Navigating the Forge Auto International Limited IPO: A Comprehensive Guide for Investors

Introduction to Forge Auto International Limited IPO

The financial world is abuzz with the Forge Auto International Limited IPO, poised to be one of the notable SME IPOs on the NSE. This blog post provides a detailed analysis for investors considering this opportunity.

Company Overview: Forge Auto International Limited

Headquartered in Ludhiana, Punjab, Forge Auto International Limited specializes in manufacturing, supplying, and exporting drop forged and machined components. While their primary focus is the automotive sector, their products also find use in tractors, railways, and exports to countries like Poland, Germany, and Brazil.

Forge Auto International Limited IPO Details

• IPO Dates: Subscription opens from September 26, 2024, to September 30, 2024.
• IPO Size: Approximately ₹31.10 crores, entirely a fresh issue with shares priced between ₹102 to ₹108.
• Listing: Expected on NSE SME on October 4, 2024.

Below is a detailed breakdown of the Forge Auto International Limited IPO in a tabular format, based on the information available up to September 19, 2024:

Detail	Information
IPO Dates	Open: September 26, 2024, Close: September 30, 2024
Issue Size	Total: ₹31.10 crores, Fresh Issue: ₹31.10 crores, Offer for Sale: 0 equity shares
Price Band	₹102 – ₹108 per share
Market Lot	Minimum: 1200 shares, Application Amount: ₹129,600
Allotment Date	October 1, 2024
Listing Date	October 4, 2024
IPO Type	SME IPO on NSE
Face Value	₹10 per share
Financial Performance	FY23 Revenue: ₹177.64 crores, Profit: ₹4.96 crores
GMP (Grey Market Premium)	Not specified as of the latest data.
Sector	Automotive Components
Export Markets	Poland, Germany, Denmark, Turkey, Brazil, and other European countries
Manufacturing Capacity	Forging: 20,000 MT per annum, Machining: 25 lakh units per annum
Employees	As of March 2024, 366 permanent employees
Company Background	Manufacturer, OEM Supplier, and Exporter of Drop Forged & Machined Components
Key Products	Drop Forged & Machined Components for Automotive, Tractor, and Railway sectors
Infrastructure	6 Drop Forge Hammers, In-House Testing Lab, ISO Thermal Annealing Furnace
IPO Purpose	Primarily for business expansion and working capital
Registrar	Bigshare Services Ltd.
IPO Grading	Not specified in the provided data.
Post-IPO Outlook	Aiming for business association development with esteemed companies.

This table consolidates the essential details for investors considering the Forge Auto International Limited IPO. The data is presented for easy reference, highlighting the key points of the offering.

Financial Health and Performance

Forge Auto has demonstrated solid growth, with revenue in 2023 at ₹177.64 crores, up from ₹134.00 crores in 2022. However, while demand for their products appears strong, investors should also consider the company’s profit margins and working capital conditions, which have raised some concerns.

Here’s a structured view of the financial information for Forge Auto International Limited based on the provided data:

Financial Metric	31 Dec 2023	31 Mar 2023	31 Mar 2022	31 Mar 2021
Total Assets	₹9,127.24 lakh	₹8,274.29 lakh	₹5,677.94 lakh	₹5,306.96 lakh
Revenue	₹13,540.60 lakh	₹17,764.43 lakh	₹13,400.28 lakh	₹10,975.23 lakh
Profit After Tax (PAT)	₹362.22 lakh	₹496.29 lakh	₹264.34 lakh	₹160.55 lakh
Net Worth	₹1,774.22 lakh	₹1,660.35 lakh	₹1,367.73 lakh	₹1,087.34 lakh
Reserves & Surplus	₹402.00 lakh	₹1,660.35 lakh	₹1,367.73 lakh	₹1,087.34 lakh
Total Borrowings	₹3,228.63 lakh	₹3,183.20 lakh	₹2,620.16 lakh	₹2,290.98 lakh

Analysis:

1. Growth in Assets

Forge Auto has shown a steady increase in total assets over the years, from ₹5,306.96 lakh in 2021 to ₹9,127.24 lakh by the end of 2023. This indicates growth in operations, investments, or capacity expansion.

2. Revenue Fluctuations

Revenue reached ₹17,764.43 lakh in FY 2023, showcasing significant growth compared to previous years. However, there’s a decline by December 2023, dropping to ₹13,540.60 lakh. This suggests potential seasonal effects, market fluctuations, or operational challenges.

3. Profitability

Profit After Tax (PAT) has increased from ₹160.55 lakh in 2021 to ₹496.29 lakh in March 2023. The subsequent decrease to ₹362.22 lakh by December 2023 may suggest rising costs or reduced margins, which require further investigation.

4. Net Worth & Reserves

The company’s net worth has consistently grown, reflecting a healthy financial standing. Reserves and surplus have also increased, indicating retained earnings that can be reinvested for future expansion or used for debt reduction.

5. Rising Borrowings

Forge Auto’s borrowings have steadily increased, from ₹2,290.98 lakh in 2021 to ₹3,228.63 lakh by the end of 2023. This suggests the company is funding its growth or operations through debt, which investors should keep an eye on, especially in relation to profitability.

