Jyoti CNC Automation, which went through the initial public offering in January 2024, had a substantial premium of Rs 84 even before the IPO. Such was the hype for this issue. Even after a month the stock sustained its hype, as one can see from its stock return of 30 percent since its listing on the secondary market. As of 12th February, the stock is trading at Rs 563.

The IPO was a new issuance worth ₹1,000 crore. Approximately 75% of the public offering had been reserved for qualified institutional buyers, 15% for high-net-worth individuals, and the remaining 10% for ordinary investors.

According to the prospectus, the net proceeds from the issue will be used to repay some of its loans, support long-term working capital requirements, and for general company reasons. Jyoti CNC Automation is in the business of manufacturing metal-cutting computer numerical control machines (CNC). Let’s now understand what Jyoti CNC Automation is and what the industry looks like.

Jyoti CNC Automation Ltd.

Industry dynamics

Machine tools are used to cut and shape metals and other materials based on the specifications of a product. They offer an easy and precise way to manufacture vital components productively and efficiently.

An essential pillar of the Indian engineering sector is the machine tool industry. Businesses use machine tools extensively for many different purposes, such as die molding, component manufacturing, aircraft, shipbuilding, electrical and electronic, healthcare, and consumer durables.

At a compound annual growth rate (CAGR) of 11.5%, the machine tool production market in India is projected to grow substantially between FY2023 and FY2027. The machine tool industry plays a crucial role in determining the manufacturing competitiveness of various sectors, including consumer goods, defence, heavy electrical equipment, automotive, and aerospace. 

Computer numerically controlled (CNC) machine tools will be more in demand in the future due to the growing need for increased productivity, improved precision and accuracy, and affordable manufacturing solutions.

With roughly 10% of the domestic Jyoti CNC Automation machine market in Fiscal 2023, Jyoti CNC is the third-largest CNC manufacturer in India and among the top producers of metal cutting Jyoti CNC Automation machines worldwide.

What does Jyoti CNC do ?

Jyoti CNC Automation Limited was established in January 1991 and is a manufacturer and supplier of Jyoti CNC Automation machinery. The business is headquartered in India and focuses on producing and distributing CNC machinery.

Globally, it had a market share of 0.04 percent in FY2022. Jyoti CNC Automation acquired French machine tool giant Huron Graffestaden S.A.S. in Strasbourg, France, in 2007. Huron is reputed across Europe for its state of art 5-axis machining centers. Huron is considered a pioneer in 5-axis machining technology.

A variety of Jyoti CNC Automation turning centers, CNC turn-mill centers, Jyoti CNC Automation vertical machining centers, CNC horizontal machining centers, CNC vertical line machines, and high-tech CNC three and five-axis machining centers are among the many products offered by Jyoti. From entry-level machines (the 2 and 3 axes machines) to the high-end machine categories (simultaneous 4 and 5 axes machines), Jyoti is well-represented throughout the Jyoti CNC Automation metal cutting product range.

Jyoti’s clients include famous names such as ISRO, Turkish Aerospace, Tata Advanced System Limited, Tata Sikorsky Aerospace Limited, Bharat Forge Limited, Shreeram Aerospace & Defence LLP, Bosch Limited, and many others.

The company has a research and development (R&D) facility in Rajkot, Gujarat, and an R&D team in Strasbourg, France. There are also three manufacturing facilities, two in Rajkot, Gujarat, and one in Strasbourg, France. As of September 30, the company could manufacture 4,400 machines per year in India and 121 machines per year in France.

Jyoti CNC Automation : Order book

As of September 30, 2023, the company had an order book of ₹ 33,153.26 million, including an order of ₹ 3,049.17 million from an entity in the electronics manufacturing services (EMS) industry, as mentioned in their HRP.

Strategies employed for the future

The management plans to expand its presence across other end-user industries and diversify the customer base and geographical reach. It also plans to penetrate the Aerospace and Defence industries which are expected to grow, both in India and abroad.

Over the last three fiscal years and the six months that concluded on September 30, 2023, the company has supplied over 8,400 CBC machines to over 3,500 customers in India as well as in Asia (apart from India), Europe, North America, and other parts of the world.

The company has mostly entered into various financing arrangements with the various lenders. The financing arrangements include term loans and working capital facilities. It proposes to use an estimated amount of ₹ 4.750 million from the net proceeds towards the full or partial repayment of borrowings undertaken by the company. Such repayment will help reduce the outstanding indebtedness and debt servicing costs and enable the utilisation of the internal accruals for further investment in business growth and expansion.

Jyoti CNC Automation – Financials

The company showed losses for financial years 2021 and 2022 consecutively. You may have noticed that the company made a profit of ₹ 150.6 million in FY23. But during that same period, they also registered an exceptional item of ₹ 304.50 million. When you discount for this, the company will still be at a loss. 

When you take a closer look at the debt position of the company, total borrowings as of September 30, 2023, stand at ₹ 8,214 million, which makes the debt-to-equity ratio stand at 3.25. The ratio was 19.25 and 10.17 during FY2022 and FY2023, respectively. 

Although the management has said that the debt will be reduced using proceeds from the IPO, it is still prudent to keep in mind the debt situation of the company.

Having such a high debt-to-equity ratio has several consequences, as mentioned below

• A significant portion of the cash flow will be used to repay existing debt, which will reduce the available cash flow to fund the business requirements.
• Impair the ability to raise further borrowings at commercially viable terms which will impact the ability to expand the business.
• Obligations under financing arrangements may result in default of payments.

Conclusion

When compared to peers such as Elgi Equipment and Laksmi Machine with PE of 42 and 35.85, respectively, Jyoti CNC Automation Limited, considering the upper price range of ₹ 331 crore, has a PE of 324. With their relatively low-profit margin and considerable debt, buying at this valuation is a bit risky. So would you take the risk & apply for the IPO? If so, tell us what you find most interesting about the company in the comments below

Written by Nalin Suriya 

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