IPO Analysis: Divgi Torque Transfer System Limited
IPO Analysis: Divgi Torque Transfer System Limited
The company is one of the very few suppliers in India with the capacity to design and offer torque coupler, DCT, and system level transfer case solutions. They are one of the top suppliers of transfer case systems to Indian car OEMs and the biggest supplier of transfer case systems to Indian manufacturers of passenger vehicles. They are also the sole manufacturer of torque couplers in India and the sole exporter of transfer cases to international Manufacturers. Additionally, they are able to design and deliver transmission systems for electric cars (or “EVs"). They have received a company award for this reason, and they are now designing and creating prototypes of EV transmission systems. They have been given a contract to furnish EV transmission systems for one of the top EV manufacturers in India as of the date of this Red Herring Prospectus. an a,, a new an an a to, a to the, a, the a Additionally, they were given a contract to sell parts for hybrid vehicles to a major OEM, but this client does not rank among the top five clients of the business. The company works closely with transmission engineering advisory companies in Europe like FEV and Hofer.
Company manufacture and supply a variety of products under the broad categories of:
- Torque transfer systems (which includes four wheel- drive (“4WD”) and all-wheel-drive (“AWD”) products)
- synchronizer systems for manual transmissions and DCT
- Components for the above-mentioned product categories for torque transfer systems and synchronizer systems in manual
transmission, DCT, and EVs.
The company has internal software development resources, which aids in their ability to give system-level solutions and software that regulates vehicle dynamics. They are also among the first few makers of steel synchronizers in India and one of the top suppliers of carbon-based and steel synchronizer systems for the Indian market. Through a focus on innovation, the provision of tailored solutions in distinctive products, internal software development capabilities, and product development and production at quality standards acceptable to their customers and at reduced costs, they have attained leading positions for a select number of products in their portfolio. They are in the process of launching domestically made DCT systems for the Indian market.
The business designs, develops, produces, and supplies engineered, complete solutions and parts to car OEMs in countries like India, the USA, China, Korea, and Russia. With their strong focus on research and development and advanced in-house hardware and software capabilities, they have also been providing turnkey solutions across the automotive industry, including passenger vehicles, utility vehicles, and commercial vehicles from their facilities at Bhosari and Shivare near Pune in Maharashtra and Sirsi, in Karnataka. Leading automotive OEMs like Tata Motors, Mahindra & Mahindra, BorgWarner, a Japanese automotive supply chain business, a Chinese automaker, an Indian automaker, and an Indian supplier to a global auto OEM are just a few of their clients.
They offer four-wheel drive and synchronizer system solutions among their systems and component offerings. They produce and supply a wide range of goods falling into the general categories of (i) torque transfer systems (which includes 4WD/AWD products); (ii) synchronizer systems for manual transmissions and DCT; and (iii) components for the aforementioned product categories as well as for EVs. They have also created rear wheel drive manual transmissions, DCT systems, and transmissions for electric vehicles.
Despite the fact that the conclusion of several programmes and the conflict in Ukraine caused their revenue from the sale of goods across global geographic markets to decline from Fiscal 2021 to Fiscal 2022. But with the introduction of the new Mahindra Thar, their domestic sales increased. Furthermore, they have established long-lasting bonds with renowned domestic and international OEMs in the automotive industry, including Mahindra & Mahindra, Tata Motors, and BorgWarner, among others, with some of whom they have had bonds for more than 20 years, including through their earlier joint ventures. For instance, they have had a solid, ongoing business relationship with Tata Motors since 1992. Strong commercial ties with the top echelons of management have served as the foundation for their engagement with customers. Their connections with renowned international OEMs begin during the design and development phases.
