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The Rs 740-crore initial public offer (IPO) by Azad Engineering Ltd will open for public subscription on Wednesday. The issue comprises of a fresh share sale of Rs 240 crore, in addition to an offer for sale (OFS) worth Rs 500 crore. The IPO will be sold in the price band of Rs 499-524 per share and potential bidders can bid for a minimum of one lot of 28 shares and in multiples thereafter. Ahead of its IPO, Azad Engineering's IPO committee finalised te allotment of 42,13,731 shares to anchor investors at Rs 524 apiece worth Rs 220.79 crore.

Analysts said the asking valuations are fully pricing in future prospects but given the recent listing trend, they suggested a 'subscribe' on the issue. Entry barrier, healthy track record, superior outlook on growth and return ratios would help Azad Engineering trade at premium valuations over peers post listing, anlaysts said.

Last heard, Azad Engineering was commanding a grey market premium (GMP) of Rs 440 in the grey market, which was at about 84 per cent premium to the upper end of the IPO price band. It has been holding on to this premium for a few days now.

Also read:Azad Engineering IPO to open on December 20; check price band, other details

Azad Engineering Ltd offers components to the aviation sector such as engine airfoils and other precision, forged and machined components. The manufacturer of mission & life-critical components serves highly regulated industries with significant entry barriers, as there is a stringent qualification processes take up to 30-48 months for on boarding a new vendor. Ventura Securities, Nirmal Bang, Reliance Securities, Canara Securities

Reliance Securities said Azad Engineering has demonstrated efficiency pursuant to machining time reduction and adherence to strict quality, resulting in competitive strength against manufacturers and exhibiting process design capabilities and cost competitiveness resulting in winning contracts. On a consolidated basis, the company reported a turnover of Rs 123 crore, Rs 194 crore and Rs 252 crore in FY21, FY22 and FY23, respectively. It clocked adjusted net profit of Rs 20.40 crore, Rs 33.10 crore and Rs 45.20 crore, respectively, for the periods mentioned.

"Azad Engineering is one of the fastest growing manufacturers with one of the highest Ebitda margins among the key players, backed by marquee investors, unique business model, strong TAM in various segments over the next few years, consistent track record of financial performance suggests a subscribe rating for the long term," Reliance Securities said.

Canara Securities said while the asking valuations stand appear to be fully priced as compared to peers, it would still recommend subscribe for listing gains. It noted that revenue for Azad Engineering grew at a compounded growth rate of 43 per cent between FY21 and FY23 and profit margin grew at a CAGR of 49 per cent during the same period. Azad Engineering's business requires more than just money to succeed, it said.

"Upon comparing with other similar capital goods players, we observe that Azad has delivered superior growth with similar return ratios while its valuation is broadly at par with the peer group. Based on stronger track record and superior outlook on growth, we expect Azad to trade at a premium to peers and, thus, we recommend to Subscribe to the IPO," said Nirmal Bang.

Azad Engineering generates 80 per cent of its revenues from 15 countries and its customers include global OEMs across the energy, aerospace and defence, and oil and gas industries such as General Electric, Honeywell International Inc., Mitsubishi Heavy Industries, Ltd., Siemens Energy, Eaton Aerospace and MAN Energy Solutions SE to name a few. Azad's largest customer contributes about 21 per cent to the revenue and its top three customers account for 47 per cent to the revenue. Any change in

the business dynamics or sourcing policy of the top three customers could thus have an adverse impact on the company financials, analysts suggested.

Swastika Investmart said while the issue may appear fully priced, Azad Engineering's strong market position, promising future growth prospects, and current optimistic market sentiment could still present a potential opportunity for investors. This brokerage also has 'subscribe' rating from listing gains and a long-term horizon.

The IPO would conclude on Friday. The finalisation of the basis of allotment is likely by December 26, refunds and credit of equity shares are likely by December 27 while the Azad Engineering stock may list on December 28.

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Azad Engineering IPO fully priced but analysts see listing gains; GMP, listing, allotment date & more - Business Today