ASK Automotive files papers to float IPO: A SWOT analysis of braking systems maker

ASK Automotive, a Gurugram-based company that specialises in brake-shoe and advanced braking systems for two-wheelers, has recently filed preliminary papers for an initial public offering (IPO) with the Securities and Exchange Board of India (SEBI). The leading-brake maker will be off-loading 29,571,390 shares of Rs 2 face value each in an offer for sale (OFS). The company has yet to reveal several key details like the issue size of the IPO, Enterprise Value(EV)/ EBITDA ratio, and more but here are some key details in a SWOT format from the draft red herring prospectus (DRHP). 

Strengths

Market Position: ASK Automotive held a market share of around 50 per cent in the fiscal year 2022 in the manufacturing of brake-shoe and advanced braking systems for two-wheelers in India. This solid position in the market offers stability and name recognition for potential investors.

Diversified Product Portfolio: The company has expanded its operations to include aluminum lightweight precision solutions, wheel assembly for two-wheeler OEMs, and safety control cable products. This diversified product range makes ASK less vulnerable to fluctuations in any one segment of its business.

Strong Client Base: ASK Automotive caters to several prominent companies like TVS Motor Company Ltd, Hero MotoCorp, Greaves Electric Mobility, and Bajaj Auto. Their clientele's credibility and diverse base indicate strong and reliable business relationships.

Weaknesses

No Proceeds to the Company: The IPO consists of an offer for sale (OFS) of 2,95,71,390 equity shares by ASK’s promoters. The IPO proceeds will solely benefit the selling shareholders, and ASK Automotive will not receive any funds from the offering. This lack of fresh capital injection could limit the company's ability to fund future expansion or debt reduction.

Opportunities

EV Market: The company's specialisation in safety systems and critical engineering solutions caters to both electric vehicle (EV) and internal combustion engine original equipment manufacturers. The EV market in India is still in its early stages, and its potential growth offers a great opportunity for ASK Automotive.

Geographical Expansion: With already 15 manufacturing facilities across India and a new one developing in Rajasthan, the company has the opportunity to expand its operations further within the country and perhaps beyond its borders.

Threats

Regulatory Risk: ASK Automotive is subject to various regulations and policies that could affect the company's operations and profitability.

Competitive Industry: The automotive components industry is highly competitive, with several large-scale and small-scale players, both domestic and international. Sudden technological advancements, cost-competitiveness, and product differentiation strategies of these competitors could pose a threat to ASK Automotive's market position.

Vulnerability to Economic Cycles: The automotive industry is typically susceptible to economic cycles. In periods of slowdown, demand for vehicles, and hence the demand for auto components, might decrease, impacting ASK Automotive's revenues.