Aeroflex Industries Limited

Aeroflex Industries Limited has filed  its DRHP with market regulator SEBI on April 3, 2023 to raise capital through IPO. The IPO of the Company consists of Fresh Issue and Offer for Sale both.  The size of IPO is up to [●] Equity Shares aggregating upto ₹160 crore and Offer for sale of up to 1,23,00,000 Equity Shares aggregating upto ₹[●] crore by Sat Industries Limited and offer for sale of up to 52,00,000 Equity Shares aggregating up to ₹[●] crore by Italica Global FZC. 

Business Model of the Company

Aeroflex Industries Limited is  manufacturers and suppliers of environment friendly metallic flexible flow solution products catering to global as well as domestic markets. The Company exports its products to more than 80 countries including Europe, USA and others. The exports contributed to 80.85%, 84.53%, 80.90% and 74.74% of its revenue from operations, for the ten months period ended January 31, 2023 and Fiscals 2022, 2021 and 2020, respectively. The Company supplies its products to a wide spectrum of industries for controlled flow of all forms of substances including air, liquid and solid. During the ten months ended January 31, 2023, the Company supplied its products to 633 customers.

The Company is  into metallic flexible flow solutions made of SS. It has recently developed products made of bronze as well. The Company’s products replace flow solutions made of rubber and polymers. Flexible flow solutions made with stainless steel corrugation are becoming a preferred solution because of their numerous advantages. The technical characteristics of SS is the basic attribute that imparts flexible flow solutions made with stainless steel corrugation with its advantages including resistance to external elements, maintaining the quality of media transferred, resistance to abrasion and corrosion, low probability of catastrophic failure, resistance to temperature, maintenance of full vacuum, compatibility to chemicals, among others.

Management of the Company

(i) Asad Daud, aged thirty-two (32) years, is the Managing Director and Chairman of the Company. He holds a bachelor’s degree in accounting and finance from Hassaram Rijhumal (H.R.) College of Commerce and Economics, Mumbai and a master’s degree in accounting and finance from London School of Economics, London. He has over 12 years of experience in the manufacturing industry and has played an instrumental role in expanding the domestic and foreign operations of the Company. He’s involved in bringing about innovation in the operations and products of the Company. His input has helped the Company to diversify its operations and activities.

(ii) Mustafa Abid Kachwala, aged fifty-five (55) years, is the Whole-time Director of the Company. He holds a bachelor’s degree in commerce from Mumbai University. He has worked with Akbarallys Pharma Vet Division in Mumbai from 1986 to 2004 before joining Aeroflex Industries Limited. He has been associated with the Company since 2010 and was re-designated as the Chief Financial Officer with effect from November 28, 2022. He currently looks after the financial affairs of the Company.

Object of the Issue

Offer for Sale

The Company will not receive any proceeds from the Offer for Sale by the Promoter Selling Shareholder and the proceeds received from the Offer for Sale will not form part of the Net Proceeds. The Promoter Selling Shareholder will be entitled to the proceeds of the Offer for Sale after deducting his proportion of Issue expenses and relevant taxes thereon.

Fresh Issue

The net proceeds are proposed to be utilized in the following manner:

1. Full or part repayment and/or prepayment of certain outstanding secured borrowings (including foreclosure charges, if any) availed by the Company

2. Funding working capital requirements of the Company

3. General corporate purposes and Unidentified Inorganic Acquisitions.

Further, the Company expects to receive the benefits of listing the Equity Shares on the Stock Exchanges, which will result in enhancement of  visibility and  brand image among its existing and potential customers.

Risks in the IPO

Revenue is dependent on Exports

The Company exports its products to various countries and the export operations of the Company contribute more than 80% of Revenue from Operations. On account of the aforesaid, the Company may be subject to significant import duties or restrictions of the relevant jurisdictions. Further, adverse fluctuation in foreign exchange rate, unavailability of any fiscal benefits or the inability to comply with related requirements may have an adverse effect on the business and results of operations.

Do not have long term contracts with customers

The Company in the usual course of business do not have long term contracts with most of the customers and rely on purchase orders for delivery of the product and they may cancel or modify their orders, change production quantities, delay production or change their sourcing strategy. Loss of one or more of the customers or a reduction in their demand for the products could adversely affect the business, results of operations and financial condition.

The Company requires significant amount of working capital

The Company requires significant amounts of working capital and a significant portion of working capital is consumed in trade receivables and inventories. The inability to meet the working capital requirements including failure to realize receivables and inventories may have an adverse effect on the results of operations and overall business.

The Company is dependent on single manufacturing facility

The business of the Company is dependent and will continue to depend on a single manufacturing facility, and  the Company is  subject to certain risks on that behalf. Any slowdown or shutdown in the manufacturing operations could have an adverse effect on the business, financial condition and results of operations.

Inability to operate and grow business in certain countries

The geographical concentration of the exports to certain countries and the inability to operate and grow the business in such countries may have a material adverse effect on the business, financial condition, results of operations, cash flows and future business prospects.

Financial Performance

As per the financial statements of the Company: 

Total revenue in FY23 decreased by 8% to Rs. 219 crore compared to Rs. 240 crore in FY22.

Total expenses in FY23 decreased by 9% to Rs. 186 crore compared to Rs. 204 crore in FY22.

Profit before tax in FY23 dropped by 16% to Rs. 30 crore compared to Rs. 36 crore in FY22.

Net profit after tax in FY23 decreased by 18% to Rs. 22 crore compared to Rs. 27 crore in FY22.

Earnings per share (basic and diluted) in FY23 were Rs. 9.76, a decrease from Rs. 12.03 in FY22.

Total assets of the company in FY23 were Rs. 223 crore, an increase from Rs. 183 crore in FY22.

Total equity and liabilities of the company in FY23 were Rs. 223 crore, an increase from Rs. 183 crore in FY22.

Net cash used in operating activities in FY23 was Rs. (2) crore, a decrease from Rs. 32 crore cash generated in FY22.

Net cash used in investing activities in FY23 was Rs. (8) crore, a decrease from Rs. (13) crore used in FY22.

Net cash generated from financial activities in FY23 was Rs. 8 crore, an increase from Rs. (13) crore used in FY22.

Net cash and cash equivalents at the end of FY23 were Rs. 5 crore, a decrease from Rs. 8 crore in FY22.