Key Strengths:
- One of the few suppliers in India with the ability to develop and deliver system level transfer case, torque coupler, DCT solutions, and transmission systems for EVs across a wide range of automotive vehicles and geographies, as well as leadership in a few key product categories: Because to their in-house software development competence, they are one of the very few vendors in India with the capacity to build and supply system level transfer case, torque coupler, and DCT solutions. They have created electronically controlled transfer cases and torque couplers with software embedded for Manufacturers including Tata Motors and Mahindra & Mahindra Limited, among others. They have previously collaborated on new initiatives as development partners with Indian OEMs. They are one of the few businesses that offer both component kits and systems-level solutions to major worldwide OEMs and Tier I transmission system suppliers. The company claims that doing so has enabled them to provide cost-effectively customised solutions to their OEM customers and to top the market for transfer cases, torque couplers, and steel synchronizers in India. They are one of the top suppliers of transfer case systems to Indian OEMs and the biggest provider of transfer case systems to Indian makers of passenger vehicles. Also, they are the only manufacturer and exporter of transfer cases from India to international OEMs, including the widely used chain-driven transfer cases and electronic shift-on-the-fly ("ESOF") transfer cases. They design, develop, manufacture and supply designed, turnkey solutions and components to automotive Manufacturers in India, USA, China, Korea and Russia, amongst others. They have created rear wheel drive manual transmissions, DCT systems, and transmissions for electric vehicles. They are currently introducing DCT systems made in India for the Indian market. As a result, they will be India's sole manufacturer of DCT systems. They have been awarded a contract for the delivery of EV transmission systems for one of the main providers of EVs in India, however supply pursuant to the contract has not started as on the date of this red herring prospectus. Also, they were given a contract for the supply of parts for hybrid vehicles by a major OEM.
- Manufacturing facilities that are strategically positioned and capable of producing high-precision components that fulfil system-level design intent: To fulfil their customers' demand schedules, provide logistical advantages for customers, and protect them from local supply or other disruptions, their facilities are outfitted with cutting-edge machinery and some of them are situated close to their main clients. They have three manufacturing and assembly facilities across India, one of which is currently under construction, at Sirsi in Karnataka, Shivare and Bhosari near Pune in Maharashtra, and one at Shirwal. The manufacturing facilities at Shivare and Bhosari are strategically situated close to their key clients. Their plant in Shirwal, Maharashtra, is currently 80.00% complete as of February 3, 2023, and is anticipated to be finished by the end of the current fiscal year (2024). The company works hard to make sure that its manufacturing facilities are in line with new automation and premiumization trends, as seen by the ongoing contracts it has with automakers to supply parts for electric and hybrid vehicles. They may use their machinery to produce numerous precise automotive drivetrain systems because their manufacturing facilities can handle a range of production volumes and the infrastructure is multipurpose. At their factory in Sirsi, they produce components for transfer cases, synchronizers, and transmissions. Their plant in Shivare, Maharashtra has superfinishing and grinding machinery to meet criteria for precision and accuracy, including those required by transmission components, EV and DCT applications worldwide. Both their Bhosari, Maharashtra, facility, which serves as the assembly, lab testing, and packing unit for their manufactured components and systems, and their Shivare, Maharashtra, facility are placed in close proximity to their important clients as well as the state's port for export.
- Long-term connections with prominent domestic and worldwide customers: The company feels that they have solid and long-standing partnerships with a number of renowned domestic and international OEMs in the automotive industry, including Tata Motors, Mahindra & Mahindra, and with international suppliers like BorgWarner. For more than 20 years, they have maintained business relationships with companies including Mahindra & Mahindra, Tata Motors, and BorgWarner. Because of their track record and extensive product line, they have been successful in both attracting new clients and keeping hold of their current ones.
- An executive team with experience is backed by a competent and skilled crew: The company is overseen by a board of directors with substantial industry expertise, as well as a skilled management team with deep knowledge of the automotive sector. Mechanical engineers with extensive knowledge of the automobile sector, Jitendra Bhaskar Divgi and Hirendra Bhaskar Divgi are the promoters of the company. Jitendra Bhaskar Divgi, Managing Director and Promoter, has a Master of Science degree in manufacturing from the University of Massachusetts, USA. While serving as the company's development manager, Hirendra Bhaskar Divgi, a full-time director and promoter, gained more than 30 years of experience in advanced gear manufacturing techniques and how they affect drive train goods. A considerable portion of their senior management team has been associated with them for a long time, which has led to efficient operational coordination and continuity of business strategy. Team consists of a powerful and knowledgeable group of competent individuals in senior and mid-level management. Most of their core managerial professionals or senior management personnel have worked with them for over ten years, resulting in strong operational coordination and continuity of business plans. They have guided the business in acquiring new clients, creating innovative systems and parts, and keeping abreast of changing market trends.
