Unimech Aerospace IPO

1. About the company…

• Unimatch Aerospace is an engineering solutions provider engaged in the manufacturing and supply of essential components for industries such as aerospace, defence, energy and semiconductors. The company specifically focuses on aero tooling, ground support equipment, electro-mechanical sub assemblies, and other precision-engineered products. The company's portfolio includes items such as engine lifting and balancing beams, assembly and calibration tools, airframe assembly platforms, engine transportation stands, mechanical and electro-mechanical turnkey systems, and high precision components.

2. Strengths

1. Unimech Aerospace's client base includes leading global airframe and aero-engine OEMs as well as their approved licensees.

2. Both manufacturing facilities are AS 9100D certified for aerospace quality management, BS EN(British and European Standards)ISO 9001:2015 certified for quality management systems and ISO 45001:2018 certified for occupational health and safety.

3. Between FY22 and the six months ending September 30,2024, the company produced 2,999 SKU's in the tooling and precision sub-assembly category and 760 SKUs in the precision-machined parts, supplying to over 26 customers across seven countries.

4. The company serves customers globally and has clients in the US, Germany, and the UK.

5. Manufacturing capabilities include advanced machining processes such as turning , milling, double column milling, electro discharge machining, and grinding. The assembly centre can handle assemblies up to 10 meters in size and diameters of upto 3 meters.

6. Assembly expertise includes various types of assemblies, such as interference and transition fits, heli coil assemblies, smooth sealing applications, and capacities of upto 3,000 components in a single assembly. Additional capabilities include laser tracker calibration, load testing up to 70 tonnes, pressure testing up to 420 bars, balancing to within 1 gram, helium leak detection, and non destructive testing methods such as ultrasonic, die-penetrant, magnetic particle, fluorescent penetration, and drive mechanism testing.

7. Fabrication capabilities cover engineering fabrication up to 2 meters and structural fabrication up to 6 meters, performed by AWS and ASME-certified welders. The company also offers special processes such as painting, polymer-based coatings, and NADCAP - certified processes like heat treatment and anodising through third party vendors.

8. The company has seen a consistent increase in revenue from operations and profit after tax(PAT). Revenue from operations increased from Rs.36.35 crore in FY22 to Rs.94.17 crore in FY23 to Rs.208.77 crore in FY24. PAT increased from Rs.3.39 crore in FY22 to Rs.22.81 crore in FY23 to Rs.58.13 crore in FY24.

3. Risks

1. A substantial portion of the company's revenue comes from the aerospace sector, specifically from manufacturing aero-engine tooling and airframe tooling. The sector contributed Rs.118.54 crore (98.25%) for the six month ending September 30,2024, and Rs 207.41 crore(99.35%), Rs.89.18 crore (94.70%), and Rs.34.84 crore(95.84%) in FY24,FY23, and FY22, respectively, to the revenue from the operations. Any adverse developments in this sector could negatively affect the company's business operations and financial condition.

2. The company's revenue is dependent on a few customers. The company's top 10 customers contributed Rs.119.56 crore (99.09%) for the six month ending September 30,2024, and Rs.207.62 crore (99.45%), Rs.92.38 crore (98.11%), and Rs. 35.14 crore (96.67%) in FY24, FY23, and FY22, respectively to the revenue from operations. Any loss of any of these major customers or a decline in purchases from them could adversely affect the company's operations and finances.

3. The largest client accounts for a significant portion of the revenue, accounting for 58.89% in the six months ending September 30,2024, and 59.82%, 59.45%, and 44.47% in FY24, FY23, and FY22, respectively. If the company losses this major client, the revenue from operations could be adversely affected.

4. Unimech's business is dependent on exports, which accounted for 95.67% of total revenue for the six months ending September 30,2024, and 97.64%, 95.20%, and 91.06% in FY24, FY23, and FY22, respectively. The united states alone contributed Rs. 99.60 crore (82.55%) for the six month ending September 30, 2024, and Rs.192.46 crore (92.19%), Rs. 72.42 crore (76.91%), and Rs.27.76 crore (76.38%) in FY24, FY23, and FY22, respectively. Any adverse developments or changes in these export markets, particularly the USA and Germany, could adversely impact operations and finances.

5. A major portion of Unimech Aerospace's operations is carried out through its material subsidiary, Innomech Aerospace Tooling private limited (''Innomech''). The company is heavily reliant on the operating income generated by Innomech, which contributed Rs.100.70 crore(83.46%) in the six months ending September 30,2024, and Rs. 186.53 crore(89.35%), Rs.69.22 crore (73.50%), and Rs. 24.74 crore (68.06%) in FY24, FY23, and FY22, respectively to the consolidated revenue from operations. A decline in Innomech's performance or changes in ownership could hurt the company's financial health.

6. The company relies on the third party suppliers for raw materials without long term contracts or exclusive agreements. This exposes it to risks of supply chain disruptions and price volatility, which could affect production, order fulfilment, and profitability. Additionally, advances paid to Suppliers may not always be recoverable, further increasing financial risks.

