Private Equity Investors Seek Partial Exit Opportunities through IPO, SEMEDAC Mechatronics Cites Liquidity Benefits

SEMEDAC Mechatronics IPO: A Strategic Move to Establish Scale

SEMEDAC Mechatronics, an auto parts manufacturer, is set to hit the public markets with an Rs 1,087 crore IPO, entirely an offer for sale (OFS) of 80.43 lakh equity shares. The company's founder and IIT Bombay professor, Shashikanth Suryanarayanan, highlighted that scale, rather than the need to raise capital, is the driving reason behind the issue.

Key Financial Highlights

• Revenue: Rs 650 crore in the last fiscal year and Rs 770 crore in nine months this year
• EBITDA margins: 20%
• Operating cash flow: Rs 125 crore in nine months
• Debt-to-equity ratio: 0.17

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Investment Case

The company has generated strong financials, with no need to raise primary capital. The OFS is driven by financial investors seeking liquidity optionality. Notably, all private equity investors are selling exactly 30% of their stake, indicating their desire for liquidity rather than a full exit.

Mitigating Customer Concentration Risk

The company's high customer concentration, with TVS accounting for 75% of revenue, is a risk. However, the company is confident that diversification will occur naturally as it expands into new segments, such as CVs and Power Tools.

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R&D Spend

The company's R&D spend has declined from 12-13% to 6-7% of revenue, but the quality of output remains high. The company prioritizes having high-caliber engineers, particularly from IITs, to drive innovation.

Entering Power Tools

The company is entering the Power Tools segment, which requires a significant development cycle. The company has established suppliers and is currently in the testing phase with OEMs.

EV Revenue Share

The company's EV revenue share has grown from 1% to 7% recently, despite EV adoption starting earlier. The company aims to stay aligned with the market and is confident in its motor control credentials and sensorless technology for EVs.

Geographical Diversification

The company does not think in geographies but rather in OEMs. It aims to expand its customer base to include high-quality OEMs in the US, Europe, Japan, and India/China.