Ajax Engineering
- Ajax Engineering is coming out with a 100% book building; initial public offering (IPO) of 2,01,80,446 shares of Rs 1 each in a price band Rs 599-629 per equity share.
- Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
- The issue will open for subscription on February 10, 2025 and will close on February 12, 2025.
- The shares will be listed on BSE as well as NSE.
- The face value of the share is Rs 1 and is priced 599 times of its face value on the lower side and 629 times on the higher side.
- Book running lead managers to the issue are ICICI Securities, Citigroup Global Markets India, JM Financial, Nuvama Wealth Management and SBI Capital Markets.
- Compliance Officer for the issue is Shruti Vishwanath Shetty.
Profile of the company
Ajax Engineering is a leading concrete equipment manufacturer with a comprehensive range of concrete equipment, services and solutions across the concrete application value chain. As of September 30, 2024, it has developed over 141 concrete equipment variants catering to the concrete application value chain, and over the last ten years, it has sold over 29,800 concrete equipment in India. Since its inception 32 years ago, it has developed a comprehensive product portfolio that includes equipment such as self-loading concrete mixers (SLCMs) and batching plants for the production of concrete, transit mixers for the transportation of concrete, boom pumps, concrete pumps and self-propelled boom pumps for the placement of concrete, slip-form pavers for the paving of concrete and 3D concrete printers for depositing concrete.
SLCMs are versatile self-loading machines capable of mixing and transporting concrete ingredients, enabling on-site production of concrete. These machines are equipped with, among others, (i) self-loading arms with a hatch bucket to ensure smooth flow of concrete ingredients into the drum in order to minimise spillage, and (ii) concrete batch controllers to accurately measure all the ingredients in order to produce high quality concrete. During Financial Year 2024, around 14% of all concrete produced in India was processed through SLCMs, reflecting their growing importance in meeting the demand for faster and more reliable construction methods. Moreover, between Financial Year 2022 and the six months period ended September 30, 2024, its SLCM sales have experienced a CAGR of 45.70%, underscoring the rapid adoption and success of SLCMs in the construction sector.
It is a leading manufacturer of SLCMs in India, with an approximately 77%, 75%, 77% and 86% market share in the SLCM market in India in terms of number of SLCMs sold during the six months period ended September 30, 2024 and Financial Years 2024, 2023 and 2022, respectively. Moreover, during Financial Year 2024, 12% of the concrete production in India was through its SLCMs. It also continues to assist customers throughout the life of the equipment, and with that aim, it provides spare parts for the equipment sold by it and facilitate the provision of aftersales service by its dealers.
Proceed is being used for:
- Achieving the benefits of listing the Equity Shares on the Stock Exchanges
- Carrying out the Offer for Sale of equity shares by the Selling Shareholders
Industry Overview
Cement forms one of the core elements of construction activity and contributes to ~11% of all inputs to the sector. Driven by the growth in construction activity, the demand for cement too has witnessed steady growth. In India, domestic cement consumption in FY 2024 was 405 million tonne while in FY 2019 it was 325 million tonne increasing at a CAGR of 4.4% and is projected to reach 595 million tonne by FY 2029 growing at a CAGR of 8%. The modest growth between FY 2019 and FY 2024 can be attributed to the disruption of construction activities during the COVID-19 pandemic. In terms of sectoral consumption, rural housing and infrastructure projects have the highest contribution at 33% and 30% respectively, followed by urban housing and industrial & commercial buildings at 23% and 14% respectively in FY 2024. With the significant influx of public investments to create affordable housing for rural segments, and the investments to boost infrastructure development, the consumption of cement for rural housing and infrastructure-related projects is projected to increase to 34% and 32% respectively by FY 2029.
Concrete production involves the mixing of cement, water, sand, and aggregates in specific proportions, using either manual methods or automated batching plants. The country has a robust infrastructure for concrete manufacturing, supported by a large network of cement plants and suppliers of raw materials. Concrete offers several advantages over other materials in use cases like bituminous roads and bricks in housing structures. It provides greater durability and longevity, requiring less maintenance over time. Concrete roads can withstand heavy traffic and extreme weather conditions better than bituminous roads, reducing repair costs and disruptions. In housing, concrete structures offer superior strength, fire resistance, and insulation properties compared to brick, contributing to safer and more energy efficient buildings.