7. The company, its subsidiaries, directors, and promoters are currently involved in certain ongoing legal proceedings. Any adverse judgements in any of these cases could be detrimental to the company's business prospects.

8. As of October 31,2024, the company and its material subsidiary had consolidated outstanding borrowings amounting to Rs. 75.03 crore. Any inability to repay or service these loans could adversely affect the company's financial position.

4. About the financials..

1. Net Profit - Net profit of the company is increasing significantly Year on Year. Net profit of the company was Rs.3 crore in Mar2022 and was Rs.23 crore in Mar2023 and Rs.58 crore in Mar2024 and Rs.39 crore in Sep2024.

   • The company's net profit has shown significant growth, increasing from Rs. 3 crore in March 2022 to Rs. 58 crore in March 2024. However, there was a decline to Rs. 39 crore in September 2024, signaling a slowdown in profitability in the most recent period. Despite this dip, the overall trend remains positive with substantial year-on-year growth.

2. Fixed Assets - Fixed Assets of the company is increasing significantly Year on Year. Fixed Assets of the company was Rs.25 crore in Mar2022 and was Rs.29 crore in Mar2023 and Rs.52 crore in Mar2024 and Rs.71 crore in Sep2024.

   • The company's fixed assets have been increasing significantly year on year, growing from Rs. 25 crore in March 2022 to Rs. 71 crore in September 2024. This consistent rise reflects the company's ongoing investment in long-term assets to support its growth and operations. The trend indicates a strong focus on expanding its asset base.

3. Inventories - Inventories of the company is increasing significantly Year on Year. Inventories of the company was Rs.4.72 crore in Mar2022 and was Rs.15.77 crore in Mar2023 and Rs.19.73 crore in Mar2024 and Rs.20.05 crore in Sep2024.

   • The company's inventories have been increasing significantly year on year, rising from Rs. 4.72 crore in March 2022 to Rs. 20.05 crore in September 2024. This steady increase suggests that the company is accumulating more stock, possibly in anticipation of higher sales or to support growing operations. While this could indicate positive business expansion, it also raises concerns about inventory management and the potential for overstocking, which may impact liquidity. Further analysis is needed to assess whether the increase in inventories aligns with the company’s sales growth and operational needs.

4. Trade receivables - Trade receivables of the company is increasing significantly Year on Year. Trade receivables of the company was Rs.7.52 crore in Mar2022 and was Rs.32.13 crore in Mar2023 and Rs.46.84 crore in Mar2024 and Rs.42.52 crore in Sep2024.

   • The company's trade receivables have significantly increased from Rs. 7.52 crore in March 2022 to Rs. 46.84 crore in March 2024, indicating a rise in outstanding payments from customers. However, the slight decrease to Rs. 42.52 crore in September 2024 suggests some improvement in collection or a reduction in sales, requiring further evaluation of the company's credit policies and payment collection efficiency.

5. Cash Equivalents - Cash Equivalents of the company is increasing significantly Year on Year. Cash Equivalents of the company was Rs.7.48 crore in Mar2022 and was Rs.4.06 crore in Mar2023 and Rs.7.64 crore in Mar2024 and Rs.10.09 crore in Sep2024.

   • The company's cash equivalents have shown a steady increase year on year, rising from Rs. 7.48 crore in March 2022 to Rs. 10.09 crore in September 2024. This growth suggests an improvement in liquidity, indicating the company is building up cash reserves to support future operations or investments.

6. Other asset items - Other asset items of the company is increasing significantly Year on Year. Other asset items of the company was Rs.8.36 crore in Mar2022 and was Rs.9.20 crore in Mar2023 and Rs.38.22 crore in Mar2024 and Rs.39.83 crore in Sep2024.

7. Reserves - Reserves of the company is increasing significantly Year on Year. Reserves of the company was Rs.27 crore in Mar2022 and was Rs.48 crore in Mar2023 and Rs.87 crore in Mar2024 and Rs.366 crore in Sep2024.

   • The company's reserves have experienced a substantial year-on-year increase, growing from Rs. 27 crore in March 2022 to Rs. 366 crore in September 2024. This significant rise highlights the company's strong profitability and effective retention of earnings for future growth or strategic investments. The rapid growth in reserves may also reflect improved financial stability and the company's capacity to fund expansion without relying heavily on external financing.

8. Borrowings - Borrowings of the company is increasing significantly Year on Year. Borrowings of the company was Rs.20 crore in Mar2022 and was Rs.24 crore in Mar2023 and Rs.30 crore in Mar2024 and Rs.78 crore in Sep2024.

   • The company's borrowings have increased significantly year on year, rising from Rs. 20 crore in March 2022 to Rs. 78 crore in September 2024. This consistent rise in debt suggests that the company is relying more on external financing to fund its growth and operations. While this may support expansion, the increasing borrowings should be monitored for potential impacts on financial risk and interest obligations.

