Meeting highlights : We attended the IPO meet of GNA Axles Limited (GNA), one of the leading manufacturers of rear axle shafts used in on-highway and off-highway vehicular segments in India. GNA plans to raise ~Rs1.3bn from the IPO issue, the net proceeds of which, will be utilized for purchase of plant and machinery (~Rs800 mn) and meeting its working capital requirements (~Rs350 mn). GNA has shown a robust growth in revenues in the past 3 years (FY14-16), with improvement in key operational metrics in the last 2 years. More recent data (FY15-16) points to improved operational performance on account of exports. Exports have grown at a 5 year CAGR of 19.2%.

GNA has consistently maintained its profitability and robust margin profile, due to strong operations and focus on profitable customers. We believe high dependence on CV segment, lack of product diversification and recent slowdown in North American class 8 market (~46% of export market) would be major concerns for earnings. We believe future valuation upgrades will be dependent on balance sheet, cash flow and quality of earnings improvement. On FY16 financials, GNA’s valuations stand at 12x (P/E) and 5.1x (EV/EBITDA).