IPO: Jyoti CNC

Jyoti CNC, a CNC (computer numerical control) machine manufacturer, is coming out with its IPO (initial public offering) on January 09, 2024. Here's a breakdown of the company's strengths, weaknesses and growth prospects to help investors make an informed decision. In a nutshell Quality : Its three-year average ROE and ROCE are -33 per cent and 4 per cent, respectively. It reported losses in FY22 and FY21, resulting in a negative three-year average ROE. Moreover, it has a worrying debt-to-equity ratio of 3.2 times (as of September 2023). Growth : Its revenue grew by 27 per cent annually over the last three years. Valuation : The stock is valued at a P/E and P/B of 500 and 6 times, respectively. Overview: Growth in the manufacturing sector and rising demand for high-precision machinery should drive growth. However, high competitive intensity, working capital requirement and debt are concerning. About Jyoti CNC Jyoti CNC is India's third-largest manufacturer of computer numerical control (CNC) machines by revenue. For the uninitiated, CNC machines are used to control and automate manufacturing tools. It operates two manufacturing facilities in India and one in France. Strengths of Jyoti CNC It is the third-largest CNC manufacturer in India by revenue (10 per cent in FY22) . Diverse clientele . It manufactures CNC machines for a diverse array of industries, including aerospace, defence, automotive, and other high-end engineering industries. Weaknesses of Jyoti CNC Revenue concentration . Its top 10 customers accounted for 40 per cent of H1 FY24 revenue. High working capital requirement . It has a high cash conversion cycle (around 234 days in FY23) and has to rely on debt for working capital requirements. Loss-making subsidiaries. It incurred losses on a consolidated basis in FY22 and FY21 due to losses incurred by its subsidiaries. High Debt. Its debt-to-equity ratio was 3.2 times as of September 2023. Also, it consistently had an interest coverage ratio of less than 1. IPO details Total IPO size (Rs cr) 1000 Offer for sale (Rs cr) - Fresh issue (Rs cr) 1000 Price band (Rs) 315-331 Subscription dates Jan 09 to Jan 11, 2024 Purpose of issue Working capital requirements; repayment of loan Post IPO M-cap (Rs cr) 7527 Net worth (Rs cr) 1253 Promoter holding (%) 62.5 Price/earnings ratio (P/E) 499.8 Price/book ratio (P/B) 6 Financial history Key financials 2Y CAGR (%) H1FY24 FY23 FY22 FY21 Revenue (Rs cr) 26.6 510 929 747