Aeroflex Enterprises Ltd

Another year of resolute progress

SAT Industries continues to seek strategic M&A transactions through all its key business verticals, one such recent transaction is the acquisition of Hyd-Air Engineering, which builds on Aeroflex Industries' existing portfolio and allows them to deliver end-to-end solutions to customers

Dear Shareholders,

I hope this letter finds you in good health and high spirits. It gives me great pleasure to share with you the highlights of what has been a monumental year for our company, SAT Industries Limited. We have made significant progress on many of our stated strategic priorities.

A Blockbuster IPO of Aeroflex Industries

First and foremost, we are pleased to report the successful completion of the IPO of our subsidiary - Aeroflex Industries in August 2023. The IPO received tremendous interest from investors and the markets, with oversubscriptions amounting to an impressive 97 times. This response has been overwhelmingly great and validates our vision and the quality of business that has been built by Aeroflex Industries. Part of the total 3351 crores IPO was Fresh Issue of 3162 crores and the rest being Offer for Sale worth 3189 crores which recapitalises both Aeroflex Industries and SAT Industries to pursue their strategic objectives going forward.

Aeroflex Industries has also announced the acquisition of Hyd-Air Engineering Private Limited, a manufacturer of hydraulic fittings, fluid connectors, and flanges. This acquisition builds on Aeroflex's existing product portfolio and allows them to deliver end-to-end solutions to customers from hoses and fittings to assemblies. Apart from the product portfolio, it will also broaden Aeroflex's horizons into industries such as railways, shipbuilding, and heavy industries for better market penetration.

The acquisition of Hyd-Air positions Aeroflex for business expansion, fortifying its market position through expanded product offerings and strategic integration.

Further, as part of its organic growth efforts, Aeroflex Industries has concluded Phase-1 of its capacity expansion project, adding 2.5 million metres of capacity in FY24 at the Taloja unit, taking the total to 13.5 million metres. In Phase-2, the company intends to increase the capacities to 16.5 million metres, with an additional 3 million metres & metal bellows Phase 1 capacity of 120,000 pieces per year; to be set up on the land adjacent to its existing Taloja factory.

Consolidation at Sah Polymers

Sah Polymers has witnessed a year of consolidation due to macro headwinds and industry-specific challenges. Sah has faced unprecedented volatility in raw material prices, particularly various polymers derived from crude oil, which are fundamental to its operations. Coupled with the Red Sea crisis due to ongoing geopolitical tensions, which delayed shipments and escalated transit times and ocean freights, thus exports-a key business for Sah-were directly impacted. Additionally, demand from the European markets has been sluggish over the last financial year. Despite the external environment, Sah has focused on its internal objectives and operations, such as developing new products, particularly in the area of technical textiles and geotextiles. Further, it has focused on upgrading its processes and standard operating procedures and is in the final stages of obtaining the BRC audit certification, which will open doors for us to supply to the lucrative Food & Beverage industry. As the external challenges subside, Sah is more than ready to capitalise on opportunities, especially in light of its expanded manufacturing capacity.

Continued Thrust on Startup Investment

SAT Industries has continued its thrust on its startup portfolio over the last two years, despite the funding winter and global slowdown, with liquidity tightening affecting the performance of the startup ecosystem. Despite all of the challenges, SAT has made a total of 23 investments in its startup portfolio in FY24, including 10 follow-on rounds in existing portfolio companies and 13 new startup investments. Our focus remains on funding innovative business models that have the potential to disrupt conventional businesses and partnering with them early on, so that we become an indispensable part of their journey. We are now also looking at slightly bigger ticket size investments, of up to 2.5 crores in a single round. Some of the startup investments have also matured into successful exits for SAT Industries such as Sureserve Techsoft, Ideope Media (INC42), Ensuredit Technology, and Creditas Solutions which will fund further future investments. We continue to actively seek out promising opportunities in domains such as Spacetech, Manufacturing Tech, FoodTech, EdTech, E-Commerce, Hyper-local services, VR products, and AI-enabled platforms, among others, as we believe in the potential of these ideas to deliver outsized value for our stakeholders.

More Thrust on Fintech & Lending

Aeroflex Finance has seen material developments in the past year. Aeroflex Finance has increased its focus on lending activities through its strategic partnerships with fintech firms such as LenDen Club and FinAGG. These collaborative partnerships are allowing Aeroflex Finance to build its loan book by leveraging the fintech platforms and technologies built by these companies in the domain of business, SME, and personal loan products. These fintech platforms leverage cutting-edge infrastructure and technology for loan origination and lifecycle management, enabling a seamless and efficient customer experience. This allows Aeroflex Finance to save on operational expenditure on personnel, technology, and infrastructure, while focusing on its core activities.

We will continue to work on adding more such partnerships with innovative fintech platforms that position Aeroflex Finance at the forefront of innovation in this industry.

Continue to Focus on Inorganic Growth Opportunities

SAT Industries continues to seek strategic M&A transactions. Its approach is characterised by an aggressive yet prudent and calibrated strategy, as it strives for sustainable growth. The group seeks opportunities that strengthen its existing core businesses or open new avenues for growth. The recent acquisition by SAT's subsidiary Aeroflex Industries of Hyd-Air Engineering was focused on enhancing its portfolio, clientele, and value proposition for customers. The group, at a standalone level or through its various subsidiaries, will continue to pursue such strategic inorganic growth opportunities in future as well.

Outlook

Looking ahead, we will maintain our well-balanced business model, which integrates the stability of cash flow-generating businesses with the high-growth potential of our startup investment portfolio. We believe this strategy will enhance our resilience and readiness for future challenges across all our entities, ensuring we continue to deliver value to our shareholders.

In conclusion, I want to extend my heartfelt gratitude to all our shareholders for your unwavering support. Your trust and confidence have been pivotal in achieving these remarkable milestones. I also want to thank our dedicated employees, whose hard work and commitment have been crucial to our success. As we move forward, we remain optimistic about the future and are dedicated to creating sustainable value for all our stakeholders.