Jyoti CNC Automation Ltd (avoid)

Highlights

Jyoti CNC Automations Limited (JCAL) incorporated on 2008, is one of the world’s leading manufacturers of metal cutting computer numerical control (CNC) machines with the 3^rd largest market share in India accounting approximately 10 pct of the market share in India in FY23 and 12^th largest market share globally accounting for 0.4 pct of the market share globally in CY22.

The company is prominent manufacturer of simultaneous 5-Axis CNC machines in India and supply 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).

JCAL has over 2 decades of presence and strong R&D capabilities to deliver customised solutions to their customers across diverse set of industries including aerospace and defence, auto and auto components, general engineering, EMS, dies and moulds, and others

They offer over 200 variants across 44 series and during the H1FY24, 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, they have supplied over 30,000 CNC machines globally.

JCAL operate out of 3 manufacturing facilities, 2 in Rajkot, Gujarat, (Indian Manufacturing Facilities) and 1 in Strasbourg, France, which are equipped with capabilities to design, develop and manufacture product portfolio. As on H1FY24, they had the capacity to manufacture 4,400 machines p.a. in India and 121 machines p.a in France.

Out of the total proceeds of Rs. 10,000 mn, Rs. 4,750 mn would go towards repayment and / or prepayment, in part or in full, of certain outstanding loans of the company, Rs. 3,600 mn would go towards funding long-term working capital requirements of company and remaining amount would unitize towards general corporate purpose.

Key Highlights

• The global CNC machining Centers market is expected to be valued at ~USD 51.5 bn in CY27. This market is majorly driven by global automotive and heavy industries manufacturers, who are embracing automation and advanced software solutions to meet their customers’ needs. Thus, there is a rapid growth in the demand for automated precision machines. Global CNC Machining Centers market is expected to grow at CAGR of 10.3 pct from CY23-CY27
• The companies vertically integrated operations and customised solutions helped them to garner their customer such as ISRO, BrahMos Aerospace Thiruvananthapuram Limited, , Turkish Aerospace, Uniparts India Limited, AVTEC Limited, Tata Advanced System Limited, Tata Sikorsky Aerospace Limited, Bharat Forge Limited and many more.
• In November 2007, the company acquired Huron Graffenstaden SAS a pioneer for 5-Axis machining technology. The acquisition of Huron was undertaken to achieve strategic objective of augmenting JCAL technological capabilities, broadening the range of operations on the global scale, increasing geographic reach and JCAL access, and JCAL ability to cater, to global customers across aerospace, defence and other high end engineering application industries.
• As of H1FY24 the company has an orderbook of Rs. 33,153 mn (~3x of FY23 Sales) which management is expected that this orderbook will be executed in 2 years. Out of the total orderbook Rs. 18,960 orders coming from Aerospace and Defence sector (~57 pct of orderbook), Rs. 4056 mn order coming from Auto and Auto Components sector (~12 pct of orderbook), Rs. 3,049 orders coming from EMS sector (~9 pct of orderbook).
• Debt to Equity ratio of the was too high in FY22 which was ~19, in FY23 company debt to equity ratio came down to ~10 and in H1FY24 the ratio was around improve to around ~3. After post issue the Rs. 4750 mn of debt will be repaid and debt to equity ratio of the company will around in range of 0.25 – 0.37.
• As of FY23, 87.90 pct of revenue has come from India, 4.91 pct of revenue has come from Europe. 7.05 pct revenue has come from Asia (excluding India) and North America and Rest of the world contributed 0.75 pct and 0.08 pct of revenue.
• Sales of the company has grown by 26.57 pct CAGR during the period FY21-23 while EBITDA grew 75.43 pct CAGR over the same period respectively. During FY23, company reported sales of Rs. 9,292 mn which increased by 24 pct YoY while EBITDA rise by 34 pct YoY to Rs. 973 mn as EBITDA margin improved from 9.73 pct in FY22 to 10.43 pct in FY23. The company is the loss to profit company In FY23 JCAL reported profit of Rs. 150.60 due to loan waiver. As of H1FY 23 the profit of the company is stood at Rs. 33 mn.

Key Risk

• In the past, the company has rescheduled payments of its credit facilities from its lenders and it has also delayed in re-payment of principal amount and interest on loan.
• Certain portion of the revenue comes from the export and the company has not enter into hedging transactions in respect of their foreign currency exposure and are subject to risks resulting from foreign exchange rate fluctuations.

Valuation

Jyoti CNC has emerged as the world’s leading CNC machines manufacturer. The company currently holds a market share of over 10 pct in India, making them the third largest player in the country. Globally, the company accounts for a 0.4 pct market share. The business is technology focused and capable of providing its clients with creative, tailored solutions. However, Jyoti CNC has suffered losses in FY21 and FY22 and has a negative return on equity. At the offer price bands, the issue is quoting at exorbitant PE and valued at EV/EBIDTA of 85.6x. We suggest investors to Avoid this issue considering the high valuations.

Also Read : Why Is Financial Advisory Important?

Disclaimer: The views expressed in the blog are purely based on our research and personal opinion. Although we do not condone misinformation, we do not intend to be regarded as a source of advice or guarantee. Kindly consult an expert before making any decision based on the insights we have provided.