Uniparts India

Exporter of OHV components

Caters to a niche market globally, with over 75% OEM business contribution to revenue

Uniparts India is a global manufacturer of engineered systems and solutions and supplier of systems and components for the off-highway market in the agriculture and CFM (construction, forestry, and mining) as well as aftermarket sectors on account of its presence across over 25 countries. The company is a concept-to-supply player for precision products for off-highway vehicles (OHVs), with presence across the value chain.The company is promoted by first generation entrepreneurs, Gurdeep Soni and Paramjit Singh Soni, who have over three decades of experience in this business.

Its product portfolio includes core product verticals of 3-point linkage systems (3PL) and precision machined parts (PMP) as well as adjacent product verticals of power take off (PTO), fabrications and hydraulic cylinders or components thereof.

The 3PL is a standardized system to attach implements to tractors. They comprise three movable arms assembled in a triangle or ‘A’ formation, and are controlled by the hydraulic system allowing lifting, lowering, and tilting.

PTO ismechanical gearboxes that connect to apertures provided on tractors and used to carry the energy of the tractor engine to additional components, mainly in hydraulic pumps.

As part of its transition from being solely a component manufacturer to solutions provider and further to a systems integrator, the company have over the years introduced several products to its product portfolio including rear hitch, front hitch, hydraulic lift arms, PTOs and trailer hitch which allow it to offer integrated system solutions to meet its customer requirements and move up the value chain. Its manufacturing operations have significant backward and forward integrated, thereby reducing its dependence on external supply and support services and enables maintenance of quality controls required to service global OEMs and aftermarket players.

In FY2022 about 55.72% of its revenue from operations were from 3PL, 36.43% from PMP, 1% from PTO applications, 1.06% from fabrication, 0.06% from hydraulic cylinders and 5.74% from others (scrap, export incentive schemes). While the agriculture segment accounted for 70.51% of the FY2022 revenue, about 24.84% came from the CFM segment.

Most of its products are structural and load bearing parts of the equipment and are subject to strict tolerances, specifications, and process controls. A series of precision engineering process steps converge into manufacturing of these products.

Its customer base comprises many global OEMs. It primarily serves OHV players including OEMs and aftermarket retail store chains, through its global business model based on its dual-shore integrated manufacturing, warehousing and supply chain management systems and solutions. The company as of June 30, 2022, had a global footprint and served customers across countries in North and South America, Europe, Asia and Australia, including India.

The customer base in FY2022 comprised over 125 customers in over 25 countries globally. Its single largest customer, top 5 customers and top 10 customers accounted for 32.78%, 56.10% and 70.42% of its revenue from operation, respectively, in FY2022.

Its long experience and ability to serve a long list of customers have allowed it to scale its operations over the years. Apart from supplying to OEMs, it also caters to the aftermarket segment, especially for the 3PL product range. It provides replacements of 3PL parts to organized aftermarket retailers and distributors in North America, Europe, South Africa, and Australia.

It has long-term relationships with global OEM players in the agriculture and CFM sectors, such as Tractors and Farm Equipment Limited (TAFE), Doosan Bobcat North America (Bobcat), Claas Agricultural Machinery Private Limited (Claas Tractors), Yanmar Global Expert Company Limited (Yanmar) and LS Mtron Limited. It services several organized aftermarket players and large farm and fleet retail store chains in Europe and the US, such as Kramp Groep B.V. (Kramp) and Tractor Supply Company (TSC).

Bobcat, TAFE and Kramp are some of the customers with whom it has had relationships for over 15 years, while with customers like Yanmar, it has a relationship with for over 10 years. More recently, it added TSC and Kobelco Construction Equipment India Private Limited (Kobleco) as its customers. Customers it acquired from 2017 accounted for 6.97%, 11.13%, 9.73% and 9.46%, respectively, of its revenue from operations in FYs 2020, 2021 and 2022, and in the three months ended June 30, 2022, respectively.

The company has six manufacturing facility, of which five are in India (two at Ludhiana, Punjab, one at Visakhapatnam, Andhra Pradesh, and two at Noida, Uttar Pradesh) and overseas at Eldridge Iowa in USA. Its in-house manufacturing and implementation competencies include forging, machining, fabrications, heat treatment, surface finish, logistics, quality and testing, design and validation. Aggregate installed capacity across these manufacturing facilities as end of June 30, 2022, was 67,320 metric tonnes per annum.

The USA manufacturing facility attached with warehousing and Distribution facility came into its fold through its acquisition of Olsen Engineering LLC (now Uniparts Olsen Inc) in 2005. It also setup a distribution facility in Noida, Uttar Pradesh, and a warehousing and distribution facility at Augusta, Georgia. It has set up a warehousing and distribution facility in Hennef, Germany, which serves as its base for serving its key European customers. Each of its facilities is strategically located in proximity to several global OEMs in the OHV industry.

