Ajax Engineering (AEL), a concrete equipment manufacturer, has come out with its IPO, which is open for subscription until February 12. The IPO is entirely an offer for sale to the tune of ₹1,269.3 crore, and the company is valued at around ₹7,200 crore at the higher price band of the IPO. Please note that one of the two promoter families also executed a stake sale to the tune of ₹170 crore on February 5 at the IPO price.

AEL has been in existence for 32 years and operates across the concrete application value chain. Its product portfolio includes self-loading concrete mixers (SLCMs) and batching plants for concrete production, transit mixers for transportation, boom pumps, concrete pumps, self-propelled boom pumps for placement, slip-form pavers and 3D concrete printers for paving and depositing concrete, respectively.

At a PE of 29.6 times (post-IPO) trailing 12-month earnings (as of Q2 FY25), the issue appears reasonably priced.. Its closest peers – Action Construction Equipment, Bharat Earth Movers and Escorts Kubota – are trading at 41.1 times, 45.7 times and 31.3 times, respectively.

However, there are two factors to consider. First is the cyclical nature of the business. While the company has shown strong CAGR growth since FY21 in both topline and bottomline, its performance is strongly linked to infrastructure and real estate capex, which tends to be cyclical. Second, an impending regulatory norm is likely to pull forward some sales for the company. So, investors need to monitor the sustainable growth rate once the positive impact of revenue being pulled forward wears off (post-Q1 FY26). Given these, investors can give the IPO a pass and adopt a wait-and-watch approach for now.

The business

The manual method of concrete manufacturing has been losing relevance, as observed with the declining share of manually produced concrete from 84 per cent in FY19 to 75 per cent in FY24. This has been accompanied by a corresponding surge in the application of mechanised methods. AEL finds itself in the right place, with its products catering to the mechanised production methods.

SLCMs contribute around 80 per cent of sales, while non-SLCM portfolio and spare parts add 10 per cent each.

AEL runs an asset-light business with a focus on designing products. Manufacturing is largely outsourced to its domestic supply chain (imports add up only to 10 per cent of the total materials consumed), while the company assembles the final product.

Around 90 per cent of the company’s sales come in from its network of 51 dealerships within India and 25 overseas.

Domestic business contributes to around 95 per cent and this mix is expected to continue at least in the near term with strong domestic demand forecasted by AEL.

Market share of AEL in SLCMs, as of September 2024, stood at 77 per cent in India. Though the same dropped from 86 per cent as of FY22, it has remained stable around 75-77 per cent since FY23.

The business is seasonal, and demand is generally stronger in the latter half of every financial year, especially the non-monsoon periods. The average lifecycle of the product portfolio is in the range of 5-10 years.

No customer or supplier concentration with not one customer or supplier contributing more than 5 per cent of sales or purchases respectively.

Financial metrics

Revenue, EBITDA and PAT showed strong CAGR growth of around 51 / 75 / 84 per cent during FY22-24 and stood at ₹1,741 crore, ₹276 crore and ₹225 crore respectively for FY24. H1 FY25, though seasonally weaker, saw growth moderate, with revenue, EBITDA and PAT improving only 12 / 20 / 22 per cent year-on-year.

EBITDA and PAT margins improved Y-o-Y and stood at 15.5 per cent and 13.1 per cent for H1 FY25 against 11.9 per cent and 8.7 per cent in FY22 owing to operating leverage.

AEL has a net cash balance sheet with nominal debt only in the form of working capital.

SLCMs have driven significant growth for the company with a CAGR growth of 45.7 per cent recorded between FY22 and H1 FY25. The growth of non-SLCM products, on the other hand, has been relatively slower at a CAGR of 25.9 per cent.

What doesn’t work

With CEV (Construction Equipment Vehicle) V norms coming into force from January 1, 2025, registration of old norm compliant vehicles is now allowed only until June 30, 2025. Hence, expecting strong sales in H2 FY25 and Q1 FY26, the company’s inventory levels as of Q2 FY25 stand at 3x that of Q2 FY24, considering the impact of regulation (vehicles becoming costlier by 10-15 per cent) and post-monsoon being the peak season. However, a consequent slowdown is expected from Q2 FY26 due to the increased cyclical demand pulled forward until June 30, 2025. So, investors need to monitor how business trends after Q1 FY26.

Also, with around four-fifth of the revenue coming in from one product group – SLCMs, despite being market leaders, any slowdown or technically superior products from competitors could dent its growth curve. While diversification is already in play, it is to be seen how and when it will materially help reduce the dependence on SLCMs.

Our take

Despite strong growth , product concentration and slowdown both on account of new regulatory norms and cyclicality of business, are factors to consider.

Published on February 10, 2025