Key Observations:

• Liquidity and Solvency: The growing borrowings may indicate a reliance on debt to fuel expansion, which could increase the company’s financial risk. Investors should assess the company’s debt-to-equity ratio and interest coverage to ensure solvency.
• Profitability Trends: The drop in profit by the end of 2023 calls for a deeper dive into the company’s cost structure and revenue streams. If costs are increasing faster than revenue, this could signal future profitability concerns.
• Investment Outlook: Forge Auto shows growth potential, especially in terms of revenue and assets. However, the increasing debt load and recent drop in profits are risks investors should consider before participating in the IPO.

Forge Auto International Limited IPO GMP and Subscription

Here’s an update for today, September 27, 2024, regarding Forge Auto International Limited’s IPO:

Grey Market Premium (GMP): The GMP for Forge Auto International has adjusted to ₹36, indicating a further uptick in market sentiment. This rise could be attributed to increased investor confidence or heightened speculative interest as the IPO progresses.

IPO Subscription Status:

• Overall Subscription: The IPO has seen a significant increase in interest, now subscribed 2.4 times by midday. This reflects growing investor enthusiasm, possibly driven by Forge Auto’s niche market appeal in the automotive sector or broader market trends favoring SME IPOs.
• Category-wise Subscription:
  • Retail: Retail investors continue to show strong interest, with the category now subscribed 3.1 times. This surge suggests a deepening retail investor engagement, possibly due to increased awareness or positive feedback loops from initial subscribers.
  • QIB and NII: While specific figures for these categories remain undisclosed, the overall subscription rate implies a notable interest. Institutional investors might still be cautious but are evidently participating more aggressively as the IPO progresses.

Market Sentiment and X Posts:

• Sentiment: X posts and broader market discussions reveal a mix of cautious optimism and growing enthusiasm. There’s a clear trend of interest, with reminders about the risks associated with SME IPOs, indicating a market sentiment that’s cautiously positive.
• Investment Considerations: The rise in GMP alongside increased subscription might signal potential for listing gains, but posts also emphasize due diligence. Investors are encouraged to look beyond the market buzz, focusing on Forge Auto’s operational strengths, market positioning, and the automotive sector’s future.

General Observations:

• Investment Strategy: For investors eyeing Forge Auto International’s IPO, today’s data might suggest a more bullish short-term investment approach, considering the increased GMP and subscription rates. However, for long-term investment, scrutiny of Forge Auto’s strategic market position, technological advancements, and sectoral growth forecasts remains crucial.

This scenario paints Forge Auto International Limited’s IPO as increasingly attractive to investors, with a market sentiment leaning towards cautious optimism. The growing interest, reflected in both the GMP and subscription rates, indicates a promising listing, yet investors are reminded to balance potential gains with inherent SME IPO risks.

Forge Auto International Limited IPO EPS and PE Ratio

• Earnings Per Share (EPS): Based on the analysis provided, Forge Auto International Limited’s EPS, when considering FY24 earnings, indicates that the issue appears fully priced. However, exact figures for EPS directly from the company’s financials or the IPO documents haven’t been specified in the provided information.
• Price-to-Earnings Ratio (PE Ratio): The PE ratio for Forge Auto International Limited, when compared with its industry peers, shows a valuation that seems fair or undervalued on a PE basis. Specifically, Forge Auto’s IPO is priced at a PE ratio of approximately 10.58x, which is significantly lower than the industry average of 49.97x. This comparison suggests that the stock might be undervalued relative to its peers, given its operational scale and market position.

Market Sentiment and Analysis:

• IPO Valuation: The discussion around Forge Auto International Limited’s IPO highlights a scenario where the company’s valuation, based on EPS and PE ratio, might be seen as conservative or fully priced, potentially reflecting investor caution or realistic pricing in response to market conditions or sector-specific risks.
• GMP and Market Interest: The Grey Market Premium (GMP) indicating a 0% gain or loss might reflect a balanced market sentiment where investors are either well-informed about the company’s fundamentals or where there’s a general caution against over-enthusiasm seen in other SME IPOs. This could also imply that the market perceives the IPO’s price as fairly valued, aligning with the analysis of its PE

SWOT Analysis of Forge Auto International Limited

• Strengths: Strong manufacturing capabilities, established market presence, and a growing export portfolio.
• Weaknesses: Financial concerns, particularly with working capital management.
• Opportunities: Expansion in international markets and potential for new product lines.
• Threats: Intense competition in the automotive parts sector and global economic downturns.

Investor Considerations for Forge Auto IPO

Investing in an SME IPO like Forge Auto comes with risks and rewards. The company’s market position and growth trajectory are positive signs, but investors must also account for the high valuation and financial challenges.

How to Apply for the Forge Auto International Limited IPO

For those looking to apply for the IPO, understanding the process is essential. The application requires knowing the minimum lot size and investment amount, and investors should be familiar with the steps involved in applying through their trading platform.

Post-IPO Expectations and Market Performance

The post-listing performance of Forge Auto will determine its success. SME stocks tend to show significant volatility, so investors should be prepared for fluctuations after the listing.

Conclusion: Is Forge Auto International Limited IPO Worth It?

The Forge Auto IPO offers a balance of potential opportunities and risks. Investors with a long-term view of the automotive sector might find it an appealing proposition but should approach with caution, considering the financial and market concerns.

Call to Action

For those seeking more in-depth information or considering an investment, it’s advisable to perform further research into Forge Auto’s business strategy, competitors, and the broader industry trends.

Disclaimer

This blog post does not offer financial advice. Please conduct your own research and consult with a financial advisor before investing in any IPOs.