Infrastructure development is a crucial driver of India's economic growth and is projected to increase at 8% CAGR from FY2024 to FY2029. This will necessitate the increased consumption of materials such as concrete. While manual mixing remains common in the country, the rapid pace of growth is accelerating the penetration of mechanization of concrete which is projected to increase from 25% in FY2024 to 41% in FY2029. This trend is projected to further propel the demand for mechanized concrete equipment in India and grow the industry from Rs 61 billion ($731 million) to Rs 178 billion ($2,148 million) from FY2024 to FY2029. Players that concentrate on key success factors will be well-positioned to capture opportunities in this expanding market. Ajax Engineering has become the leader in SLCM and has emerged as the second largest mechanized concreting equipment player in India by integrating these factors. Indian players can also capitalize on the potential demand for concreting equipment in emerging markets or sell construction equipment alongside their core concreting products to expand their revenue streams.
Pros and strengths
Market leader in a large and fast-growing SLCM market: The company is a leading manufacturer of SLCMs in India, with an around 77%, 75%, 77% and 86% market share in the SLCM market in India in terms of number of SLCMs sold during the six months period ended September 30, 2024 and Financial Years 2024, 2023 and 2022, respectively. Its SLCMs have a diverse range of applications and end-uses and are used Pan-India, based on after-sales data available to it. During the last 10 years, it has sold over 25,000 SLCMs in India, which is the largest among leading concrete equipment companies in India during this period. Its SLCMs also command the highest resale value as on Financial Year 2024 among leading concrete manufacturers in India on account of a number of factors, including first-mover advantage, the high quality and reliability of products, and strong aftersales service. Its SLCMs are sold under its ‘Argo’ brand, and utilize a variety of drum outputs ranging from 1.0 to 4.8 cubic meters per batch to cater to a wide range of industrial uses, including across mid-scale and smaller infrastructure projects.
Leading concrete equipment company with over 141 concrete equipment variations: The company is a leading concrete equipment manufacturer with a comprehensive range of concrete equipment, services and solutions across the concrete application value chain. Its portfolio includes equipment such as SLCMs and batching plants for the production of concrete, transit mixers for the transportation of concrete, boom pumps, concrete pumps and self-propelled boom pumps for the placement of concrete, slip-form pavers for the paving of concrete and 3D concrete printers for depositing concrete. As of September 30, 2024, it has over 141 concrete equipment variants catering to the concrete application value chain.
Strong in-house design and development capabilities: The company was co-founded by Krishnaswamy Vijay, its Executive Chairman and Whole-Time Director, the late Jacob John and the late Anil Kumar Singh, and its core ethos has been to design, develop and engineer innovative and high-quality concrete equipment for its customers. As of September 30, 2024, its in-house design, engineering, and development team includes 79 full-time employees, constituting approximately 15.96% of its total permanent workforce. Its team’s expertise is distributed across core technologies, including hydraulics, welding technology, and product specialization, and consists of 52 engineers, including 10 with M.Tech / M.Sc. degrees and 42 with BE/B.Tech degrees. By utilizing core technologies, its team has been able to efficiently design concrete equipment that are good quality and reliable.
Large dealer network with widespread distribution model: The company has utilized a dealer-led distribution and service model over the past three Financial Years and as of September 30, 2024, its dealer network comprised of 51 dealerships across 23 states in India, and it is accessible to its customers through 114 touchpoints, which comprise 51 dealer headquarters and 63 branches (of which, 34 also act as service centers) managed and operated by its dealers. This is the largest dealer network in terms of number of dealers and service touchpoints among leading concrete equipment companies in India, as of September 30, 2024. It maintains longstanding relationships with its dealers, and all its dealers are exclusive to it in the concrete equipment market. As of September 30, 2024, it has maintained relationships exceeding five years with 21 dealers, which constitutes 41.18% of its total dealer network in India.
Risks and concerns
Derive a significant majority of its revenue from the sale of SLCMs: The company’s product portfolio includes equipment such as self-loading concrete mixers (SLCMs) and batching plants for the production of concrete, transit mixers for the transportation of concrete, boom pumps, concrete pumps and self-propelled boom pumps for the placement of concrete, slip-form pavers for the paving of concrete and 3D concrete printers for depositing concrete. From its product portfolio, the company derived a majority of its revenue from the sale of SLCMs. The company’s business is highly dependent on the demand for concrete and concrete equipment in India, which is closely tied to the performance of key sectors such as construction, infrastructure, and real estate. While it has not faced any such instances of downturn that have materially and adversely affected its results of operations in the six months periods ended September 30, 2024 and September 30, 2023, and the past three Financial Years (other than the industry-wide effects of the COVID-19 pandemic), any sustained downturn in the construction, infrastructure and real estate sectors could lead to reduced demand for concrete and concrete equipment in the future, directly impacting its sales volumes and profitability.
