Delta Autocorp Ltd. IPO: Key Details

Delta Autocorp

• Delta Autocorp is coming out with an initial public offering (IPO) of 42,00,000 equity shares in a price band Rs 123-130 per equity share.
• The issue will open on January 7, 2025 and will close on January 9, 2025.
• The shares will be listed on SME Platform of NSE.
• The face value of the share is Rs 10 and is priced 12.30 times of its face value on the lower side and 13.00 times on the higher side.
• Book running lead manager to the issue is GYR Capital Advisors.
• Compliance Officer for the issue is Lovejeet Bedi.

Profile of the company

Delta Autocorp manufactures and sells 2W & 3W EVs using cutting edge components procured from reputed Original Equipment Manufacturers (OEMs) who use design & engineering specifications given by it. The company supplies specific components designed and compatible for its vehicles. The company is operating under the brand name 'Deltic'. Specializing in the production of Electric 2W and 3W vehicles, its journey began with the establishment of Delta Autocorp LLP in 2016 by its visionary promoter Ankit Agarwal. Initially concentrating on the development of electric 3W prototypes, it marked a significant milestone in 2017 with the launch of its first E-Rickshaw, boasting an impressive mileage of over 150 Kms. This not only contributed in its successful launch but also enabled E-Rickshaw drivers to enhance their daily earnings significantly.

Furthermore, its Research and Development (R&D) Department has implemented several enhancements, including refining the aerodynamic structure of E-rickshaws for optimal performance even on hilly terrains. Additionally, it has boosted the torque, improved strength & durability by using stronger metallurgy, and improved the gradability to a range of 7 to 10 degrees in its E-Rickshaws. These notable advancements contribute significantly to meeting the evolving demands of the market.

After observing market dynamics and adapting to changing customer preferences, it strategically broadened its product range to include electric 2W vehicles. The year 2018 saw the commencement of prototype development for electric 2W, and in 2019, it proudly unveiled its inaugural electric 2W model. It identified a whitespace in Bharat i.e. tier-2, tier 3 towns of India and beyond where customers wanted an affordable yet sturdy scooter without compromising on the looks. Hence, it launched well designed full scooters suitable to run on Indian roads with high ground clearance, good footboard space, and a large seat at very reasonable price coming at a very pocket friendly price. Moreover, in the interest of longevity, cost efficiency, and customer safety it is transitioning to Lithium Ferro Phosphate (LFP) batteries from Nickel-Manganese-Cobalt (NMC) batteries. 

Proceed is being used for:

• Funding of expenditure towards setting up an Electric Three-Wheeler Fabrication Plant & Painting Plant
• Investment in new product development
• Funding of working capital requirement
• General corporate purposes
• Meeting out the offer expenses

Industry Overview

The Indian automobile industry has historically been a good indicator of how well the economy is doing, as the automobile sector plays a key role in both macroeconomic expansion and technological advancement. The two-wheelers segment dominates the market in terms of volume, owing to a growing middle class and a huge percentage of India’s population being young. Moreover, the growing interest of companies in exploring the rural markets further aided the growth of the sector. The rising logistics and passenger transportation industries are driving up demand for commercial vehicles. Future market growth is anticipated to be fuelled by new trends including the electrification of vehicles, particularly three-wheelers and small passenger automobiles.

India is one of the world's fastest-growing markets for Electric Two-Wheelers (E2Ws). The two-wheeler segment dominates the Indian automobile market, accounting for more than 70% of all registered vehicles. E2Ws are a convenient and efficient mode of transportation for short-distance travel, especially in cities. In India, the two-wheeler segment accounts for more than 50% of all petrol transactions. Two-wheelers are utilized in commercial applications such as logistics fleets for food and groceries, parcel and courier services, and passenger transport related services. Two-wheelers that can effectively negotiate traffic are also being tested for first and last-mile connection via shared trips and bike taxi services. According to a study, electric two-wheeler sales penetration in India might surpass 80% by 2030. 

Over the last ten years, India has emerged as one of the world's most favoured places for producing high-quality automotive components and automobiles of all types, closing the gap with numerous established countries in the process. Due to the relative cost and ease of two-wheelers, they have historically led in terms of growth and penetration among the major vehicle categories in India. A high degree of market penetration for electric-powered two-wheelers should be achieved as EVs represent the future of the mobility sector. Collectively, such government interventions have the potential to trigger a paradigm shift in the ecosystem that would increase the use of renewable energy in the domestic industry and increase consumer adoption of new and novel technology.

