Understanding Business, Risk, Financials, & Valuations of Aeroflex Industries

1. Company Overview

a) Manufacturer and supplier of environment-friendly metallic flexible flow solution products.

b) Products cater to both global and domestic markets.

c) Exports to more than 80 countries including Europe, USA, and others.

2. Export Profile

a) For Fiscals 2023, 2022, and 2021:

(i) Export values: ₹21 Cr, ₹20 Cr, and ₹11 Cr respectively.

(ii) Exports as a percentage of revenue: 80.60%, 84.53%, and 80.90% respectively.

3. Customer Base

a) For Fiscals March 31, 2023, 2022, and 2021:

(i) Total customers served: 723, 606, and 538 respectively.

(ii) International customers across different countries: 217 (51 countries), 190 (49 countries), and 169 (43 countries) respectively.

(iii) Domestic customers: 506, 416, and 369 respectively.

4. Product Significance & Application

a) Flexible flow solutions are crucial for transferring substances (air, liquid, solid) in industrial or commercial settings.

b) Connects origin and end points in various processes.

c) Examples of applications: fire sprinklers, gas supply, aircraft air conditioning, fueling, and hydraulics in aircrafts.

5. Product Range & Capabilities

a) Customized solutions up to assembly level.

b) Product categories: braided hoses, unbraided hoses, solar hoses, gas hoses, vacuum hoses, braiding, interlock hoses, hose assemblies, lancing hose assemblies, jacketed hose assemblies, exhaust connectors, exhaust gas recirculation (EGR) tubes, expansion bellows, compensators, and related end fittings.

c) As of March 31, 2023: More than 1,700 Product SKUs in the portfolio.

6. Material & Innovations

a) Primarily into stainless steel (SS) metallic flexible flow solutions.

b) Recently developed products made of bronze.

c) Products aimed at replacing flow solutions made of rubber and polymers.

7. Advantages of Stainless Steel Flow Solutions

a) Stainless steel corrugation in flow solutions offers:

b) Resistance to external elements.

c) Quality maintenance of transferred media.

d) Resistance to abrasion and corrosion.

e) Low probability of catastrophic failure.

f) Temperature resistance.

g) Maintenance of full vacuum.

h) Compatibility to chemicals.

8. Sourcing of Raw Material

The competitive edge, cost-efficiency, and profit hinge on securing a consistent supply of raw materials. They primarily source Stainless steel Coils and wires from China internationally and from states like Uttar Pradesh, Gujarat, Haryana, and Maharashtra domestically. They also obtain fittings of materials like stainless steel and polytetrafluoroethylene both locally and globally.

They have high dependency on China for Raw Materials. In Fy23, they have imported 43% from China. That is a potential risk.

9. Financial and Valuation Performance

a) Revenue experienced a significant surge, moving from ₹144 crore in FY21 to ₹269 crore in FY23.

b) For FY23, the company recorded an EBITDA margin of 20%, marking an improvement from the 15.47% in FY21.

c) Profit After Tax (PAT) witnessed an impressive ascent, from ₹6 Cr in FY21 to ₹30 Cr in FY23.

d) In the last three years, the company maintained robust operational cash flows, with FY21 and FY22 registering 44 Cr from operations. However, FY23 saw a dip to just 3.7 Cr, attributed to increased inventory and trade receivables. Over these years, the company invested approximately 27 Cr in capital expenditures and reduced their long-term debt by around 16 Cr, thanks to their operational cash flow. Presently, they have an available cash reserve of approximately 6 Cr

e) As of 31st March 2023, they have Short Term Debt of 25 cr and Long-Term Debt of 19 cr.

f) The duration for trade receivables remained manageable, averaging 90 days in FY23.

g)  After the issuance, the net worth is projected to be approximately ₹276 crore. With short-term liabilities amounting to ₹25 crore and long-term debts at ₹19 crore, the Debt-to-Equity ratio stands at a comfortable 0.26x.

h) The IPO has been valued at a P/E ratio of 46x, and a market capitalization close to ₹1400 crore, suggesting that the valuation looks on higher side.