Aeroflex Industries

Flows well

Premier manufacturer of metallic flow solutions to a wide spectrum of industries

Aeroflex Industries (AIL), a subsidiary of SAT Industries, is a global flexible flow solutions company developing and manufacturing of environment friendly metallic flexible corrugated hoses, assemblies, and fittings for a diverse range of industrial sectors in both global as well as domestic market. In the last three fiscals, exports accounted about 81-85% of the total revenue of the company.

Metallic flexible corrugated hoses are used on an ongoing basis for efficient flow of varied types of materials and substances including liquid, air and solid from one point to another. The metallic flexible flow solutions of the company are made of SS. They have recently developed products made of bronze as well. And these products replace flow solutions made of rubber and polymers.

Metallic flexible flow solution product portfolio of the company is diverse comprising corrugated stainless-steel hose, Double interlock flexible metal hoses, Composite hose and stainless-steel hose assemblies. The offerings also include braided hoses, unbraided hoses, solar hoses, gas hoses, vacuum hoses, braiding, interlock hoses, hose assemblies, lancing hose assemblies, jacketed hose assemblies, exhaust connectors, exhaust gas recirculation (EGR) tubes, expansion bellows, compensators, and related end fittings.

Offers a range of metallic flexible corrugated hoses with diameters starting from ¼ inch to 14 inches and handle pressure capacity of upto 300 bars. Interms of SKUs, the company had a vast repertoire of more than 1700 SKUs as on 31 March 2023. Its flexible flow solutions made with stainless steel corrugation conform to BS 6501 Part 1, ISO 10380 and PED CE and are manufactured as per type A, B, and C flexibility.

AIL’s products, owing to the stainless-steel material, are used for food-grade hoses, and widely used in pharmaceutical and other food-related industries. Apart from these two its products find application in fire sprinklers, HVAC, and natural gas. Steel and Metal, Petrochemicals and Oil Refineries, Bulk Terminal Handling, Chemicals and Paper and Pulp. Emerging sectors such as Hydrogen, Semiconductors, Robotics & Automation, Aerospace and Defence, Solar and Electric Mobility are emerging as end use industries for metallic flexible flow solutions. In FY2023, revenue about 21.96% came from steel, 18.93% from O&G, 16.45% from refineries, 16.40% from fire sprinklers, 15.70% from chemicals, 8.19% from metals/mining, 0.65% from solar, and 1.73% from others.

Its diversified customer base comprises distributors, fabricators, MROs, OEMs, and companies operating in a wide range of industries.

The manufacturing facility of the company is located at Taloja, Navi Mumbai, in Maharashtra. The total installed capacity is about 11.00 million meters p.a. The capacity utilization of the plant in FY2023 stood at 83%.

The current initial public offer comprises a Fresh Issue aggregating to Rs 162 crore and an Offer for Sale of up to 17500000equity shares. The OFS is made by Sat Industries, the promoters of the company, who post-issue will hold 61.23% stake.

Proceeds from the issue will be used to repay debt (Rs 32 crore), meet working capital needs (Rs 84 crore) and general corporate purposes. As on July 31, 2023, the aggregate outstanding borrowings of the company was Rs 39.442 crore.

Strengths

Focuses on environment friendly metal flexible flow solutions that is gaining widespread acceptance, undoubtedly due to its superior attributes compared to non-metallic flexible flow products.

A comprehensive range of high-quality flow solutions in terms of size, metal grade (SS/bronze), and braiding/non braiding.

Moreover, it has a wide international market presence with exports to more than 80 countries with the largest market being the US, accounting for 28% in FY2023. The next largest contributor being UAE, accounting for 7% of the total revenue of the company.

High entry and exit barriers given critical nature of application of MFFS, there is rigorous product approval systems and stringent design,engineering, and use specifications by customers.

Metallic flexible flow solutions, though highly durable over other non-metallic flexible flow solutions, have to be replaced after certain period creating continuous replacement demand.

Weaknesses

Restriction in accessing any key export market due to increase in import duty, and sanctions.

Slowdown in demand for key end user industry or recession in countries in which key customers operate their businesses will impact the operations of the company.

The company was categorized as a willful defaulter in the pastbefore the takeover of it by the present promoter and management.

SAT Industries, the promoter of the company, engages in investment activity and have made investments in more than 125 startups across 30 different industries and any sudden downfall in the value of investments of promoters may adversely affect the promoter’s profitability which in turn may have a negative impact on the company.

Volatility in forex rates will have an impact on the financials of the company considering most of the revenue is from exports.

Valuation

Consolidated re-stated sales of the company for the fiscal ended March 2023 (FY 2023), were up 12% to Rs 269.46 crore. With the operating profit margin expanding by 70 bps to 20.1%, operating profit was up 16% to Rs 54.03 crore. Eventually, the PAT was up 10% to Rs 30.15 crore, restricted largely by higher EO expenses.

On post-issue equity (on the upper price band) the EPS for FY2023 was Rs 2.5 and the P/E works out to 43.2 times. ThePrice/BV on the upper price band works out to 5.1 times. There is no comparable peers with similar line of business, but AIA Engineering, which is into manufacture of high chrome grinding media and mill liners, quotes at a P/E of 31.6 times its consolidated FY2023 EPS. Price/BV of AIA Engineering was 5.9 times. SAT Industries, the parent of the company, quotes at a P/E of 38.4 time its consolidated FY2023 EPS.