Pros and strengths

Customer centric approach: At the core of its brand lies a deep commitment to understanding and meeting the unique needs of its customers. The company’s approach to product design is shaped by invaluable customer insights, resulting in an outstanding experience for its clientele. It takes pride in being close to its customers. Its customer experience team speaks with its customers on call post purchase. This feedback call not only gives it great insights from customers but also helps it to form a closed knit community. By identifying and addressing specific customer requirements, it customizes its product designs to guarantee optimal comfort for its valued patrons.

Diversified product range: Setting itself apart from other companies, it has successfully entered both the two-wheeler and three-wheeler markets, catering to a wide range of target segments. This diversification allows it to benefit from multiple revenue streams while acting as a business hedge. Considering that two-wheelers and three-wheelers account for over 90% of current EV sales, it is strategically positioned to capture significant market share in these segments.

In house research and development of products: The company’s business model places a strong emphasis on Research and Development (R&D) and technology, with a primary focus on in-house product innovation. Its R&D activities, located in Uttar Pradesh, are dedicated to the design and development of new electric vehicle (EV) products. Within its R&D department, a team of skilled employees committed to analyzing customer needs. The total strength of the employees is 15 in this department. Based on these insights, they strive to tailor the design of its products to meet the specific requirements of its customers.

Risks and concerns  

Dependent on its dealers for sale of its product: The company is doing business through its dealers. The company has more than 300 dealers across the India. Percentage of total revenue received from the top five dealers from fiscal 2022, 2023 and for the period from April 01, 2023 to July 20, 2023, from July 21, 2023 to March 31, 2024 and for the period ended from April 1, 2024 to October 31, 2024 is 19.99%, 17.20%, and 21.80%, 9.05% and 36.30% respectively. Its ability to continue to generate revenue from its operations is significantly dependent on its ability to maintain its relations with its dealers. If any of its top five dealers cease to work for it or collaborate with it or choose to work with others, its business, its results of operations and financial conditions will be impacted. 

Dependent on a few suppliers for purchases of products: The company’s top 5 suppliers contribute 72.35%, 33.70%, 63%, and 45%, and 63% of its total purchase from April 1, 2024 to October 31, 2024, July 21, 2023 to March 31, 2024, from April 1, 2023 to July 20, 2023 and for the financial year ended on March 31, 2023 and 2022 respectively based on restated financial statement. It cannot assure that the company will be able to get the same quantum and quality of supplies, or any supplies at all, and the loss of supplies from one or more of them may adversely affect its purchases of raw materials and ultimately its revenue and results of operations. However, the composition and amount of purchase from these suppliers might change as it continues seeking new suppliers for its product for better quality and price in the normal course of business. Though it will not face substantial challenges in maintaining its business relationship with them or finding new suppliers, there can be no assurance that it will be able to maintain long term relationships with such suppliers or find new suppliers in time.

Dependent on third parties for its logistics and transportation need: The company relies substantially on third party transportation providers for the delivery of its products to its customers (Dealers). Transportation strikes / non availability of Transportation could have an adverse effect on its ability to deliver its products to its customers (Dealers). Further, it has not entered into any long-term agreements with its transporters and the cost of transportation is generally based on mutual terms and prevailing market price. In addition, transportation costs in India have been steadily increasing over the past several years. Continuing increases in transportation costs or unavailability of transportation services for its products may have an adverse effect on its business, financial condition, results of operations and prospects. 

Outlook

Delta Autocorp is engaged in the business of manufacturing and selling of 2-wheelers & 3-wheelers EVs. The company is tapping into the mass premium segment and it has Quality Standard Certifications & Quality Tests. On the concern side, the company is dependent on a few suppliers for purchases of products. The loss of any of these large suppliers may affect its business operations. Moreover, the company’s business is dependent on its distribution network. An inability to expand or effectively manage its distributor network, or any disruptions in its distribution network may have an adverse effect on its business, results of operations, financial condition and cash flows.

The company is coming out with a maiden IPO of 42,00,000 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 123-130 per equity share. The aggregate size of the offer is around Rs 51.66 crore to Rs 54.60 crore based on lower and upper price band respectively. On performance front, for the period from April 01, 2024 to October 31, 2024, Revenue from Operations of the company was Rs 4,517.92 lakh, while for the period from July 21, 2023 to March 31, 2024, Revenue from Operations of the company was Rs 6,307.28 lakh. Moreover, profit after tax for the period from April 01, 2024 to October 31, 2024 was at Rs 480.81 lakh, while profit after tax for the period from July 21, 2023 to March 31, 2024 was at Rs 695.68 lakh.

The company will continue to add new design to its existing product portfolio to cater to various customer and price segments in the markets. It endeavors to maintain the quality of its products, and follows strict procedures to ensure quality control, and competitive prices. The company intends to strengthen its product development effort by leveraging skills of its employees and focusing on changing trends in the designs and customers demand, which will help to increase the sales of the company.