Gala Precision Engineering IPO Analysis 2024: GMP, Subscription Status & More

The IPO (initial public offering) of Gala Precision Engineering Ltd (GPEL) commences on September 02 and concludes on September 4, 2024. The IPO is a mix of fresh issue as well as an offer for sale (OFS) by the promoters and selling shareholders. 

The offering, carrying a Grey Market Premium (GMP) of 45%, attracted significant interest on its first day of bidding. However, investors need a clear understanding of both potential rewards and risks before subscribing. This IPO analysis provides a comprehensive review to help make an informed decision.

Gala Precision Engineering IPO Details

• Issue Size: Rs 167.93 crore
• Fresh Issue: Rs 135.34 crore
• OFS: Rs 32.59 crore
• Price Range: Rs 503 – Rs 529
• Lot size: 28 shares

Gala Precision Engineering IPO Subscription Status

The IPO of Gala Precision Engineering Ltd witnessed robust demand on its first day, with subscriptions reaching 10.88 times by 5 p.m. Non-institutional investors showed significant enthusiasm, subscribing 20.75 times their allocation, while retail investors subscribed 12.24 times. Meanwhile, qualified institutional buyers subscribed 0.86 times their reserved portion.

Overview of Gala Precision Engineering

GPEL specializes in manufacturing precision components, including disc and strip springs (DSS), coil and spiral springs (CSS), and specialized fastening solutions (SFS). These products are distributed to OEMs in diverse sectors, including renewable energy, industrial, automotive, and railways, both in India and internationally.

GPEL boasts a diverse product portfolio, offering 750+ stock keeping units across various categories. It has a robust international presence, exporting to over 25 countries and serving more than 175 global customers.

Gala Precision Engineering Key Strengths

• Strong Market Presence: GPEL holds a 2% global market share and a commanding 10% in the domestic market for DSS. It dominates the domestic renewable industry’s DSS segment with 70% market share and maintains a 3% global presence.
• Robust Growth: GPEL's financials have seen impressive growth, with operating revenue and EBITDA growing at CAGRs of 18% and 35% respectively from FY22 to FY24. 

• Enhanced Profitability: GPEL’s PAT margins have improved from 4.48% in FY22 to 11.89% in FY24, while ROCE has increased from 13.85% to 21.15% before exceptional items.

Gala Precision Engineering Risk Factors

• Client Dependence: In FY24, GPEL's top 3, 5, and 10 customers contributed 24.33%, 32.46%, and 47.48% to total revenue respectively, making it vulnerable to significant financial impact if major clients are lost.
• Legal Challenges: GPEL is currently involved in a patent infringement lawsuit with Nord-Lock AB. Any potential adverse outcomes could negatively affect its operations and growth.

Gala Precision Engineering Valuation & Recommendation

GPEL stands as a prominent manufacturer of precision components in India, with a dominant market share in disc and strip springs (DSS) used in the renewable industry. Despite nearly flat profits from FY24 due to a high base influenced by exceptional items, the firm maintained solid topline and operating metrics.

In terms of valuations, the IPO is priced at a price-to-earnings (P/E) ratio of 30x based on FY24 earnings, which is below the industry average. The positive grey market premium also suggests a strong debut in the market.

Given GPEL's attractive valuation, solid financial health, strong industry standing, and potential for growth, investors might consider subscribing to the IPO from a medium-to-long term perspective.

For a deeper dive into this IPO, explore: IPO Corner on Liquide