Explore the metal cutting industry

Jyoti CNC Automation, which went public in January 2024, had a significant premium of Rs 84 even before the IPO. There was so much hype around this issue. A month later, the stock continued to live up to the hype, as evidenced by the stock’s 30% return since listing on the secondary market. As of February 12, the stock is trading at Rs 563.

The IPO was a fresh issue worth ₹1,000 crore. Approximately 75% of the offering was allocated to qualified institutional buyers, 15% to high net worth individual investors and the remaining 10% to retail investors.

According to the prospectus, the net proceeds from this offering will be used to repay a portion of the loans, support long-term working capital requirements and for general corporate purposes. Jyoti CNC Automation is in the business of manufacturing metal cutting Computer Numerical Control Machines (CNC). Now let’s understand what is Jyoti CNC automation and what the industry looks like.

Jyoti CNC Automation Company.

industrial dynamics

Machine tools are used to cut and shape metal or other materials according to product specifications. This provides an easy and accurate way to manufacture critical components productively and efficiently.

A key pillar of India’s engineering sector is the machine tool industry. Companies use machine tools extensively for a variety of purposes, including mold forming, parts manufacturing, aircraft, shipbuilding, electrical and electronics, medical, and consumer durables.

The machine tool manufacturing market in India is expected to grow significantly from FY 2023 to 2027 at a compound annual growth rate (CAGR) of 11.5%. The machine tool industry plays an important role in determining the manufacturing competitiveness of various fields such as consumer goods, defense industry, heavy electrical equipment, automobiles, and aerospace.

Computer Numerical Control (CNC) machine tools will be in greater demand in the future as the need for increased productivity, increased precision and accuracy, and affordable manufacturing solutions increases.

Jyoti CNC, which accounts for approximately 10% of the domestic Jyoti CNC automated machines market in FY 2023, is the third largest CNC manufacturer in India and one of the top producers of metal cutting Jyoti CNC automated machines globally.

What does Jyoti CNC do?

Jyoti CNC Automation Limited was established in January 1991 and is a manufacturer and supplier of Jyoti CNC Automation Machines. The business is headquartered in India and focuses on CNC machine production and distribution.

The global market share in fiscal 2022 was 0.04%. Jyoti CNC Automation acquired French machine tool giant Huron Graaffestaden SAS in Strasbourg, France in 2007. Huron is renowned throughout Europe for its state-of-the-art 5-axis machining centers. Huron is considered a pioneer in 5-axis machining technology.

A wide range of Jyoti CNC Automated Turning Centers, CNC Turn-Mill Centers, Jyoti CNC Automated Vertical Machining Centers, CNC Horizontal Machining Centers, CNC Vertical Line Machines, Hi-Tech CNC 3-Axis and 5-Axis Machining Centers are available. Jotiro. From entry-level machines (2-axis and 3-axis machines) to advanced machine categories (simultaneous 4- and 5-axis machines), Jyoti is well known for its entire range of Jyoti CNC automated metal cutting products.

Jyoti’s clients include renowned companies such as ISRO, Turkish Aerospace, Tata Advanced System Limited, Tata Sikorsky Aerospace Limited, Bharat Forge Limited, Shreeram Aerospace & Defense LLP, Bosch Limited, etc.

The company has a research and development (R&D) facility in Rajkot, Gujarat and an R&D team in Strasbourg, France. It also has three manufacturing facilities, two in Rajkot, Gujarat and one in Strasbourg, France. As of September 30, the company could produce 4,400 machines per year in India and 121 machines per year in France.

Jyoti CNC Automation : an order sheet

As of September 30, 2023, the company had an order book of Rs 33,153.26 million, including orders worth Rs 3,049.17 million from companies in the Electronic Manufacturing Services (EMS) industry, as mentioned in the HRP.

Strategies for the Future

Management plans to expand its presence across other end-user industries and diversify its customer base and geographic reach. We also plan to enter the aerospace and defense industry, which is expected to grow both in India and abroad.

Over the last three fiscal years and the six months ended September 30, 2023, the company has supplied more than 8,400 CBC machines to more than 3,500 customers in India as well as Asia (excluding India), Europe, North America and other regions. part of the world.

The Company has entered into various financing agreements, most of them with various lenders. The financing agreements include term loans and working capital facilities. It is proposed that approximately ₹4.75 million of the net proceeds will be used for full or partial repayment of borrowings undertaken by the company. These repayments help us reduce our outstanding debt and debt service costs and allow us to leverage internal accruals for additional investments to grow and expand our business.

Jyoti CNC Automation – Finance

The company has posted losses for consecutive fiscal years 2021 and 2022. You might have noticed that the company earned a revenue of ₹150.6 million in FY23. However, during the same period, an exception worth 304.5 million rupees was also registered. Discount this and the company would still make a loss.

Looking at the company’s debt status in detail, the total borrowings as of September 30, 2023 are 8,214 million rupees, with a debt-to-equity ratio of 3.25. The ratios for FY2022 and FY2023 were 19.25 and 10.17, respectively.

Although management has stated that it will use IPO proceeds to reduce debt, it is still wise to keep the company’s debt situation in mind.

Having a debt ratio this high has several consequences, as noted below.

• A significant portion of cash flow is used to repay existing debt, which reduces cash flow available to fund business needs.
• Impairing our ability to raise additional borrowings on commercially viable terms, which could impact our ability to expand our business.
• Our obligations under our financing agreements may result in payment defaults.

conclusion

When compared to peers like Elgi Equipment and Laksmi Machine, which have a PE of 42 and 35.85 respectively, Jyoti CNC Automation Limited has a PE of 324, considering its upper price range of ₹331 crore. With relatively low profit margins and significant debt, buying at this valuation is a bit risky. So, do you want to take the risk and apply for an IPO? If so, let us know what excites you most about the company in the comments below.

Written by Narin Surya

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