Geographical constrain: The company has four operational assembling and manufacturing facilities and one additional expansion facility currently under construction, all situated in Karnataka. The concentration of its assembling and manufacturing facilities in Karnataka exposes it to regional risks and adverse events specific to the state. These regional risks include disruptions to infrastructure, significant natural disasters, workforce disruptions, changes in general economic conditions, civil unrest, the regulatory environment, and local government policies, among others. While it did not face any such disruptions to its assembling and manufacturing facilities that materially and adversely affected its results of operations in the six months period ended September 30, 2024 and the past three Financial Years, any such disruptions in the future could adversely affect its business, results of operations, financial condition, and cash flows.
Seasonal business: The concrete equipment industry in India is cyclical in nature and influenced by government spending on public infrastructure and overall economic conditions affecting private infrastructure since the demand for concrete equipment is primarily driven by government infrastructure initiatives and investments from the public sector. Government infrastructure projects and public sector investments are major drivers of demand for concrete equipment. Variations in government budgets, changes in political priorities, and shifts in economic policies can lead to fluctuations in government spending on infrastructure, directly impacting the demand for its construction equipment. During periods of increased government spending, it may experience higher sales and stronger financial performance. Conversely, during periods of reduced government spending or economic downturns, demand for its construction equipment may decline, adversely affecting its business.
Dependent on dealer network to sell and distribute a majority of its products and provide after-sales service: The company relies on its dealer network to sell and distribute its products (including spare parts) and to provide after-sale services to its end-customers. Its dealers are in direct contact with its end-customers and their conduct significantly influences customer perception of its brand. Further, pursuant to the terms of its dealership agreements, dealers are responsible for stocking spare parts, maintaining inventory levels, managing sales processes and service facilities. If its dealers fail to maintain the high standards that it set for service quality, whether due to insufficient training, non-adherence to its training manual, inadequate resources, or other factors, it could lead to customer dissatisfaction. This, in turn, may impact its reputation, result in an increase in warranty claims, and could lead to a potential decline in future sales. Moreover, if it is unable to maintain and expand its dealer network in the future, its customer base and market share could be impacted.
Outlook
Ajax Engineering manufactures a wide range of concrete equipment and services across the value chain. As of September 30, 2024, the company has developed 141 concrete equipment variants for the value chain and sold over 29,800 units in India in the last ten years. The company has diversified customer base with longstanding relationships in the concrete equipment market with large dealer network with widespread distribution model. On the concern side, the company derives a significant majority of its revenue from the sale of self-loading concrete mixers (85.13% of its revenue from operations for the Financial Year 2024). Any decrease in sales of SLCMs or demand for concrete equipment in India could adversely affect its business, results of operations, financial condition and cash flows. Moreover, its business is seasonal in nature and any decrease in sales during certain quarters could have an adverse impact on its financial performance.
The company is coming out with a maiden IPO of 2,01,80,446 equity shares of Rs 1 each. The issue has been offered in a price band of Rs 599-629 per equity share. The aggregate size of the offer is around Rs 1208.81 crore to Rs 1269.35 crore based on lower and upper price band respectively. On performance front, the company’s revenue from operations increased by 51.28% to Rs 17,414.03 million for the Financial Year 2024 from Rs 11,511.28 million for the Financial Year 2023, primarily attributable to an increase in sale of machines. The company’s restated profit for the year increased by 65.67% to Rs 2,251.49 million for the Financial Year 2024 from Rs 1,359.04 million for the Financial Year 2023.
The company’s primary aim is to increase its market share in SLCMs by capitalising on the growth opportunity for SLCMs in the concrete equipment market. As of March 31, 2024, around 65% of India’s cement consumption is attributed to the housing sector, with an additional 20-25% consumed by the infrastructure sector. This distribution underscores a robust growth opportunity for the adoption of SLCMs in the housing market, particularly as its SLCMs have a diverse range of applications and end-uses and are used Pan-India, based on after-sales data available to it. The company aims to maintain and grow the market share of its SLCMs by continuing to enhance its equipment offerings and actively incorporating and addressing customer feedback in its new development initiatives while delivering reliable and high quality concrete equipment to its customers. This includes an extensive validation and seeding process designed to ensure that its equipment is tested extensively prior to launch and meet the ‘first-time right’ metrics set by it and compliance with regulatory requirements.