Gala Precision Engineering IPO analysis

Gala Precision Engineering IPO will open for subscription on September 2, 2024 and close on September 4, 2024. Here's a breakdown of the high-precision industrial component manufacturer's strengths, weaknesses, and growth prospects to help investors make an informed decision. Gala Precision Engineering IPO in a nutshell Quality : The company's three-year average ROE and ROCE were nearly 21 and 19 per cent, respectively, during FY22-24. Growth : The company's revenue and profit after tax jumped 18 and 84 per cent per annum, respectively, during FY22-24. Valuation : Post the IPO, the stock will be valued at a P/E and P/B ratio of 30.1 and 2.5 times, respectively. Overview: Gala Precision Engineering manufactures highly critical and niche industrial components that find applications in the automotive, railway and wind energy sectors. Its domain expertise, client stickiness, and growth in India's capital expenditure are favourable factors. However, a limited addressable market coupled with tough competition can impact the company's growth trajectory. About Gala Precision Engineering Incorporated in 2009, Gala Precision Engineering manufactures technical springs and special fastening solutions (nuts and bolts) that hold applications in the automotive, power, and infrastructure industries. The spring business is its largest revenue segment, which made up 80 per cent of its revenue as of FY24. Within this, the company primarily sells disc and strip springs (DSS) with a 10 per cent overall market share. But it holds a dominant 70 per cent share in DSS catering to the renewable energy sector. The company exports to 25 countries. This business made up nearly 38 per cent of its revenue as of FY24. Strengths of Gala Precision Engineering Client stickiness: Gala manufactures critical industrial components that have to undergo a long-period of testing and audits before they can be commercialised. This is why the company enjoys long-standing relationships with most of its clients, who prefer to stick through rather than going through the hassle of finding other reliable and trustworthy replacements. Hence, the company boasts an average relationship of over eight years with its top 10 clients. Weaknesses of Gala Precision Engineering Small addressable market: The components that Gala manufactures are highly critical with niche applications resulting in a small addressable market for the company. Moreover, the company requires a long period of time to onboard new clients and faces tough competition from much larger players in the international market. Gala Precision Engineering IPO details Total IPO size (Rs cr) 168 Offer for sale (Rs cr) 33 Fresh issue (Rs cr) 135 Price band (Rs) 503 - 529 Subscription dates September 2-4, 2024 Purpose of issue To undertake capex and repay debt Post-IPO M-cap (Rs cr) 670 Net worth (Rs cr) 239 Promoter holding (%) 55.4 Price/earnings ratio (P/E) 30.1 Price/book ratio (P/B) 2.5