales, EBITDA, Profit increased 8.7 pct, 25.1 pct, 54.5 pct YoY respectively.

Key Risk

• ASKAL is dependent on its top three customers who contribute more than 50 pct of its sales with its single largest customer contributing approximately 30 pct or more of its sales in each of the last 3 Fiscal. Any loss of these customers can impact topline of the company.
• Export sales of the company exposed to foreign currency exchange rate fluctuations which may have an adverse effect on its results of operations.

Financial Performance

Valuation

ASK Automotive is the most preferred partner for 2W companies like Hero Motocorp, TVS, Bajaj, etc and is the largest manufacturer in India for brake-shoe and advanced braking systems. At the offer price bands, the issue is quoting at PE of 40x its annualized FY24E earnings. One can Subscribe from a longer-term perspective.

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Disclaimer: The views expressed in the blog are purely based on our research and personal opinion. Although we do not condone misinformation, we do not intend to be regarded as a source of advice or guarantee. Kindly consult an expert before making any decision based on the insights we have provided.