Jyoti CNC Automation

Maker of CNC machines

One of the top 3 manufacturer of CNC machines in India with a wide product range

Jyoti CNC Automation is one of the world’s leading manufacturers of metal cutting computer numerical control (CNC) machines. It is the 3rd largest player in India with a market share of about 10% in fiscal 2023 and 12th largest player globally accounting for about 0.4% of the market share in calendar year 2022.

Promoted by Parakramsinh Ghanshyamsinh Jadeja, Sahdevsinh L Jadeja, Vikramsinh R Rana and Jyoti International LLP, the company supplies a diverse portfolios of CNC machines including CNC Turning Centers, CNC Turn Mill Centers, CNC Vertical Machining Centers (VMCs) and CNC Horizontal Machining Centers (HMCs) to both domestic and international customers across the world operating in various end-user industries.

In November 2007, it acquired Huron Graffenstaden SAS, a pioneer for 5-Axis machining technology. And the acquisition has augmented its technological capabilities, broadened the range of its operations on the global scale, increasing its geographic reach and access, and ability to cater, to global customers across aerospace, defence and other high end engineering application industries.

It offer over 200 variants across 44 series and during the last 6 months period ended September 30, 2023, and during the last 3 Fiscals, the Company has supplied over 8,400 CNC machines to more than 3,500 customers in India and across Asia (excluding India), Europe, North America and rest of the world. Since April 1, 2004, it has supplied over 30,000 CNC machines globally. It sells its products in Romania, France, Poland, Belgium, Italy, and United Kingdom through Huron’s established dealer network and also has 29 sales and service centres spread across 12 states in India.

Its customers include Space Applications Centre - ISRO, BrahMos Aerospace Thiruvananthapuram Limited, , Turkish Aerospace, Uniparts India Limited, AVTEC Limited, Tata Advanced System Limited, Tata Sikorsky Aerospace Limited, Bharat Forge Limited, C.R.I. Pumps Private Limited, Kalyani Technoforge Limited, Shakti Pumps (India) Limited, Shreeram Aerospace & Defence LLP, Rolex Rings Limited, Orbit Bearings India Private Limited, Omnitech Engineering Private Limited, Harsha Engineers International Limited, Bosch Limited, HAWE Hydraulics Private Limited, Festo India Private Limited, Elgi Rubber Company Limited, National Fittings Limited and Aequs Private Limited.

As on September 30, 2023, it had the capacity to manufacture 4,400 machines p.a. in India and 121 machines p.a. in France. Capacity utilization of both India & France plants stood at 56.50% and 53.33% in H1FY24.

The Issue and Objects of the Issue

The offer comprises only of fresh issue of equity shares aggregating to Rs 1000 crore.

Of the net proceeds from the fresh issue, the company intends to use Rs 475.0crore towards repayment and prepayment in part or full of certain borrowings availed of; Rs 360 crore towards funding long-term working capital requirements; and balance towards general corporate purposes.

As on September 30, 2023, total borrowings stood at Rs 821.404 crore.

Strength

A wide product portfolio with presence across the CNC metal cutting machinery value chain i.e. entry level products to sophisticated machines including high speed simultaneous 5-Axis, multi-purpose, multi-tasking machines.

A well diversified global customer base spread across diverse set of end-user industries including aerospace and defence, auto and auto components, general engineering, EMS, dies and moulds, and others. Of the FY23 revenue about 20.32% came from Aerospace/defence, 46.68% from Auto & Auto components, General Engineering 19.58%, dies & moulds 8.99% and others 4.43%.

A strong order book of Rs 3315.326 crore (3.6 times of FY23 revenue) as of September 30, 2023. The order book includes an order of Rs 304.917 crore from an entity in the electronics manufacturing services (EMS) industry.

Focus on technology and ability to deliver innovative /customized solutions bolstered by expertise built over 2 decades of presence and strong dedicated R&D capabilities.

Vertically integrated operations which enable customisation and production efficiencies.

The market for global CNC machines is driven by increased embracing of automation and advanced software solutions by key industries such as automotive and heavy industries to meet their customer needs apart from lack of skilled labour at competitive costs. Global CNC Machining Centers Market is expected to grow at CAGR of 10.3% from 2023-2027.

Weakness

Has incurred losses and consequently, had a negative return on equity in the past.

Top 3/5/10 customers accounted for 13.95%/16.14%/20.08% in FY23 and 32%/34.77%/39.92% in H1FY24 respectively, signaling significant customer concentration.

The short fall in availability of input materials/components such as CNC controllers, motors, linear guide ways at fair rates will impact the business of the company.

Failure to innovate product offerings and adapting to technological advancements and changes may have an adverse effect on its market share and results of operations.

Statutory Auditors of the company have made certain comments indicating that material subsidiaries had accumulated losses, and their net worth was eroded which consequently indicates material uncertainty that may impact the Material Subsidiaries to continue as going concerns.

The company has delayed in submission of its audited consolidated financial statement in the past.

The company, in the past, has rescheduled payments of its credit facilities from its lenders as well as delayed in the payment of statutory dues.

The sum of all related party transactions entered into by the Company (as a percentage of revenue from operations) was 49.80% and 32.64% for H1FY24 and FY23 respectively compared to 18.32% in FY22. And this jump is primarily due to conversion of unsecured loan advanced by Parakramsinh Ghanshyamsinh Jadeja and Jyoti International LLP to the company as well as due to conversion of loan advanced by the company to Jyoti SAS (one of Material Subsidiary) into equity shares.

Valuation

Consolidated revenue for the fiscal ended March 2023 was up 24% to Rs 929.26 crore. But with 80 bps expansion in the operating profit margin to 10.5%, operating profit was up 34% to Rs 97.38 crore. After accounting for higher other income, higher interest, and lower depreciation, PBT was a loss of Rs 2.60 crore against a loss of Rs 41.75 crore in the corresponding previous period. However, net profit was a profit of RS 15.06 crore (as against loss of Rs 48.30 crore) gained by an EO Income of Rs 30.45 crore (nil in FY2022).

For the half year ended September 2023, consolidated revenue was Rs 509.82 crore. With the OPM standing at 14.6%, OP was Rs 74.40 crore. Finally, net profit was Rs 3.35 crore. The annualized EPS for H1FY2024 was Rs 0.3.

Consolidated adjusted EPS for FY2023 at the upper price band stood at -Rs 0.1. At the upper price band, the Price/Book Value works to 6 times. The company quotes at EV/sales 9 times.

In comparison, MacPower CNC Machines and Lokesh Machines quote at P/BV of 7.4 times and 4.1 times, respectively, and EV/sales of 3.4 times and 2.9 times. Other capital goods players such as Elgi Equipments, Triverni Turbines, LMW and TD Power Systems quote at P/BV of 12.3 times, 17.6 times, 6.2 times and 7.1 times, respectively, and EV/Sales of 5.7 times, 10.5 times, 3 times and 4.3 times, respectively.