Aniket Pujari
The aerospace manufacturing company hit the primary market with its IPO last week, and what an IPO it’s turning out to be.
Between 3 and 5 December, the company received bids from investors for 4,271.3 million shares. This was against the 42 million shares it offered. That’s an oversubscription of 101.63 times.
As per media reports, the qualified institutional buyers (QIB) category was subscribed 120.92 times, the non-institutional investors (NII) category was subscribed 80.62 times, and the retail individual investors (RII) category was subscribed 78.05 times.
The IPO valued the company at ₹8,300 crore.
When there is such an enormous oversubscription, there are bound to be many investors who will not receive allotment or may receive less than what they wanted.
There are also many investors who may be experiencing a sense of regret, which may get enhanced if the listing is strong.
In fact, if the stock has a positive listing and continues to rise, there could be a sense of FOMO (fear of missing out) among investors.
We have seen this before when investors rush to get into a stock after a strong listing.
At such moments, it’s important not to get swayed by emotions, look at the fundamentals of the business, and only then consider making a decision.
In this editorial, we will look at the pros and cons of investing in Aequs Ltd.
Pros
- Well-established aerospace business
Aequs Ltd is a precision component manufacturer in the aerospace sector. The aerospace segment is largely export-oriented and contributes to 89% of the revenue in FY25.
The company’s claim to fame is that it’s the only precision component manufacturer operating within a single Special Economic Zone (SEZ) in India to offer fully vertically integrated manufacturing capabilities in the aerospace segment.
Aequs has built its engineering capabilities to include advanced processes like machining high-end alloys. The company offers end-to-end engineering solutions, machining, forging, surface treatment, assembly, etc.
The core business manufactures components for engine systems, landing systems, cargo and interiors, structures, assemblies, and turning for the aerospace clients.
Over the years, it has expanded its portfolio to include consumer electronic devices, plastic toys, and consumer durables like cookware.
It operates manufacturing facilities across India, France, and the US. In India, the company runs three manufacturing clusters in Belagavi, Hubballi, and Koppal in Karnataka.
The company has a prestigious list of aerospace clients that include Airbus, Boeing, Bombardier, Collins Aerospace, Spirit AeroSystems Inc., Safran, GKN Aerospace, Honeywell, etc.
2. IPO funds to fuel growth
The net proceeds from the fresh issue are slated for critical business objectives:
• Repayment and/or prepayment of certain outstanding borrowings: ₹433 crore.
• Investments in three wholly owned subsidiaries: ₹415 crore.
• Funding the purchase of machinery and equipment for the company and its subsidiary, Aerostructure’s Manufacturing India Pvt. Ltd, to expand existing capacities: ₹64 crore.
• Funding inorganic growth through unidentified acquisitions, other strategic initiatives, and general corporate purposes: the balance funds.
The repayment of debt will help boost margins, and the modern machinery being installed will strengthen the company’s value proposition.
Cons
- Profitability
The company’s IPO was made pursuant to Regulation 6(2) of the SEBI ICDR Regulations, which was because it did not satisfy the requirements under Regulation 6(1)(b) of the SEBI ICDR Regulations.
Specifically, Aequs did not have an average operating profit of at least ₹15 crore (calculated on a restated and consolidated basis) during the preceding three fiscal years ended March 2025, March 2024, and March 2023.
Due to this eligibility classification, the company was mandated to allot at least 75% of the net offer to QIBs, and not more than 10% of the net offer was available for allocation to retail investors.
The company’s consolidated revenue declined 3% in FY25, and it has been reporting losses for the last few years. The consistent losses are a key risk factor.
The losses have continued in the last six-month period ended September 2025.
2. Valuations
As a loss-making entity, the PE ratio is not a meaningful valuation tool in this case.
The valuation is 9 times on the price-to-sales ratio at the upper end of the IPO price band.
No matter how good the fundamentals of a business may be, investors should always pay close attention to the valuations of the stock.
Conclusion
This IPO offers retail investors an opportunity to participate in a company distinguished by its unique vertically integrated precision manufacturing model, particularly within the aerospace segment in India.
Furthermore, the company aims to utilise the fresh issue proceeds to strengthen its financial position through debt repayment and capacity expansion.
However, Investors need to proceed with caution, understanding the regulatory context of the offering and the fact that the company has a history of incurring losses, negative return on net worth (RoNW), and does not meet the statutory operating profit criteria required for certain SEBI eligibility norms.
The high dependence on a few key customers and the aerospace segment revenue demands careful consideration of sector-specific and customer risks.
Investors must rely on their own examination of the company, the offer and the associated risks before making any investment decision.
Happy Investing.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com
