Kross Limited (Avoid) – Fintoo Blog

HighlightsIssue Size –: 20,833,334 sharesIssue Open/Close – 9 Sept / 11 Sept, 2024Price Band (Rs.)  228 – 240Issue Size (Rs.) – 5,000 mnFace Value (Rs) 5Lot Size (shares) 62Kross Limited (KROSS) incorporated on 1991, is engage in the business of manufacturing and supply of trailer axle and suspension assembly and a wide range of forged and precision machined high performance safety critical parts for medium and heavy commercial vehicles (M&HCV) and farm equipment segments.The company is specialist in manufacturing of safety critical components for M&HCV segment which include axle shafts, companion flanges, anti-roll bars and stabilizer bar assembly, suspension linkages, differential spiders, bevel gears, planet carriers, inter-axle kits, rear end spindles, pole wheels and wide variety of tractor components for the hydraulic lift arrangement, power take-off (PTO) shafts and front axle spindles.They supply their products to a diversified client base which includes large original equipment manufacturers (OEMs) manufacturing M&HCV and tractors, tier one suppliers to the OEMs in the M&HCV segment domestic dealers and fabricators for their trailer axle and suspension business.KORSS has 5 manufacturing facilities in Jamshedpur, Jharkhand, equipped with (i) forging presses and upsetters equipped with induction billet heaters, (ii) foundry with a high pressure mould line, (iii) high-precision machining equipment such as turning centres, vertical and horizontal milling centres, grinding, broaching, hobbing, shaping and robotic welding, (iv) in-house cathodic electro-disposition plant (CED Plant), powder coating, spray painting and (v) heat treatment furnaces and induction hardening equipment. Out of the total proceeds of Rs. 5,000 mn, Rs. 700 mn would go towards funding CAPEX for buying Machinery and equipment, Rs. 900 mn would go towards repayment of outstanding borrowings of the company. Rs. 300 would utilize towards funding towards funding working capital. ~Rs. 600 would use for general corporate purpose and Rs. 2,500 mn would go towards existing selling shareholders of the company.Key HighlightsAs per CRISIL, Over the long-term horizon, domestic CV sales are projected to record a 4.5-6.5 pct CAGR between FY24-29, led by a 5-7 pct CAGR in the LCV segment, 3-5 pct CAGR in the M&HCV segment and 5-7 pct CAGR in the bus segment. In addition to domestic tractor sales is expected to grow 4-6 pct CAGR over FY24-29, factoring 1-2 years of erratic monsoon, with healthy sales forecast for the remaining years.The company is backward integrated with design, process engineering, forging, casting and machining capabilities which allows them greater control over process, delivery timelines, pricing and quality. This reduces KROSS dependence on third parties, streamlines production process and improves their operational efficiencies.KROSS partner with their key customers at various stages of product development, commencing from product design, validation and testing up to final manufacturing and delivery. This helps them understand customer requirements and future plans better, enabling them to forecast, plan and manufacture products accordingly, thereby resulting in business optimization, improved productivity, efficiency and margins.KROSS also intend to enhance their capabilities in machining processes so that they can do in-house machining of hubs and brake drum and increase the share of value-added and high-margin components. The company believe this expansion of the in-house machining capabilities will help improve their margins and profitability.In the past, they have invested CAPEX in order to expand their manufacturing capacities. In each of FY22, FY23 and FY24, they invested Rs. 123.18 mn, Rs. 185.95 mn, Rs. 271.30 mn, representing 4.14 pct, 3.81 pct and 4.37 pct of their revenue from operations for the respective periods, towards CAPEX. As part of their growth strategy, they intend to continue to invest in creation of additional capacities, both for existing products as well as for creation of new products.Sales of the company has grown by 44.4 pct CAGR during the period FY22-24 and EBITDA and Profit grew 65.5 pct CAGR and 91.8 pct CAGR over FY22-24. During FY24, company reported sales of Rs. 6,203 mn which grew by 26.94 pct YoY while EBITDA rose by 40.39 pct YoY to Rs. 808 mn as EBITDA margin expanded from 11.77 pct in FY23 to 13.02 pct in FY24. As of FY24 the company reported profit of Rs. 449 mn which was grew by 45.10 pct YoY.Key RiskCommercial vehicles sales are seasonal and most of the company’s sale are from commercial vehicles customers which possess seasonality risk to the KROSS topline.KROSS do not have firm commitment agreements with their customers. If their customers choose not to source their requirements from them, there may be a material adverse effect on KROSS business.Financial PerformanceParticularsFY22FY23FY24Sales (Rs. mn)2,9754,8866,203YoY Growth (%)61.86%64.27%26.94%Gross Profit (Rs. mn)1,3721,9892,643Gross Margin (%)46.11%40.71%42.62%EBITDA (Rs. mn)295575808EBITDA Margin (%)9.93%11.77%13.02%Profit (Rs. mn)122309449PAT Margin (%)4.09%6.32%7.22%ROE (%)16.81%30.29%30.57%ROCE (%)14.97%27.51%28.15%Peer comparison based on FY24 FinancialsPeer ComparisonKross Limited  (S)Rama Krishna Forging (C)Jamna Auto Industries (C)Automotive Axels Limited (S)GNA Axels Limited (C)Talbros Automotive Components Limited (C)Sales (Rs. mn)6,20339,54924,26822,29215,0637,783YoY Growth (%)26.94%23.87%4.36%-4.07%-4.84%20.25%Gross Profit (Rs. mn)2,64319,4038,7766,4245,0753,558Gross Margin (%)42.62%49.06%36.16%28.82%33.69%45.71%EBITDA (Rs. mn)8088,4003,2732,4631,9731,147EBITDA Margin (%)13.02%21.24%13.49%11.05%13.10%14.73%Profit (Rs. million)4493,4142,0541,6621,0001,100PAT Margin (%)7.22%8.57%8.45%7.40%6.63%13.91%ROE (%)30.57%12.72%22.74%18.97%12.47%20.47%ROCE (%)28.15%15.00%26.75%25.13%14.77%17.56%ValuationKross Limited is an acknowledged specialist in manufacturing forging components for the top OEMs and Tier 1 companies in India. KROSS commitment to quality, delivery and price has helped them establish long term relationships with their customers. At the upper end of the price band of Rs. 900 the issue is priced at a PE of ~34.5 its FY24 earnings. The issue looks fully priced. One can skip this issue.Also read: Why Is Financial Advisory Important?Disclaimer: The views shared in blogs are based on personal opinions and do not endorse the company’s views. Investment is a subject matter of solicitation and one should consult a Financial Adviser before making any investment using the app. Investing using the app is the sole decision of the investor and the company or any of its communications cannot be held responsible for it.