Gala Precision Eyes Growth with IPO Amid Strong Wind Power Prospects

Gala Precision Engineering, a specialized component manufacturer with significant applications in wind power generation, industrial, and automotive sectors, is preparing to raise ₹167 crore through an initial public offering (IPO). Of this, ₹135 crore will be garnered from fresh issuance to fund both brownfield and greenfield capacity expansions, potentially doubling the company’s revenue over the next three years. The remaining ₹32 crore will be raised through an offer for sale by the promoter, which will see the promoter's stake reduced from 75% to 55% post-IPO.

Gala Precision, known for its non-commodity product offerings where competition is relatively lower, is increasingly expanding its exposure to the mobility segment through its fastener products, driving incremental growth. The company's focus on this niche market has positioned it favorably as the wind power sector witnesses robust expansion, contributing significantly to the renewable energy landscape.

IPO Details:

• Issue Dates: September 2-4
• Issue Size: Up to ₹167 crore
• Price Band: ₹503-529 per share
• Lot Size: 28 shares
• Face Value: ₹10
• Implied Market Cap: ₹670 crore
• Retail Portion: 25% of the net issue

Business Overview:

Incorporated in 2009, Maharashtra-based Gala Precision manufactures a range of springs, including disc and strip springs, coil and spiral springs, and fasteners. These components have a wide array of applications across various industries, from automotive clutches to wind power machinery. The company serves notable clients such as Brembo Brake, Endurance Technologies, and Schaeffler.

The company’s revenue has grown at an annual rate of 17%, reaching ₹204 crore between FY22 and FY24. Meanwhile, EBITDA has increased by 25% to ₹40.5 crore, achieving an EBITDA margin of 19.85%. The operating margin expanded by 468 basis points over the last two fiscal years as capacity utilization improved and revenue per employee increased. Gala Precision reported a net profit of ₹22.5 crore in FY24, reflecting an annual growth rate of 83% from FY22 to FY24.

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Risks:

Gala Precision is currently involved in a patent infringement lawsuit with Nord-Lock (India) over wedge lock technology washers used in electric vehicle (EV) buses. An adverse ruling could impact the company’s financial condition and growth strategy. Additionally, with nearly 80% of the company’s revenue stemming from spring technology, any downturn in this segment could affect overall performance.

Valuation:

At the higher end of the price band, Gala Precision is seeking a price-earnings (PE) multiple of 30 times its FY24 earnings. In comparison, peers such as Harsha Engineers, Rolex Rings, Sterling Tools, and Sundaram Fasteners are trading at PE multiples ranging from 25 to 54 times their earnings. Given these factors, long-term investors may find Gala Precision’s IPO a promising investment opportunity, particularly with the strong prospects in the wind power sector driving future earnings growth.