Company Overview
Incorporated in 1989 as a manufacturer of brake shoe products for two-wheelers (2Ws), ASK Automotive has since diversified its operations to include offerings such as (i) AB systems and (ii) aluminium lightweight precision (“ALP”) solutions. (iii) wheel assembly to 2W original equipment manufacturers (OEMs); and (iv) safety control cables (“SCC”) products. The company is a prominent player for 2W OEMs in India, with a market share of 9% in FY23 in production volume (Source: CRISIL Report). The company is the largest manufacturer of brake-shoe and advanced braking (“AB”) systems for two-wheelers in India, with a market share of approximately 50% in FY23 in terms of production volume for OEMs and the branded independent aftermarket (“IAM”), on a combined basis. They have in-house design and engineering capabilities that enable them to deliver complex, precision components and solutions with a focus on quality. The company supplies its products to the top six 2W OEMs (in terms of production volume and value in FY23) in India, the largest motorised 2W market in the world, with domestic sales of 16.25 million units during FY23 (Source: CRISIL Report). In FY22, they commenced commercial supplies to 2W EV OEMs in India, including TVS Motor, Ather Energy, Hero MotoCorp, Greaves Electric Mobility, Bajaj Auto and Revolt Intellicorp. They have long-standing relationships with all six of their top 2W OEM customers ranging from 16 years to 30 years.
Objects of the issue:
The net proceeds from the issue will be used towards the following purposes:
- The selling shareholders will receive the entire offer proceeds.
Investment Rationale:
Established manufacturer of safety systems and critical engineering solutions to India’s largest OEMs
India is among the largest exporters of 2Ws in the world. The 2W market constituted approximately 76% by production volume of the total Indian automotive market in FY23, comprising 2Ws, 3Ws, PVs and CVs. The company supplies its products to 2W OEMs in India, the largest motorised 2W market in the world, with domestic sales of 16.25 million units in FY23. The company has a comprehensive portfolio of EV and powertrain-agnostic products and supplies safety systems and critical engineering solutions to nine 2W EV OEMs in India. In addition, it is developing capabilities for product migration from steel and plastics to aluminium for lightweight and thermal management for e-powertrain and e-powertrain products. Due to the capital-intensive nature of the business and heavy dependence on complex technology, machinery and systems, the market may be difficult for new entrants due to the high entry barriers.
Technology and innovation-driven manufacturing process, with an extensive suite of systems and solutions for EV and ICE sectors
ASK Automotive entered the EV sector in FY21 to complement its existing systems and solutions for the ICE sector. The company has developed technologically advanced products based on customer specifications in the EV sector, including e-powertrain pulleys for a 2W EV customer to help achieve lightweight for its vehicles. The global trend toward vehicle electrification provides them with growth opportunities in the EV sector. As a technology and innovation-driven company, they are well positioned to capture market share in the growing EV sector. The increased adoption of electrification is expected to result in an additional focus on lightweight, which is likely to increase usage of ALP solutions in the 2W, 3W, CV and PV sectors, increasing the average quantity of aluminium used per vehicle in India for new product innovations for use in EVs. This will enable it to improve the content of its products, systems and solutions per vehicle, which it aims to achieve through the comprehensive suite of powertrain-agnostic products.
Valuation and Outlook:
The advanced braking systems market – including the sale to domestic OEMs, aftermarket, and export – is estimated at Rs. 54,299 million in FY23. Advanced braking systems are expected to grow at 8.9% CAGR over the next five years to reach Rs. 83,202 million. The market would be majorly driven by the fast-growing passenger vehicle segment, followed by 2W and CVs. The PLI scheme for the automobile industry will likely propel exports, thereby supporting demand for auto components in India. Almost all vehicle segments would log robust production growth between FY23 and FY28. The company’s experience in developing complex critical safety systems and solutions has led to established relationships with several customers. The component manufacturer has served the top six 2W OEMs (in terms of production volume and value for FY23) for more than 16 years as of June 30, 2023. ASK Automobile’s profit grew at a CAGR of 28.6% during the FY21-23 period to reach Rs. 6,037.4 million in FY23, demonstrating robust financial performance and positioning them for future growth. The company’s strategic focus to strengthen its position in the EV market and leverage its experience in developing AB systems and ALP solutions is helping them develop new products for OEMs. This has enabled the company to achieve further weight reduction, enhanced performance and improved vehicle acceleration via high-performance driveline products and improved efficiencies, positioning it firmly in the market. On the valuation front, the issue is valued at a P/E of 39.8x on the upper price band based on Q1FY24 annualised earnings. We recommend a “SUBSCRIBE” for the benefit of listing gains for the issue, as most of the positives seem priced in the offering.
