Kross Limited, established in 1994, is a prominent manufacturer of forging components serving the top OEMs (Original Equipment Manufacturers) and Tier 1 companies in India. The company has developed a wide range of high-performance and safety-critical components for the commercial vehicle, tractor, and trailer axle industries. Its specialization in precision-engineered forging components has made it a critical player in the automotive supply chain.

In 2024, Kross Limited launched its Initial Public Offering (IPO) to raise ₹500 Crores, with the capital being split between a Fresh Issue of 10.41 lakh shares worth ₹250.00 Crores and an Offer for Sale (OFS) of 10.41 lakh shares totaling ₹250.00 Crores. The company has priced its shares between ₹228 and ₹240 per equity share, with a minimum lot size of 62 shares, which requires a retail investor to invest a minimum of ₹14,880.

IPO Timelines and Subscription

The Kross Limited IPO opened on September 09, 2024, and concluded on September 11, 2024. The subscription demand for the IPO surged, resulting in the offer being subscribed 16.81 times by the end of the final day. This impressive oversubscription highlights strong investor interest, particularly from High-Net-Worth Individuals (HNIs) and Qualified Institutional Buyers (QIBs).

Investors will have the option to check the Kross Limited IPO allotment status on September 13, 2024, by visiting the official registrar website, KFin Technologies Limited. The shares are set to list on both the BSE and NSE on September 16, 2024.

Grey Market Premium (GMP) Analysis

As of the latest data, the Grey Market Premium (GMP) for Kross Limited IPO is hovering between ₹25 and ₹30. This implies that investors could potentially see listing gains of around 10% to 13%. However, it’s crucial to remember that GMP values are unofficial and speculative. They depend largely on demand-supply dynamics in the unregulated grey market and do not guarantee any real price discovery before the shares are officially listed on the stock exchange.

Despite this positive GMP, investors are urged to be cautious, as the listing performance may not always align with grey market sentiment. Furthermore, seasoned investors often recommend that retail participants avoid relying solely on GMP when making investment decisions, given its unofficial nature and volatility.

Financial Performance

Kross Limited has demonstrated strong financial growth in recent years, which has been a key driver of investor interest. Here's a snapshot of the company's financial performance over the last three years:

In FY22, Kross reported revenues of ₹2,978.81 million.

In FY23, revenues grew to ₹4,893.57 million.

In FY24, revenues further surged to ₹6,214.64 million.

In terms of profitability, EBITDA has shown consistent growth, rising from ₹295.48 million in FY22 to ₹807.58 million in FY24. Similarly, Profit After Tax (PAT) increased significantly from ₹121.69 million in FY22 to ₹448.81 million in FY24.

These figures reflect Kross Limited’s solid financial foundation and its ability to capitalize on demand within the automotive and commercial vehicle sectors. The company’s growing revenues and profits underscore its operational strength and capacity to scale its business further.

Valuation and Key Ratios

Despite Kross Limited’s financial growth, concerns have been raised about the IPO’s valuation. The pre-issue Earnings Per Share (EPS) stands at ₹8.30, while the post-issue EPS is expected to drop to ₹6.59. The Price-to-Earnings (P/E) ratio for the IPO is set at 28.91x (pre-issue) and 34.53x (post-issue), which is higher than the industry P/E ratio of 24.85x. This suggests that the IPO may be overvalued compared to its peers in the forging and automotive components sector.

Despite the relatively high valuation, Kross Limited boasts impressive return metrics:

The Return on Capital Employed (ROCE) for FY24 is 28.15%.

The Return on Equity (ROE) for FY24 is 30.57%.

These figures demonstrate efficient utilization of capital and strong profitability, which are positive indicators for long-term growth potential.

Use of IPO Proceeds

The proceeds from the Kross Limited IPO will be used to meet several strategic objectives:

₹700 million will be allocated towards capital expenditure for the purchase of new machinery and equipment to boost manufacturing capacity.

₹900 million will be used for the repayment or prepayment of existing borrowings, helping the company reduce its debt burden and strengthen its balance sheet.

₹300 million will go towards meeting the company's working capital requirements, providing the necessary liquidity to support its growing operations.

Any remaining funds will be used for general corporate purposes.

Review and Recommendations

Kross Limited’s IPO presents an interesting proposition, given its strong financial track record and its crucial role in the forging component industry. The company’s revenue growth, improving EBITDA margins, and robust ROCE and ROE metrics all point to a business that is well-positioned for future growth.

However, the relatively high P/E ratio and the modest Grey Market Premium suggest that there may be limited listing gains. Additionally, the automotive components industry is susceptible to cyclical fluctuations, which could impact Kross’s long-term performance.

Therefore, while Kross Limited is a fundamentally sound company, we recommend that investors avoid the IPO for listing gains. Those with a long-term investment horizon should weigh the company’s growth potential against the industry risks and consider entering at more attractive valuations post-listing.

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Conclusion

The Kross Limited IPO offers a rare opportunity to invest in one of India’s leading manufacturers of high-performance forging components. While the company’s financials are solid and the demand for its products remains high, the current valuation appears steep for both short-term and long-term investors. It may be wise to monitor the stock post-listing for better entry points or consider other investment opportunities in the market.

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