Gala Precision Engineering Company is coming up with its IPO fresh issue of Rs. 135.34 crores and offer for sale worth Rs. 32.59 crores totaling Rs. 167.93 crores, which will open on 2nd September 2024. The issue will close on 4th September 2024 and be listed on the exchange on 9th September 2024. In this article, we will look at the Gala Precision Engineering IPO Review and analyze its strengths and weaknesses. Keep reading to learn about the company.
Gala Precision Engineering IPO – About the Company
The company was incorporated in 2009. Gala Precision Engineering Limited manufactures precision components like disc & strip springs (DSS), coil & spiral springs (CSS), and special fastener solutions (SFS). The company supplies to OEMs, Tier 1 partners, and channel partners in sectors including renewable energy, automotive, and railways. Gala operates two manufacturing facilities in Wada, Maharashtra, and exports to over 25 countries, with a global clientele of 175 customers.
Gala focuses on design, development, and application engineering, leveraging over 30 years of experience to create customized products. The company’s in-house capabilities include precision machining, fatigue testing, and load testing. This expertise allows Gala to meet specific customer requirements, fostering strong relationships and enabling higher profit margins.
The company, led by Promoter and Managing Director Kirit Vishanji Gala, has shown strong financial performance. In FY2024, Gala reported a total income of Rs. 204.37 crore, EBITDA of Rs. 40.58 crore, and PAT of Rs. 22.33 crore.
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Gala Precision Engineering IPO – About the Industry
In India, The renewable energy sector is rapidly growing. The government aims for 500GW of renewable energy capacity by 2039. This growth creates a high demand for quality fasteners and springs. Wind turbines and solar panels need these components for stability and reliability. The market for fasteners in renewables is expanding at 32.5% annually.
India’s railway sector is undergoing significant upgrades. The government is investing in high-speed trains and station redevelopment. These projects increase the demand for coil springs, which are essential in train bogies. The expansion of metro rail systems in cities also boosts the need for railway infrastructure components.
The industrial sector, including off-highway vehicles and heavy machinery, relies heavily on fasteners. The market for industrial fasteners is expected to reach $3.8 billion by FY27. Construction and mining activities drive this growth. Government initiatives also support the expansion of the industrial fastener market, which is growing at 11% annually.
Gala Precision Engineering IPO – Financial Highlights
Gala Precision Engineering reported revenue from operations of Rs. 202.54 crores in FY24 compared to Rs. 165.46 crores in FY23. The company had Net profits in FY24 which was Rs. 22.33 crore, a decline of 7.76% YoY from Rs. 24.21 crore in FY23.
The decrease in net profits is due to exceptional items in FY23. It included Profit on sale of property and Income from Intangible assets. In FY24, there was a write-off of inventory and expenses related to foreign subsidiaries. The higher base effect in FY23 caused a decline in Net profits.
The earnings per share in FY24 was Rs. 22.09 per share which saw a decline from the previous year’s Rs. 23.98 per share. Despite the decline in FY24, There is an EPS increase from FY22 which has increased value for its shareholders.
Ratio Performance & Segments
The RoE stood at 23.59% in FY24 compared to 17.28% in FY23. Due to high capital-intensive business looking at their RoCE is relevant. To understand the efficiency, in FY24, the ratio was at 19.91% which was an improvement from 22.93% in FY23 and 3.63% in FY22.
Gala’s total debt to equity is around 0.53 in FY24 which is an increase from 1.81 in FY23. The company has reduced debt to more than half from FY23.
Gala Precision Engineering recognises its revenue from operations under Surface Engineering Solutions and Springs, Parts, and Assemblies. They make 99.45% from Springs, Parts, Fasteners, and Assemblies, and 0.51% from Surface Engineering Solutions in FY24. The company derives 62.47% from India and the remaining 37.53% from Outside India in FY24.
Gala Precision Engineering IPO – Key Players
Gala Precision Engineering’s listed peers is SKF India Limited, Harsha Engineers International Limited, Rolex Rings Limited, Sundaram Fasteners Limited, Sterling Tools Limited, and Ratnaveer Precision Engineering Limited.
The EBITDA margin of Gala Precision Engineering is around 19.86% in FY24, compared to its peers range of 9.46% to 22.40%. Gala is at the higher end of the ratio in FY24. Their margins are better than most of its peers.
