Kross Limited IPO – GMP, Financials & More

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Kross Retail Company will launch a fresh IPO of Rs 25 billion and a sale offer of Rs 25 billion, bringing the total Rs 50 billion sale offer to Rs 9 billion on September 9.^Day September 2024. This issue closes on the 11th.^Day Expected to be listed on the exchange on September 16, 2024^Day September 2024. In this article, we will look at the Kross Retail IPO review and analyze its strengths and weaknesses. Read on to learn more about the company.

Kross Limited IPO – About Us

The company was established in 1991. Kross specializes in manufacturing trailer axles, suspension assemblies and high-performance safety critical components for medium and heavy commercial vehicles and farm equipment. With over 30 years of experience, the company has established itself in the Indian trailer axle industry. The company serves a diverse customer base including large OEMs, Tier 1 suppliers and domestic dealers.

This business model relies on backward integration with in-house design, process engineering, forging, casting and machining capabilities. This approach gives them greater control over processes, timelines, pricing and quality. They also provide forward integration into their trailer axle business, providing sales and service locations in key states in India.

The company operates five manufacturing facilities in Jamshedpur, Jharkhand. The facilities are equipped with state-of-the-art machinery for forging, casting, machining, coating and heat treatment. They have obtained various quality certifications to ensure high standards in manufacturing.

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Kross Limited IPO – Industry Overview

The Indian automobile industry is changing. The government’s PLI scheme aims to boost manufacturing and reduce dependence on imported components. The scheme focuses on advanced eco-friendly vehicles such as electric and hydrogen fuel cell models. It excludes conventional petrol, diesel and CNG vehicles. PLI provides incentives for advanced technology components and vehicle aggregation across various segments.

Tractor demand depends on the income of farmers and the development of rural infrastructure. Farmers use tractors for both agricultural and commercial purposes. Non-farm uses, including construction and transportation, account for 18-23% of tractor demand. This trend is likely to increase as farmers look for ways to make tractor ownership economically feasible.

The commercial vehicle sector is promising. The MHCV industry could grow by 2-4% annually, while bus sales could grow by 1-3% between 2024 and 2029. Improved road infrastructure and higher disposable incomes will drive growth. The CV industry has already recovered well, reaching 96% of pre-pandemic levels in FY2024.

Kross Limited IPO – Financial Highlights and Segments

Cross Retail reported an operating income of Rs 62.025 crore in FY24 and Rs 48.862 crore in FY23. The net profit for FY24 was Rs 44.88 crore and Rs 30.93 crore in FY23. The company has shown a huge increase in its revenue after posting Rs 12.16 crore in FY22.

Most of the expenses are spent on purchasing materials, which account for about 61.05% of the major expenses compared to imports. Other expenses account for another large portion of expenses in FY24, including consumption of spare parts, power and fuel costs, labor costs, and unloading costs.

PAT margin for FY24 was 7%, better than 6% in FY23. EPS for FY24 was Rs 8.30 per share, while EPS for FY23 was Rs 5.72 per share, a significant improvement over FY22. The increase in EPS was due to revenue growth.

The company’s debt to equity ratio was 0.80 in FY24 and 0.86 in FY23. The return on equity was 35.45% in FY23 and 36.06% in FY24. The increase in RoE was due to the increase in revenue and profit margin, which made a big difference in the earnings.

RoCE was 28.15% in FY23 compared to 27.51% in FY24. The ratio improved due to improved operating efficiency and profitability. Inventory turnover was 8.27 in FY24 compared to 8.88 in FY23.

Cross recognizes revenue from operations through manufacturing of critical components for M&HCV and farm equipment, with most of the revenue coming from India. M&HCV accounted for about 88.87%, farm equipment accounted for 9.02% and the remaining 2.11% came from other components or services in FY24.

Kross Limited IPO – Listed Major Companies

Kross Retail’s peers include Ramkrishna Forgings Limited, Jamna Auto Industries Limited, Automotive Axles Limited, GNA Axles Limited and Talbros Automotive Components Limited.

When compared to its peers, Kross’s gross profit margin is around 42.62%, which is in the high range compared to its peers. The gross profit margin ranges from 28% to 49%. Kross’ PAT margin is 7.22%, which is in the low range compared to its peers. Kross underperforms its peers, which range from 6% to 14%.

The difference between gross profit and profit margin is the EBITDA margin, which is used to determine operating efficiency. The contrast between the two can be seen in the EBITDA margin. Kross was 13.02% compared to the peer range of 11% to 21%. Kross is close to the lower range of peers.

Most companies in this industry have high leverage, which is relevant when looking at the Solvency ratio. Kross’ debt-to-equity ratio is 0.80x, which is higher than the 0.01x to 0.80x range for its peers. Kross’ ratio is in the higher range.

Kross’ RoE was 30.57%, which was higher than its peers, and RoCE followed the same trend as RoE. RoE was maintained year-on-year despite higher interest expenses, lower capital base, and higher profits, ensuring a decent return among its peers. Overall, Kross performed equally well in some parameters and underperformed its peers in some parameters.

Company Strengths

Customer Relations: The company maintains long-term relationships with major corporations. OEM and suppliers. They serve over 200 customers across a variety of segments including M&HCV and farm equipment. Their ability to customize products and consistently provide quality solutions has strengthened these customer relationships.
volume: They are a prominent manufacturer of trailer axles and suspension assemblies in India. The company has witnessed robust growth between FY2021 and FY2024, which has enabled them to compete with the leading trailer axle manufacturers. Their manufacturing capacity is 60,000 trailer axles and suspension assemblies per annum.
Product Diversification: The company offers a diverse product portfolio focused on continuous value addition. They manufacture a wide range of forged and machined precision components and assemblies. Their engineering capabilities enable them to produce complex, high-precision products, including safety-critical components for a variety of automotive applications.
Manufacturing Capability: They have integrated their manufacturing operations with their in-house product and process design capabilities. This integration gives them greater control over processes, timelines, pricing, and quality. Their backward integration capabilities include forging, design, casting, and machining. This improves operational efficiency and reduces reliance on third parties.
Leadership Experience: The company boasts experienced leadership and a strong management team. The Chairman and Managing Director have over 30 years of experience in the automotive industry. The management team has expertise in a variety of areas including operations and product development.

Weaknesses of the company

Revenue related to automobile demand: The company’s demand is directly tied to the sales of its customers’ vehicles. A decline in M&HCV and farm equipment sales could have a negative impact on the business. Economic conditions, regulatory changes, and industry trends can affect product demand.
Lack of long-term contracts with customers: They do not have long-term contracts with their customers. The company operates on a purchase order basis, which does not guarantee future business. These contracts make it difficult to forecast demand and plan production schedules accordingly.
Pressure on pricing: The company is under price pressure from its customers. It may have to lower its prices to maintain business or gain market share. This could lead to pressure on margins, which could affect its profitability and its ability to raise prices in the future.
How Operating Costs Affect Profit Margins: Profitability can be affected by a variety of factors including raw material costs, financial costs, and labor costs. Revenue growth does not always lead to increased profits due to the volatility of profitability margins. They operate in a competitive industry with variable costs.
Accounts Receivable Risk: Cross is exposed to counterparty credit risk. Delays or defaults in customer payments could have a negative impact on cash flow and working capital. They may have to use significant amounts to collect payments, which could affect their financial condition and prospects.

Cross Limited IPO – GMP

As of September 5, Kross Retail Ltd’s shares are trading at a 0% premium on the grey market.^Day2024. Grey Market shares were trading at Rs 240. This gives a premium of Rs 0 per share over the ceiling price of Rs 240.