Ask Automotive

Manufacturer of advance braking systems for 2Ws

To capitalize on electrification and aluminum lightweighting trend

Ask Automotive is largest manufacturer of brake-shoe and advanced braking (AB) systems for two-wheelers in India. Company had a market share of approximately 50% in Fiscal 2023 in terms of production volume for original equipment manufacturers (OEMs) and the branded independent aftermarket (IAM), on a combined basis.

The company has three decades of experience in supplying safety systems and critical engineering solutions. Its offerings are powertrain agnostic, catering to electric vehicle as well as internal combustion engine OEMs. The company’s brand `Ask’ is recognized as the leading brand in the 2W IAM in terms of production volume for Fiscal 2023 in India.

The product range of the company includes (1) AB systems, which contributed 37.94% to total revenue in Q1 FY24, (2) aluminium lightweight precision (ALP) contributed 42.76%, (3) wheel assembly to 2W OEMs contributed 13.64% and (4) safety control cables (SCC) contributed 3.54%. The company operates in India as well as overseas.

The company supplies its products to OEMs in (1) the automotive sector for 2Ws, three wheelers, passenger vehicles and commercial vehicles, and (2) the non-automotive sector for all-terrain vehicles (ATVs), power tools and outdoor equipment.

The company derives most of its revenue from 2W automotive sector representing 88.30% and 90.65% of total revenue for the three months period ended June 30, 2023, and FY2023 respectively. Out of this, Revenue from 2W EV OEMs represented 4.55% of total revenue in Q1 FY2024.

The company supplies its products to the top six, 2W OEMs (in terms of production volume and value in Fiscal 2023) in India. The company also supplies to 2W EV OEMs in India, including TVS Motor, Ather Energy, Hero MotoCorp, Greaves Electric Mobility, Bajaj Auto and Revolt Intellicorp.

In addition to its customers in India, the company caters to customers overseas, both in the automotive and non-automotive sectors through export of AB systems and ALP solutions.

Going forward, the company intends to increase its presence in the 3W, PV and CV sectors. Company also has Plans to capitalize on electrification and aluminum lightweighting trend. It can design and develop precision lightweighting solutions, enabling automotive OEMs to enhance vehicle safety, performance, durability and overall efficiency.

For EVs, its lightweighting solutions seek to enable improved thermal management, vehicle range, performance, and overall efficiency. Company supply safety systems and critical engineering solutions to nine 2W EV OEMs in India.

As of June 30, 2023, company operated 15 manufacturing facilities across five states in India, majority of which are strategically located in proximity to its OEM customers. The company recently commenced commercial manufacturing operations at its 16th manufacturing facility in Bhiwadi (Rajasthan) in July 2023. In addition, its Joint Venture operates one manufacturing facility in Gurugram, Haryana.

The company has entered technology licensing arrangements with global companies such as: (1) a Japanese manufacturer of asbestos-free brake shoes supplying to 2W manufacturers globally; (2) NUCAP Industries Inc., Canada (NUCAP) – a global player in patented retention systems and (3) Safety Control Cable Ind. Co- a SCC manufacturer serving automobile OEMs globally.

Revenue generated from independent aftermarket (IAM) was 10.97% and 8.86% of total revenue in FY2023 and Q1 FY2024, respectively.

Offer and its objects

The IPO will be a complete offer for sale of 2,95,71,390 equity shares worth Rs 833.91 crore by existing shareholders- Kuldip Singh Rathee and Vijay Rathee.

Price band for the IPO is Rs 268 to Rs 282 per equity share of face value of Rs 2 each.

The company will not directly receive any proceeds from the Offer, and all the Offer Proceeds will be received by the Selling Shareholders, in proportion to the Offered Shares sold by them.

The Promoters of the company are Kuldip Singh Rathee and Vijay Rathee. The Promoters and promoter group holds an aggregate of 197,142,600 equity shares, aggregating to 100% of the pre-Offer issued and paid-up equity share capital. The post IPO shareholding for the same is expected to be around 85%.

The issue, through the book-building process, will open on 7 November 2023 and will close on 9 November 2023.

Strengths

The company is the largest manufacturer of brake-shoe and AB systems for 2Ws in India with a market share of approximately 50% in Fiscal 2023 in terms of production volume for OEMs and the branded IAM, on a combined basis. Moreover, braking systems and SCC, which the company supplies, are considered critical for road safety having high entry barriers.

The company has long-standing relationships with both Indian and global OEM players. The company has been serving each of the top six, 2W OEMs in India for more than 16 years as of June 30, 2023.

The company’s revenue from operations has grown at a CAGR of 28.64% between Fiscals 2021 and 2023, demonstrating growth and efficient use of capital.

The company’s products are powertrain-agnostic, catering to the EV as well as ICE sectors of 2Ws, 3Ws, PVs and CVs.

The company is well positioned to capitalize on the growing trend of electrification. To leverage the expected growth in demand for 2W EVs, the company has 11 new programs under development for the EV sector that have been produced in Q2 FY24.

