IPO Size: Rs. 500 cr

• Rs. 250 cr is Fresh Issue for (i) capex Rs. 70 cr (ii) working capital Rs. 30 cr (iii) debt repayment Rs. 90 cr of Rs. 129 cr gross debt
• Rs. 250 cr is Offer For Sale (OFS) by the promoter (100% stake to drop to 68%)

Price band: Rs. 228-240 per share

M cap: Rs. 1,548 cr, implying a large dilution of 32%

IPO Date: Mon 9^th Sep to Wed 11^th Sep 2024, Listing Mon 16^th Sep 2024

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

Auto Component Maker for Commercial Vehicles

Kross Limited is a Jamshedpur, Jharkhand based trailer axle and suspension assemblies manufacturer, used in medium and heavy commercial vehicles (M&HCV) and tractors. This accounts for 44% of Rs. 620 cr revenue, and balance comes from products such as axle shaft, coupling flanges, anti-roll bar and stabilise bar, bell crank assembly. Based on end-use segment, M&HCV accounts for 89% revenue and balance from tractors.

Brownfield Capex

Company has a trailer axel and suspension assemblies manufacturing capacity of 60,000 units per annum, with 68% utilisation. It plans to invest Rs. 70 cr for capacity addition and backward integration, which is a significant sum, given net fixed assets of Rs. 105 cr, as of 31.3.24. Based on historic gross fixed asset turnover ratio of 3.5x, incremental revenue potential is Rs. 250 cr per annum, from H2FY26E onwards.  

Financials

FY24 revenue grew 27% YoY to Rs. 620 cr, with EBITDA of Rs. 82 cr (13% EBITDA margin) and net profit of Rs. 45 cr (7% net margin), leading to an EPS of Rs. 8.30.  

Net debt of Rs.107 cr will drop to Rs. 17 cr post repayment from IPO proceeds, reducing interest outgo.

High Receivables

As of 31.3.24, outstanding debtors doubled YoY to Rs. 110 cr, from Rs. 64 cr as of 31.3.23, while revenue rose only 27% YoY. Thus, collection remains a monitorable, especially when company plans to increase exports, which have a longer collection cycle.   

Fully Priced IPO

Pencilling in 28% YoY topline growth and a lower finance cost, FY25E EPS of Rs. 11 discounts the IPO price by a PE multiple of almost 22x, on current year basis. This is higher than larger peers GNA Axle and Automotive Axle having similar margin and ruling at PE of 18-20x. Even if Kross has higher growth, the IPO becomes fully priced. IPOs generally leave 15-20% money on the table for prospective investors. But this is seen missing.