9. Trade Payables - Trade Payables of the company is increasing significantly Year on Year. Trade Payables of the company was Rs.4.12 crore in Mar2022 and was Rs.6.93 crore in Mar2023 and Rs.13.52 crore in Mar2024 and Rs.17.04 crore in Sep2024.

   • The company's trade payables have been rising significantly year on year, increasing from Rs. 4.12 crore in March 2022 to Rs. 17.04 crore in September 2024. This indicates that the company is extending its payment terms with suppliers or experiencing higher procurement costs, which may impact its working capital and relationships with vendors.

10. Other liability items - Other liability items of the company is increasing significantly Year on Year. Other liability items of the company was Rs.5.13 crore in Mar2022 and was Rs.13.38 crore in Mar2023 and Rs.23.62 crore in Mar2024 and Rs.24.50 crore in Sep2024.

5. Cash Flows

1. Cash from Operating Activity - Cash from Operating activity is significantly increasing year on year. Cash from operating activity Rs.2 crore in Mar2022 and Rs.1 crore in Mar2023 and Rs.24 crore in Mar2024.

   • Cash from operating activities has experienced a significant increase, rising from Rs. 2 crore in March 2022 to Rs. 24 crore in March 2024, after a slight decline to Rs. 1 crore in March 2023. This sharp growth in 2024 indicates a strong improvement in the company’s core operations and cash generation, suggesting enhanced profitability and better management of working capital.

2. Cash from Investing Activity - Cash from Investing Activity is significantly increasing year on year. Cash from Investing Activity Rs.1 crore in Mar2022 and Rs.(-6 crore) in Mar2023 and Rs.(-24 crore) in Mar2024.

   • Cash from investing activities has shown a significant negative trend, moving from an inflow of Rs. 1 crore in March 2022 to outflows of Rs. 6 crore in March 2023 and Rs. 24 crore in March 2024. This increase in cash outflows suggests that the company has been making substantial investments in assets or acquisitions, which could indicate a strategy focused on expansion or long-term growth, but it also reflects higher capital expenditures.

3. Cash from Financing Activity - Cash from Financing Activity is significantly increasing year on year. Cash from Financing Activity Rs.0 in Mar2022 and Rs.3 crore in Mar2023 and Rs.6 crore in Mar2024.

   • Cash from financing activities has been steadily increasing, rising from Rs. 0 in March 2022 to Rs. 6 crore in March 2024. This growth indicates that the company has been increasingly relying on external funding, such as debt or equity, to support its operations and expansion, which may reflect a strategy to raise capital for growth or manage financial requirements.

6. Ratios

1. Debtor Days - Debtor days was 76 days in Mar2022 and 125 days in Mar2023 and 82 days in Mar2024.

   • The company's debtor days have fluctuated, increasing from 76 days in March 2022 to 125 days in March 2023, before improving to 82 days in March 2024. While the initial increase in debtor days suggests a delay in customer payments in 2023, the improvement in 2024 indicates better collection efficiency and a reduction in outstanding receivables, which is a positive sign for cash flow management.

2. Days Payable - Days Payable was 211 days in Mar2022 and 133 days in Mar2023 and 111 days in Mar2024.

   • The company's days payable have decreased steadily, from 211 days in March 2022 to 111 days in March 2024. This decline suggests that the company has been reducing the time taken to pay its suppliers, which may indicate improved cash flow management or a strategy to strengthen supplier relationships by settling payables more promptly.\

3. Inventory Days - Inventory Days was 242 days in Mar2022 and 303 days in Mar2023 and 163 days in Mar2024.

   • The company's inventory days have fluctuated, increasing from 242 days in March 2022 to 303 days in March 2023, before significantly decreasing to 163 days in March 2024. The reduction in inventory days in 2024 suggests improved inventory turnover and more efficient inventory management, indicating that the company is holding less stock and potentially improving its operational efficiency.

4. Cash Conversion Cycle - Cash Conversion Cycle was 106 days in Mar2022 and 295 days in Mar2023 and 133 days in Mar2024.

   • The company's cash conversion cycle has fluctuated significantly, rising from 106 days in March 2022 to 295 days in March 2023, before improving to 133 days in March 2024. The sharp increase in 2023 suggests a significant slowdown in converting investments in inventory and receivables back into cash, while the improvement in 2024 indicates better working capital management and a more efficient conversion cycle.

5. Working Capital Days - Working Capital Days was 104 days in Mar2022 and 172 days in Mar2023 and 120 days in Mar2024.

   • The company's working capital days have increased from 104 days in March 2022 to 172 days in March 2023, before improving to 120 days in March 2024. The rise in 2023 suggests a higher reliance on working capital, potentially due to increased inventories or receivables, but the improvement in 2024 indicates better management of working capital, leading to a more efficient use of resources.

6. ROCE % - ROCE% was 52% in Mar2023 and was 75% in Mar2024.

   • The company's Return on Capital Employed (ROCE) has increased from 52% in March 2023 to 75% in March 2024, indicating a significant improvement in its ability to generate profit from its capital. This rise suggests more efficient use of capital, reflecting stronger operational performance and higher profitability relative to the capital employed in the business.