Parakram Jadeja, CMD, Jyoti CNC Automation

9 Jan 2024 , 09:58 AM

Take us through the company’s journey so far and key learnings thereof.

This is a first generation business. I started this company way back in 1989 as a modest job shop, evolving steadily with the acquisition of advanced machinery. The journey began with the manufacturing of components, eventually transitioning into a machine tool company.

From 1989 to 1998, I focused on producing parts, sub-assemblies, and assemblies for the local market. However, the turning point came in 1998 when we recognized the growing significance of computers. In response to this trend, we designed and developed our first CNC machine, also known as a computerized numerical control machine, in 1999. Since then, our customer base has expanded to more than 12,000. We now cater to diverse manufacturing sectors, including auto, auto components, general engineering, valves, pumps, dyes and molds, aerospace, defense, and the upcoming sector of Electronic Manufacturing Services (EMS) market.

Over the course of the last 25 years, we have introduced more than 200 product variants, recognizing the importance of addressing technological gaps. In 2007, we took a significant step by acquiring Huron Graffenstaden SAS, a company with a rich legacy spanning 180 years. Specializing in milling machines, particularly in the aerospace and defense sectors, this acquisition has allowed us to position ourselves for the anticipated growth of these sectors in India.

Which are your listed peers in India and globally and what are the company’s strengths vis-à-vis them?

In the Indian market, our closest listed competitor is LMW, although they also operate in textile machinery. Additionally, there is a smaller player known as Macpower CNC Machines. Globally, we face competition from Japanese companies such as Makino and Okuma Corporation. Despite the presence of these formidable players, we have positioned ourselves as a strong contender.

Our strength lies in being a fully vertically integrated manufacturing company and our own technology makes us stand out. We are a technology leader in terms of the manufacturing processes we have. The acquisition of the French entity, Huron Grafenscheiden, has significantly contributed to our technological advancements.

A key differentiator for us is our expertise in the realm of five-axis machines, enabling us to produce intricate parts essential in aerospace, defense and the emerging Electronic Manufacturing Services (EMS) market. The high precision and high-speed capabilities of our machines have been validated through extensive trials and testing in the mobile manufacturing sector. As a result, we have secured orders from world-class manufacturing companies, indicating a promising future ahead.

How does your company plan to mitigate potential future losses, ensuring sustained profitability, and maintaining long-term investor confidence, as mentioned in the DRHP?

We have a robust order book of close to Rs. 3,300 Crore. About 58% of this order book pertains to machinery for aerospace and various other applications. Another key growth driver is the Electronic Manufacturing Services (EMS) sector. Currently, our order in this sector stands at around Rs. 300 Crores, and the potential order pipeline is vast. The growing momentum in the Indian manufacturing sector, fueled by initiatives like Make in India, Atmanirbhar Bharat, PLI scheme, and the global trend of diversifying from China (China Plus One), is creating a substantial influx of manufacturing investments. We are strategically positioned to capitalize on this surge, supported by our capabilities in new product development. Looking ahead, we recognize the immense potential in the electric vehicle (EV) industry and semiconductor manufacturing.

Some of the IPO proceeds for debt repayment. What is the debt currently and what will it be after the prepayment?

At present, we have a debt of approximately Rs. 800 Crore. We will repay debt worth Rs. 475 Crore from the IPO proceeds. Post-IPO, our debt-to-equity ratio is expected to be less than 0.25%, reflecting a prudent and sustainable financial structure. We are looking to become a completely debt free company over the next 2-3 years.

Please help us understand company’s expansion policy whether be it in India or even on the international markets, what is the strategy there?

We have a three-pronged strategy. First, we are committed to expanding our presence in what we term as the emerging markets, namely, aerospace, defense, electric vehicles (EV), and Electronic Manufacturing Services (EMS). These sectors epitomize the future of manufacturing and align seamlessly with our expertise and capabilities.

Second, we envision a deeper penetration into the European market. Leveraging our subsidiary company’s prowess in aerospace, we aim to assert ourselves in the high-end manufacturing space. The acquisition of Huron has positioned us favorably, and we are keen on enhancing our footprint in this lucrative market, offering cost-competitive solutions from our Indian manufacturing base.

Third focus area is of import substitution. About 65% of machines used in India are being imported, we aspire to be a comprehensive import substitute. Our strategy involves leveraging our design and development capabilities, supported by a state-of-the-art manufacturing facility in Rajkot. This facility enables us to handle every aspect of the manufacturing process, from castings and machining to sub-assembly and assembly. Our dedicated R&D center, aptly named the Leonardo da Vinci center, boasts a team of over 140 designers working tirelessly to address the dynamic needs of the market.

Certainly, could you elaborate how the fully integrated business contributes to overall profitability, and what are the primary factors driving the margins?

Our EBITDA margin stood at 10.48% for FY23 and at 14.59% for the first half of FY24. As we continue to scale up our operations, we anticipate gaining further margin leverage. Additionally, the high-margin orders we have bagged in the aerospace and defense sectors will contribute to a significant expansion in overall margins. Given our predominantly B2B client base, we believe we can effectively navigate and pass on any input cost pressures or related challenges.