Unimech Aerospace & Manufacturing Limited. (Subscribe)

Highlights

Unimech Aerospace and Manufacturing Limited (UAML) incorporated on 2016, is an engineering solutions company specializing in manufacturing and supply of critical parts such as aero tooling, ground support equipment, electro-mechanical sub-assemblies and other precision engineered components for aerospace, defence, energy, and semiconductor industries.

UAML product portfolio includes, inter alia, engine lifting and balancing beams, assembly, disassembly and calibration tooling, ground support equipment, airframe assembly platforms, engine transportation stands, mechanical & electro-mechanical turnkey systems, and precision components.

They possess build to print capabilities, wherein they manufacture products based on client designs, and build to specifications capabilities, wherein they assist clients in designing the products to be manufactured basis specifications.

They supply high precision and critical components to major OEMs and their licensees worldwide. Their export-oriented business has a diverse product portfolio and strong focus on quality and timely delivery. The salient features of their products are complexity and a high-mix, low volume nature, characterized by high mix products which are not mass manufactured.

Out of the total proceeds of Rs. 5,000 mn, ~Rs. 364 mn, would go towards funding CAPEX of the company, Rs. 253 mn would go towards funding working capital requirement of the company, Rs. 1,286 mn would ulitize towards investment in subsidiary for the purpose of CAPEX and working capital. ~Rs. 597 mn would utilize for general corporate purpose and Rs. 2500 mn would go towards existing promoter selling shareholders of the company.

Key Highlights

• The Engine MRO segment accounted to USD 42.75 bn or 46 pct of the total MRO revenue in 2023 and expected to grow to 49 pct by 2028 to reach USD 53.20 bn by 2028. The engine MRO market is expected to grow at a CAGR of 4.5 pct and is the fastest growing market. While Indian MRO is expected to grow at a CAGR of 14.6 pct between the period 2023- 2028F from USD 1.46 bn to USD 2.89 bn in 2028F.
• UAML offer a wide range of products (SKUs) but produce relatively small quantities of each based on specific customer requirements. Their ability to efficiently manufacture even single units of a particular SKU provides them with the flexibility to optimize pricing and maintain high profit margins. Factors such as on-time delivery and product quality significantly influence their pricing strategy.
• The company focuses on timely deliveries of products. Their systems and processes ensure efficient order fulfilment and on-time delivery. As on H1FY25, their order in-hand was Rs. 807.52 mn, with a delivery timeline ranging between 4 to 16 weeks.
• Their assembly centre can handle up to 10 metre assemblies and diameter of up to 3 metres. Their assembly capabilities include different types of assemblies such as interference, transition fits, heli-coil assemblies, smooth sealing application, with capacities of up to 3,000 components in one assembly, along with laser tracker calibration.
• UAML’s key growth strategies include (i) Enhancing global footprint in strategic regions, thereby enriching the customer experience for existing clientele and expanding reach to new markets (ii) Capturing a higher market share and increase in wallet shares from customers (iii) Increasing manufacturing capacity and collaborative manufacturing with global and local manufacturers for growth (iv) Focus on growth by opportunistic inorganic acquisitions and partnerships with customers (v) Manufacturing of products including semiconductor manufacturing equipment, medical devices, robotics and other industries which require high-mix, low-volume.
• The company’s sales/EBITDA and Profit has grown by 140 pct/221 pct/313 pct CAGR Over FY22-24. During FY24, company reported sales of Rs. 2,088 mn which grew by 121 pct YoY while EBITDA grew by 129 pct YoY to Rs. 792 mn as EBITDA margin expanded by 123 bps FY24. As of FY24 the company reported profit of Rs. 581 mn which was grew 155 pct YoY. As of H1FY25 company registered sales/EBITDA/Profit of Rs. 1,207 mn/Rs. 488 mn/ Rs. 387 mn.

Key Risk

• UAML’s top 3 customers contribute around 95~of sales, company might face client concentration risk if they loss any of the clients.
• UAML’s business works on a longer gestation period wherein, there is considerable time gap of 7 to 28 weeks between the receipt of order and the payment, thereby, affecting their working capital requirements.
• UAML’s process of onboarding a customer can take up to 3 years, which may cause delays in revenue generation and dependency on trust-building for scaling operations and adversely harm UAL business and financials.

Financial Performance

Peer comparison based on FY24 Financials

Valuation

Unimech Aerospace and Manufacturing Limited is a global high precision engineering solutions company specializing in manufacturing of complex products with build to print and build to specifications offering. At the upper end of the price band of Rs. 785 the issue is priced at a PE of ~51.6 its FY25E annualised earnings. The issue looks fully priced. One can subscribe this issue from a longer-term perspective.

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