Gala Precision Engineering IPO: From financials to key risks...8 key points to know from RHP

Gala Precision Engineering IPO: The initial public offering (IPO) of Gala Precision Engineering opened for public subscription on Monday, September 2, and will conclude on Wednesday, September 4. The ₹167.93 crore issue, which is a combination of a fresh issue of 25,58,416 shares and an offer for sale (OFS) of 6,16,000 shares, saw a solid response from investors.

According to BSE data, till 4:45 pm on Tuesday- the second day of the subscription- the issue had seen an overall subscription of 51.79 times, receiving bids for 11,51,61,452 shares against 22,23,830 offered. The retail portion of the issue had been subscribed 43.87 times, with bids of 4,86,48,432 shares against 11,09,017 offered. The segment reserved for non-institutional investors(NIIs) had seen a subscription of 131.88 times, with bids for 6,26,80,548 shares against 4,75,293 offered.

The price band for the offer has been set between ₹503 to ₹529 per equity share.

Key things from the RHP

Let us take a look at some key points from the company's RHP (red herring prospectus):

1. Objects of the issue: The company intends to utilise the net proceeds from the issue to set up a new facility at Vallam-Vadagal, SIPCOT, Sriperumbuddur, Tamil Nadu, for the manufacturing of high tensile fasteners and hex bolts.

Some parts of the proceeds will also be used for capital expenditure requirements towards the purchase of equipment, plant and machinery at Wada,

Palghar, Maharashtra. Moreover, the proceeds will be used in the repayment or prepayment of certain borrowings and for general corporate purposes.

2. Company's finances: The company's revenue from operations has gradually grown since FY22. For FY22, FY23 and FY24, the company's revenue from operations stood at ₹145.28 crore, ₹165.47 crore and ₹202.55 crore, respectively.

Profit from continuing and discontinuing operations for FY22, FY23 and FY24 came at ₹6.63 crore, ₹24.21 crore and ₹22.33 crore, respectively.

3. Key risks: As per the RHP, the company is involved in a patent infringement suit, and an adverse outcome in this proceeding may adversely affect its business.

Moreover, the company's revenue is dependent on the "springs technology" segment of its business. Any downturn in the technology segment can adversely impact its business.

The company does not have long-term contracts or exclusive arrangements with any of its suppliers. Some of its immovable properties, including its registered and corporate office, are leased. The business is manpower intensive.

4. Key strengths: The company claims to be a well-established manufacturer of precision engineering solutions with a diverse product portfolio for multiple user industries. It says it has a track record from the incorporation of consistent financial growth and performance characterized by operational efficiency and high repeat business.

5. Business overview: Gala Precision Engineering is a key Indian manufacturer of high-tensile fasteners and technical springs.

According to the RHP, the company is a precision component manufacturer of technical springs like disc and strip springs, including wedge lock washers, coil and spiral springs, and special fastening solutions.

It supplies these articles to original equipment manufacturers, which are used in sectors like renewable energy, electrical, highway equipment, infrastructure and general engineering, and mobility segments such as automotive and railways.

6. Industry overview: As the Indian economy is poised for healthy growth over the medium to long term, the demand for equipment for renewable energy and heavy machinery used in manufacturing, infrastructure and other sectors will grow significantly.

The company highlighted an analysis by 1Lattice which says the Indian coil and spiral springs market was valued at nearly $459 million in FY24 and is expected to grow at a CAGR of 9.8 per cent during FY24-27. Moreover, it said the ageing of infrastructure and growth in the renewable market will lead to a high demand for special fastener solutions.

7. Subsidiaries: The company has two main subsidiaries- Gala Springs LLP, which deals in all types of springs, spring plates, disc springs, valves, valve plates, compressor valves, etc., and Gala Precision Components Shanghai Limited, which is involved in importing and selling disc and strip springs of various sizes to local customers in China.

8. Promoters: The company's promoters are Kirit Vishanji Gala and Smeet Kirit Gala. The promoters hold 3,380,632 shares in the company, representing 33.43 per cent of the issued, subscribed, and paid-up share capital.

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