Its global business model has contributed to the evolution of its relationships with its key customers as the company is able to serve multiple delivery locations and provide multiple delivery options with flexible lead times and costs, allowing its to better serve its customers with multiple price points based on different delivery models.

The Issue and object of the offer

The issue comprises only offer for sale (OFS). The OFS comprises sale of 14481942 equity shares by selling share holders i.e. promoter selling shareholders[4400000 equity shares], investor selling share holders[9334834 equity shares] and individual selling shareholders[747108 equity shares].

Sales of equity shares by promoter selling shareholders comprises 1100000 equity shares each by Karan Soni 2018 CG NG Nevada Trust and Meher Soni 2018 CG NG Nevada Trust, both promoter group companies, and 2200000 equity shares by Pamela Soni, promoter. Sales of equity shares by investor selling shareholders are 7180642 equity shares by Ashoka Investment Holdings and 2154192 equity shares by Ambadevi Mauritius Holdings.

On post issue expanded equity, the holding of both promoter group selling shareholders will stand decline to 13.81% each (from 17.51% each pre issue) and that of Pamela Soni was down to 2.69% (from 10.10% pre issue). The stake of both investor selling shareholders will be nil post issue.

The objects of the offer are to achieve the benefit of listing the equity shares on the stock exchanges as well as provide an exit option, especially to investor selling shareholders as well as promoters and some of individual selling shareholders.

Strength

Has leading presence in the manufacture of 3PL and PMP products globally on account of it serving some of the largest global companies. It had an estimated 16.68% market share of the global 3PL market in FY 2022 in terms of value and an estimated 5.92% market share in the global PMP market in the CFM sector in FY 2022 in terms of value.

The global business model optimizing cost-competitiveness and customer supply chain risks by offering multiple choices for customers in the form of local deliveries, direct exports, and warehouse sales. Dual-shore capabilities (ability to undertake manufacturing products at different locations) of the company allow it to service customer requirements from alternate locations, providing customers the benefit of regular supply and cost-competitive manufacturing operations.

Diversified revenue mix in terms of geography with 13.42% of its FY2022 revenue come from India and balance from outside India. Of the balance outside India sales 12% are from sales from its USA plant catering to local US market and balance are exported out of India. Including sales from its own US plant the overall USA sales was about 46.91%, 25.33% from Europe, 4.88% from Japan, 2.22% from Asia Pacific and 3.11% from rest of the world.

Strong global aftermarket presence with about 18-19% of its revenue in FY2021 and FY2022 came from aftermarket sales. About 76-77% of the revenue was from sales to OEMs in FY2021 and FY2022.

Continues to increase the proportion of high margin warehousing sales in overall sales model mix. It regularly evaluates existing manufacturing portfolio as well and undertake calibrated relocation of manufacturing any identified products to optimize cost structure and resulting margins.

Increasing its share of customer spend per vehicle by offer of additional 3PL and PMP products to meet its customers’ requirements and thereby growing our share of customer spend per vehicle. In particular, the CFM sector offers opportunity to target new customers for its products.

China plus one policy of various overseas OEMs will boost export opportunities.

Weakness

Demand of tractors and OHV equipment catering to the CFM industry is cyclical in nature.

Loss of customer or reduction in business from customer due to loss of market share by a particular OHV model for which the company is a significant supplier could reduce sales and profitability.

Lower capacity utilization at the US plant at about 48.75% in FY2022. Under-utilization of manufacturing capacities over-extended periods, or significant under-utilization in the short term, could materially and adversely impact its business, growth prospects and future financial performance.

Exposed to foreign currency exchange rate fluctuations, which may harm its revenue and profitability.

Compounded delaysin filing of certain records with the Reserve Bank of India in the past.

Valuation

Consolidated sales for FY2022 were higher by 36% to Rs 1227.42 crore. Higher sales together with 860-bp expansion in the operating profit margin to 21.8% led to operating profit jumping up by 125% to Rs 268.05 crore. After accounting for lower other income, lower interest,and lower depreciation, PBT was up 93% to Rs 229.32 crore. Finally, PAT was up 79% to Rs 166.89 crore after accounting for higher taxation.

For the quarter ended June 2022, consolidated net profit was Rs 50.52 crore on sales of Rs 346.84 crore. As there are no consolidated figures for Q1FY 2022, consolidated TTM numbers could not be calculated.

Consolidated EPS for FY2022 on expanded post issue equity is Rs 37. Thus, the PE works out to 15.6 times of its upper price band of the offer price.

In comparison, hydraulic pump manufacturers such as Veljan Denison and Dynamatic Technologies are quoting at a PE of 16.4 times and 110.9 times. Forging companies such as Ramkrishna Forgings, Bharat Forge and MM Forging are quoting at a PE of 18.4 times, 43.1 times and 23.8 times, respectively, of their FY2022 consolidated EPS. Bharat Gears and Balkrishna Industries, which largely cater to off highway equipment, are quoting at a PE of 6.1 times and 28 times, respectively.