Mr. Kirit Vishanji Gala, CMD, Gala Precision Engineering Limited

28 Aug 2024 , 03:13 PM

Please provide an overview of the business and revenue model of the company.

We specialize in the manufacturing of precision components, with a particular focus on springs and coil springs. Additionally, we offer a range of fastening solutions, such as fasteners. Our business serves three major market verticals:

1. Renewable Energy: We supply a wide range of components for wind turbines, including critical springs and fasteners. We also cater to hydroelectric power plants by providing essential springs and fasteners.
2. Industrials: In this segment, we focus heavily on the electrical industry, supplying components for medium-voltage switchgear to companies like ABB, Siemens, and Schneider. We also serve the off-highway vehicle market, including tractors and other similar vehicles.
3. Mobility: We provide components for light commercial vehicles (LCVs), medium commercial vehicles (MCVs), commercial vehicles, and the railway sector, particularly metros and high-speed railways.

Geographically, our key markets are India, Europe, and the USA.

 

Please elaborate the growth strategies of the company that will be supported by the IPO proceeds.

Our core expertise lies in springs, and we proudly serve a range of marquee customers across the globe. Once our Indian plant and processes are approved by a single customer, it often leads to approvals as a global supplier across their various locations. For instance, we have been supplying extensively to ABB in Germany.

With over 175 customers spread across our three major verticals, we provide a diverse array of products tailored to their needs. Our growth strategy is centered on precision engineering, where we primarily compete with European companies. We leverage the cost advantages of manufacturing in India, which typically offers a lower-cost base compared to most global locations. This cost-efficiency forms a significant part of our competitive edge, allowing us to supply effectively to our global customer base.

 

One of your IPO objectives is to repay the company debt. So can you provide current debt details and will the company be debt free after the IPO?

We are raising a total of ₹168 crore, out of which ₹135 crore will be allocated towards fresh equity. Here’s the breakdown of the deployment:

• ₹37 crore will be invested in the Vada plant.
• ₹11 crore will be allocated to the Vada capex.
• ₹46 crore will be used to repay both long-term loans and working capital together.

Currently, our overall debt stands at ₹56 crore. Following the IPO, this debt will be reduced significantly, leaving only a minimal debt of around ₹10 crore.

 

What sets Gala Precision apart from its peers in the precision component manufacturing industry?

We’re incredibly proud of our engineering team, which includes some of the best engineers in India in their respective fields. We have over 70 engineers, and many of the processes we’ve developed are truly world-class — and sometimes even beyond that standard.

For example, in our finishing processes, we go beyond the usual deburring or surface finishing; we add compressive stresses to the components, which significantly enhances their fatigue life. Similarly, our heat treatment and coating processes are designed to be exceptional.

Our focus on advanced technology, top-notch quality, and robust systems ensures consistent quality and truly sets us apart from any competitor worldwide.

 

How important are OEM and tier 1 suppliers to your business model and how do you maintain strong relationship with these clients?

That’s a very important point, and a great question. We have over 175 customers, many of whom are world-class companies producing premium quality products globally. Maintaining strong customer relationships is crucial for us, and we achieve this through consistent quality and exceptional service. We go above and beyond to ensure customer satisfaction and delight.

Additionally, we have expanded our product offerings to deepen our engagement with customers. While we initially focused only on springs, we now offer various types of springs and fasteners, with plans to expand further. By increasing the range of products available to each customer, we strengthen our relationship and enjoy the growth opportunities this brings.

The qualifying process for the components we supply is very rigorous and lengthy. This makes the cost of switching suppliers high for our customers, which, combined with the trust we have built, leads them to place more orders with us over time.

 

As the company is going public, is there any dividend policies previously on what should investors expect in terms of returns?

We have a dividend policy in place, but historically, we’ve been in a fast-growth phase. Over the last three years, we’ve achieved a compound annual growth rate (CAGR) of 24%. As a result, we’ve been reinvesting the profits generated back into the company’s growth.

Looking ahead, we plan to continue this rapid growth strategy. However, our board will periodically review our financial position to determine the best use of funds. If there are better opportunities within the company, we’ll prioritize those; otherwise, we may consider distributing dividends to our shareholders. This decision will be revisited regularly.

 

So what measures are in place to ensure strong corporate governance as you prepare for going public?

We have had strong corporate governance in place for years, supported by a robust SAP system, a well-structured board, regular audits, and a professional management team overseeing the company. Moving forward, we plan to enhance our focus on corporate governance by implementing new software solutions and forming a dedicated committee to manage these efforts.

We are confident that we will not only comply with corporate governance standards but also continuously improve in this area.

 

Is there any message for the potential investors who are looking to participate in Gala Precision IPO?

Our business model is highly robust, backed by a strong market presence and a diverse global customer base. We possess core competencies and competitive differentiators that set us apart in the industry. Additionally, our management is transparent and straightforward, which are key messages we want to convey to our investors.