Growth Drivers:
- Maximising market potential in the expanding EV sector and the rapidly expanding market for automatic gearboxes in the passenger UVs category: As the trend towards electrifying vehicles continues to spread globally, there are many business opportunities in the expanding EV field. Both in terms of volume and value, the EV transmission market is anticipated to grow at a CAGR of 77-82% between Fiscal 2022 and 2027. By Fiscal 2027, it is anticipated that the EV transmission industry will be worth between 42 and 44 billion with a volume of 435 to 440 thousand. They believe that the key drivers of vehicle electrification include environmental concerns and public awareness of the importance to reduce CO2 emissions and other pollutants, progressive termination of fossil fuel vehicles by some countries, government support and fiscal incentives that support the trend towards vehicle electrification, stringent emission and fuel economy norms introduced by several countries to combat the impact of climate change and encourage alternative sources. They have been given a contract to sell EV transmission systems to one of the top EV manufacturers in India, which will help them in their efforts to take advantage of the growing EV market. Unfortunately, as of the date of this Red Herring Prospectus, supply under the terms of this contract had not begun. By providing entire transmission solutions and components to EV OEMs, they hope to enhance their market share in both the Local and international markets as part of their growth strategy. They plan to sign comparable contracts with other clients worldwide as part of their strategy. As part of their growth strategy to establish themselves prominently in the Indian EV segment, they aim to further increase their customer penetration and acquire new customers in this segment.
- By expanding their consumer base and regional diversity, they can increase their market share and share of wallet: By broadening the selection of current products and solutions they offer to their customers globally, they hope to deepen their relationships with their current clients, look for opportunities to grow along the value chain, and secure new client contracts by creating goods and services that are in line with their requirements. By utilising their long-standing customer relationships to enter into new products and vehicle programmes, expand into new geographies for existing customers, and develop new customers, the company hopes to consolidate and strengthen their market share in domestic and international markets in their current automotive powertrain solutions and product portfolio. They are confident that their long-standing relationships with reputable OEMs and international suppliers, emphasis on custom-made precision components, widely accepted processes, and global delivery model will support them in these efforts and help them establish themselves as the industry's go-to supplier. The company is certain that growing their customer base and geographic reach will be made possible by their broad product portfolio and acceptance by major OEMs.
- Cost reduction via localization and product engineering: The company thinks that the component business complements its systems and solutions for products. While the economies of scale offered by their component business enable them to reduce costs for their product systems and solutions, their understanding of the dynamics of vehicles through their involvement in product systems and solutions enables them to offer components that are better suited to their customers. Today OEMs in India are heavily dependent on imports for a huge cross-section of products. They have and continue to interact with their customers to re-engineer goods which help achieve better operational and cost efficiency. For instance, they independently created a 32-bit processor for BorgWarner to replace their old 8-bit technology for their transfer case application. BorgWarner recognised their team for this invention and gave them an award.
- Persistent emphasis on R&D to produce a variety of items and grow into products to accommodate new and emerging trends: The company's ability to design, develop, and commercialise new automotive systems and components that are cutting edge, practical, and sustainable, as well as to enhance their current systems and components or create process improvements that can speed up production, boost quality, and reduce costs, will determine how successful they are in the future. As seen by their recent contracts for EVs and Hybrid Vehicles, the company believes that they are an R&D led systems and solution provider giving unique and tailored solutions to their customers. They predict that as automatic transmissions become more common in passenger cars and as electric vehicles gain popularity, automobile drivetrains will transition from being solely mechanical to being controlled by integrated electronics and software. By consistently investing in R&D to create and provide fresh and cutting-edge systems and components, the company hopes to capitalise on this expanding trend. With OEMs continuously focusing on weight reduction in PVs and EVs to improve range, increase the vehicle's acceleration, and increase overall efficiency, they seek to develop solutions and alternatives for enhancing the torque density and reducing the weight of their DCT systems and EV transmission units through their R&D effort.
Financials:
Conclusion:
With strategically located manufacturing facilities that can produce high precision components meeting system-level design intent and long-term relationships with renowned domestic and international custom car manufacturers, Divgi TorqTransfer Systems Limited is one of the very few suppliers in India with the capability to develop and provide system level transfer case, torque coupler, DCT solutions, and transmission systems for EVs across a wide array of automotive vehicles and geographies. With a market capitalization of 18,043 million after the issuance of equity shares and a return on net worth of 13.6%, the company is valued at the upper price band at a P/E ratio of 39x.