Gala Precision Engineering’s return on equity is around 21.38%, which is higher compared to its peers. The range is around 9.48% to 21.38%. Gala outperforms in terms of RoE against its peers.
In PAT Margins, the peer’s range is from 5.15% to 12.62% and Gala’s margin stands at 10.93%. It is at the higher end of its peers and has a better ratio compared to most of its peers.
In conclusion, Gala has outperformed its peers in terms of return and near PAT and EBITDA margins. This shows the company’s ability to withstand its competitors. But other companies like Harsha, SKF India, and Sundaram Fasteners are far bigger than Gala in terms of revenue generation. Considering the size of these companies, most of the companies are sustaining in the industry.
Strengths Of the Company
- Product Quality: The company manufactures diverse precision engineering components. They make various springs and fasteners for industries like renewable energy, automotive, and railways. Their products meet high-quality German standards and are used in many sectors.
- Customer Base: They have a global customer base. The company exports to over 25 countries, including major markets like Germany, USA, and China. Their exports contribute to 37.53% of total sales as of March 2024.
- Long-term customer relations: The company maintains long-term relationships with customers. They have served some clients for over 15 years. This projects their commitment to reliability and quality. They work closely with customers throughout the product development process.
- Manufacturing Capabilities: They operate well-equipped manufacturing facilities. Their plants in Wada, Maharashtra have in-house design capabilities. They control the entire manufacturing process, from tool design to quality control. This allows them to offer comprehensive solutions to customers.
- Financial Strength: The company shows consistent financial growth. Their total income grew at a 17.53% CAGR from FY22 to FY24. They maintain high gross profit margins, around 59% during this period. This demonstrates their operational efficiency.
Weaknesses Of The Company
- Reliance on Key Customers: The company depends heavily on a few key customers. Their top 10 customers account for 47.48% of revenue in FY24. Losing these customers or significantly reducing their orders could hurt their business.
- Spring Technology Dependency: The company relies heavily on its spring technology segment. This segment generated 80.11% of revenue in FY24. A downturn in this segment could impact the company’s financial performance.
- Lack of Long-term contracts: The company needs long-term contracts with suppliers. They buy raw materials on a spot basis. This makes them vulnerable to price fluctuations and potential supply shortages, which might affect their production and costs.
- Industry Specific: The business depends on specific industries. Renewable energy, mobility, and industrial sectors are their main revenue sources. A downturn in these industries could negatively impact the company’s sales and financial condition.
- Promoter’s exposure: The company’s promoters have given personal guarantees for loans. If the company fails to repay these loans, the promoters may face repayment obligations. This could affect their ability to manage the company effectively.
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Gala Precision Engineering IPO – GMP
The shares of Gala Precision Engineering Ltd’s price in the grey market were trading at a % premium as of August 29th, 2024. The shares in Grey Market traded at Rs.529. This gives it a premium of Rs.0 per share over the cap price of Rs. 529.
Gala Precision Engineering IPO – Key IPO Information
Promoters: Kirit Vishanji Gala and Smeet Kirit Gala.
Book Running Lead Manager: PL Capital Markets Private Limited.
Registrar to the Offer: Link Intime India Private Limited.
The Objective of the Issue
- Establishing a New Facility in Vallam-Vadagal, Sriperembudur, SIPCOT, Tamil Nadu to manufacture hex bolts and high tensile fasteners of Rs. 37 crore.
- Capital Expenditure funding for equipment purchase, Plant and Machinery at Wada, Palghar, Maharashtra of Rs. 11.06 crore.
- Prepayment or Repayment of certain borrowings availed by the company of Rs. 45.43 crore.
- General Corporate Purposes.
Conclusion
Gala Precision Engineering Limited is into manufacturing of precision components. They are catering to some of the booming industries like renewable energy and the growing automobile industry. Recently, the company has improved their revenues but net profit took a hit because of exceptional items. However, EBITDA increased YoY with revenues.
However, there the competition is intense. Other established players are bigger than Gala and have a substantial market. Based on the quality, pricing, and segment mix the company needs to compete. The company is in the Ancillary industry in the Manufacturing process often has a pressure on the profit margins as the product prices are price sensitive.
So what do you make of this company? What is your view on Gala Precision Engineering? Let us know your views in the comments section below.
Written by Santhosh
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