With EV penetration increasing, the application of aluminum in automobiles is expected to grow. Ask automotive will benefit from this trend because the company is currently developing capability for product migration from steel and plastics to aluminum, for lightweighting and thermal management.

The company’s in-house design and engineering capabilities enable it to deliver complex precision components and solutions with a focus on quality. As of June 30, 2023, the company had a portfolio of 52 proprietary formulations (out of which seven had been licensed). These formulations help in the production of AB systems for 2Ws, 3Ws, PVs and CVs, meeting stringent safety, durability and performance specifications of EV and ICE OEMs.

The company’s facilities are located at strategic locations across India in proximity to key OEMs, enabling it to engage in greater customer interaction and respond quickly to their needs.

Weaknesses

A significant portion of its revenue is attributable to the Indian two-wheeler automotive sector. Any adverse change in the two-wheeler automotive sector could adversely impact business. For Fiscal year ended 2023 and three months ended June 30, 2023, two wheelers contributed 90.65% and 88.30% to total revenue respectively.

The company derives more than 50% of its revenue from the sale of products to its top three customers. Moreover, its single largest customer contributed 29.7% and 34.52% for the three months ended June 30, 2023, and FY23, respectively. Loss of any of these customers, or reduction in the purchases by any of them, could adversely affect business.

The company depends on third parties for the supply of raw materials and do not have firm commitments for supply or exclusive arrangements with any of its suppliers. Loss of suppliers may have an adverse effect on business. For the three months ended June 30, 2023, its largest supplier outside India represented 37.21% of cost of material procured from outside India.

The regulatory and policy environment in which the company operates is evolving and is subject to change. The company may incur increased costs and other burdens relating to compliance, if any new requirements arise from changing regulatory landscape in India.

The company’s Promoters Kuldip Singh Rathee and Vijay Rathee were promoters and directors of Som Datt Finance Corporation, whose equity shares were suspended from trading by the Calcutta Stock Exchange due to non-compliance with the listing agreement. Moreover, certain of the company’s corporate records are not traceable, which can lead to a regulatory penalty.

The company’s manufacturing facilities are concentrated in the state of Haryana. Any significant social, political, economic disruptions in Haryana could have an adverse effect on business. For the period, ended June 30, 2023, the company manufactured 67.13% of Brake Shoe, 57.14% of Brake Panel Assembly, 100% of Disc Brake Pad, 58.74% of Pressure Die Castings and 100% of Cables in Haryana facility.

The company has been extending financial support to its Joint Venture, Ask Fras-Le Friction (AFFPL), that has incurred losses in the last three Fiscals. In the event AFFPL fails to maintain its profitability, it will fail to repay the amounts owed, which could affect company’s financials.

Its statutory Auditors have included certain matters in their audit report on the company’s Restated Consolidated Financial Information as of and for Fiscals ended March 31, 2023 and 2022. These matters involve (1) absence of registration of title deeds with respect to the Land Plot No. 176-P1, Narasapura Industrial Area, Kolar District, Karnataka, (2) discrepancies between the quarterly financial statements submitted to Company’s lenders and its books of accounts, and (3) utilization of working capital loans for long-term purposes such as acquisition of property, plant, and equipment.

Valuation

In Q1 FY2024, consolidated sales were up by 8.74% to Rs 656.5 crore compared to Q1 FY2023. The OPM increased by 163 bps to 9.7%, which led to a 30.68% increase in operating profit to Rs 63.7 crore. Other income increased 65.28% to Rs 1.04 crore, while interest cost increased 115.35% to Rs 4.35 crore and depreciation increased 0.47% to Rs 14.96 crore. PBT increased 47.07% to Rs 47.64 crore. Tax expenses for Q1 FY24 were Rs 12.81 crore compared to tax expense of Rs 9.83 crore in Q1 FY23. Net profit rose 54.36% to Rs 34.83 crore.

In FY23, consolidated sales were up by 26.93% to Rs 2555.17 crore compared to FY22. The OPM increased by 75 bps to 9.25%, which led to 38.2% increase in operating profit to Rs 236.43 crore. Other income fell 0.63% to Rs 1.11 crore, while interest cost increased 38.46% to Rs 11.19 crore and depreciation increased 8.58% to Rs 60.71 crore. PBT increased 50.23% to Rs 169.75 crore. Tax expenses for FY23 were Rs 46.81 crore compared to tax expense of Rs 30.33 crore in FY22. Net profit rose 48.73% to Rs 122.95 crore.

The TTM EPS on post-issue equity works out to Rs 6.86. At the upper price band of Rs 282, P/E works out to 41.12.

As of 5 November 2023, its listed peers such as Endurance Technologies trades at TTM P/E of 43.51, Uno Minda trades at TTM P/E of 48.18 and Suprajit Engineering trades at TTM P/E of 32.70. For FY23, Ask Automotive OPM and ROE stood at 9.25% and 19.10%, respectively, compared to 11.77% and 10.86% for Endurance Technologies, 11.05% and 15.72% for Uno Minda, and 11.36% and 12.42% for Suprajit Engineering, respectively.