Uniparts India Ltd IPO: Feasible for medium, long-term investors

Uniparts India Limited is tapping the capital markets with its offer for sale of 1,44,81,942 shares in a price band of Rs548-577. The issue would open on Wednesday (November 30) and close on Friday (December 2). The issue consists largely of an exit by a PE investor and some portion from the promoters.

The company is a global manufacturer of engineered systems and solutions, and one of the leading suppliers of systems and components for off-highway vehicles used in the agriculture and construction sector. They also supply to the forestry and mining sector and have made a foray into the oil and gas sector. The company is present in the OEM and aftermarket segments and has its presence through supplies in over 25 countries. The company is present in a major way in two segments, agriculture and construction. Roughly 55 per cent of the revenue comes from the agriculture segment, while 37 per cent comes from the construction segment. Over 80 per cent of the companies' revenues come from exports. It has global marquee customers as its clients.

In what needs to be clearly understood, the company is not an auto component player. It is not supplying parts in millions like the auto-comp people do. This business has many more parts that it supplies but the number of each of them is significantly lower. Further, they are high precision, multi operational and made to order. India being a low-cost producer certainly helps.

The tractor market consists of two broad categories with engine capacity of 70HP and above 70HP being the dividing factor. The global market is roughly 1.8 million tractors annually. In India, about 900,000 tractors are made and they are in the 70HP and below segment. Globally the smaller tractors are used for purposes which are not only agricultural but multifaceted like cutting the grass, shovelling the snow etc. The bigger tractors are used for agriculture and they need many more pieces of equipment which is the forte of Uniparts. The core product portfolio includes products of 3-point linkage systems and precision machine parts. The company also makes products for 'power take off', fabricated and hydraulic cylinders and parts thereof. The company had an estimated 16.68 per cent share of the global 3PL market in FY22 in terms of value. The company has five manufacturing plants in India and one in the US. It has three warehouses, two of them in the US and one in Europe. The warehouse operates at a higher margin than what the manufacturing plants do and this helps the company maintain its margins and also take care of inventory costs at the warehouse.

The company is a market leader in its segment in India and is a reasonably sized player in the global markets with strong presence amongst leading marquee players in both segments. To improve its margins, it shifted some of the products that were being manufactured in the US to India. Being a low-cost operation, this helped in improving the margins significantly. Further it approached its customers and knocked off some items which were not profitable in a phased manner. This saw flattish sales for a couple of years while margins improved significantly. The company reported revenues of Rs1,227.42 crores for the year ended March 22 and had net profit of Rs166.88 crores. The net margin was a very healthy 13.60 per cent which has improved significantly compared to the previous year's 10.21 per cent. The EPS for the company on a fully diluted basis was Rs36.98. The PE band is 14.82 – 15.60. Considering the sector and segments the company operates in (agriculture and construction), gives the company a heady start to its future as a listed entity. There is capacity expansion which is being done which would ensure that the company is able to grow and also meet increased demand from existing customers and new customers. The NAV of the company is Rs151.82 which makes the price to book 3.80 times.

The company has guided for a dividend distribution of 25 per cent of the net profit of the company considering its comfortable cashflows and financial condition. There is no comparable company in India which can be compared with Uniparts, which makes it unique in that sense. The focus on infrastructure globally and particularly in the US, makes the market for Uniparts that much more exciting and interesting. The company should post a decent growth in top line and sustained EBITDA margins of 22 per cent and PAT margins of 14 per cent. The share looks good for medium- and long-term investment.

(The author is the founder of

Kejriwal Research and Investment Services, an advisory firm)