The Azad Engineering IPO has seen healthy response from investors across categories, subscribing 80.6 times with participants putting in bids for 81.58 crore equity shares against offer size of 1.01 crore shares, on December 22, the final day of bidding.
The qualified institutional buyers took the lead, buying 179.66 times the allotted quota, while high networth individuals (non-institutional investors) and retail investors picked shares 87.55 times and 23.71 times the portions set aside for them.
Employees, who have reservation for Rs 4 crore worth shares in the IPO, have bid 14.69 times the reserved portion.
The Telangana-based engineered precision forged and machined components maker aims to raise Rs 740 crore through initial public offering, at the upper price band.
The IPO comprises a fresh issuance of shares worth Rs 240 crore, and an offer-for-sale (OFS) of shares worth Rs 500 crore.
Promoter Rakesh Chopdar, investor Piramal Structured Credit Opportunities Fund and other selling shareholder DMI Finance are the selling shareholders in the OFS. The price band for the offer, which was opened on December 20, is Rs 499-524 per share.
Also read: Azad Engineering IPO: 10 things to know before subscribing to the Rs 740-crore issue
Azad Engineering that caters to original equipment manufacturers (OEM) in the energy, aerospace and defence, and oil and gas industries will utilise net fresh issue proceeds for buying plant and machinery at a cost of Rs 60.4 crore, and for repaying debts amounting to Rs 138.19 crore. Besides, the remaining fresh issue money will be used for general corporate purposes.
The company will finalise the basis of the allotment of IPO shares by the end of December 26 and will credit equity shares to the demat accounts of successful investors by December 27.
The trading in Azad Engineering on the bourses will commence with effect from December 28, as per the IPO schedule.
Azad shares attracted strong interest in the grey market, trading with 65-70 percent premium over the upper price band, analysts on anonymity said. The grey market is an unofficial platform wherein IPO shares can be bought and sold till the listing.
The issue is priced at 57.6x 1HFY24 P/E (on an annualized & diluted basis) and the market capitalisation at the upper price band stands at Rs 3,100 crore.
"We like Azad given its presence in the high growth niche segment with high entry barriers, diversified product/client portfolio and robust financials. It would benefit from industry tailwinds especially in A&D (aerospace & defence) space which could improve its revenue mix," Motilal Oswal said.
Also read: Muthoot Microfin, Happy Forgings, Azad Engineering IPOs draw attractive premium in grey market
The company has delivered robust growth with revenue increasing 43 percent during FY21-FY23 and profit rising 33 percent during the same period. "It enjoys high margin which improved to 33 percent in 1HFY24 from 22.9 percent in FY21. Its RoE (post dilution) is healthy at 15 percent for 1HFY24. Post repayment, net debt/equity will get reduced to 0.1x," Motilal Oswal said.
Mehta Equities feels the issue looks a bit expensive on the valuations basis, but in line with its industry peers which are trading above 60x on average. Given the niche product profile with mission and life critical components demand along with 80 percent export revenue and superior margin profile is commanding a higher valuation multiple, the brokerage said.
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