Uniparts India IPO: Here's why analysts recommend subscribing to the issue

Uniparts India’s initial public offer, which is entirely an offer-for-sale (OFS), has opened for subscription today and will close on Friday, December 2.

The promoter group and other shareholders are jointly selling shares worth Rs 835 crore in the issue. This is reportedly the company’s third attempt to go public and it has raised Rs 251 crore from 21 anchor investors ahead of the issue.

The firm is a global manufacturer of engineered systems and solutions for precision products for off-highway vehicles in the agriculture and construction, forestry and mining sectors with a presence in over 25 countries. It has 5 manufacturing units in India and 1 in the US.

Its core products are 3PL or 3- point linkage systems and PMP or precision machined parts, which account for around 92 per cent of the company’s total revenue. It commanded a global market share of 17 per cent and 7 per cent, respectively, in the two products in FY22.

Key risks: High segment and product concentration, over 80 per cent sales contribution from overseas with risks of high raw material costs, particularly steel, power and fuel. Significant business in the US alone (40 per cent in FY22) and dependence on US subsidiaries. The company has sustained negative cash flows in FY20 and FY21.

Here’s what analysts recommend:

Motilal Oswal | SUBSCRIBE

With its global leading position in the off-highway market, it is well placed to capture the growing industry opportunity in the tractor and construction equipment space. Its efforts to move up the value chain have led to strong earnings delivery and expanded the addressable market and customer base.

The IPO is priced at 15.6x FY22 P/E, which is reasonable given its robust financials. Huge capex plans of the government in India and the US are key positives.

BP Wealth | SUBSCRIBE

With India accounting for about 50 per cent of the global tractor production, the company is in a sweet spot to leverage this opportunity. Additionally, fully integrated solutions, long-term relationships with OEMs, and strategic location of manufacturing and warehousing facilities, among others should provide further tailwinds to the business.

ICICI Securities | SUBSCRIBE

The firm’s sales and net profit have grown at a CAGR of 16 and 63 per cent, respectively, over FY20-22, led by impressive improvement in EBITDA margins, which were 21.8 per cent in FY22 with return on capital employed (ROCE) at 27 per cent. The issue is reasonably valued given the healthy financials.

KR Choksey | SUBSCRIBE

The company is differentiated from its competitors in its ability to offer end-to-end solutions instead of individual components. It believes that none of its peers entirely operate in its geographical market, product range and price points.

Compared to the listed peers, it is significantly smaller in size in terms of revenue but has superior ROCE and return on equity profiles along with lower debt.

Hem Securities | SUBSCRIBE

The company’s global business model optimises cost-competitiveness and its long-term relationships with key global customers, including major OEMs, results in a diversified revenue base. Its robust financial performance makes the issue attractive.