Adroit Industries IPO Review: Strong cash flow, but is 22x earnings justified?

1. IPO Overview

Adroit Industries India Limited is listing on the mainboard on BSE and NSE through a book-built offer that opens on 23 September 2026 and closes on 25 September 2026. The offer totals up to 11,247,000 shares of Rs 10 face value, comprising a fresh issue of up to 9,897,000 shares and an offer for sale (OFS, which means shares sold by existing owners) of up to 1,350,000 shares by promoter-group seller Mukesh Sangla HUF.

The fresh issue is dilutive while the OFS is a non-dilutive transfer, and the unusual clause is that 1,362,006 shares changed hands at Rs 90 per share in August 2026, well below the band, before listing.

2. What the company does

Adroit Industries is a vertically integrated maker of propeller shafts, also called drive shafts or cardan shafts, and related torque-transmission components. A propeller shaft is the long rotating assembly that carries turning power from an engine or gearbox to an axle or differential while allowing for angle, movement and vibration. The company forges, machines, heat-treats, assembles, balances and tests these parts in-house in Madhya Pradesh, rather than buying finished parts.

The chain runs across three plants. Dewas is the upstream stage for die-making, forging, heat treatment and shot-blasting. Forgings made here are largely intermediate inputs and are not sold outside in any material quantity. Pithampur, operated through subsidiary Adroit Driveshafts Private Limited, is the main downstream stage for precision machining, assembly, balancing and testing. Sanwer, after renovation, now handles select finishing operations for machined components.

A unit moves from steel billet testing and blank cutting to induction heating and forging at Dewas, then normalising, blasting and crack detection. It is then turned, milled, splined, hardened and ground at Pithampur, coated where specified, and built into a shaft assembly by cutting tube, welding end fittings, fitting universal joints, balancing dynamically, painting and packing. Customers order by email under blanket arrangements that fix price and specification but do not assure minimum volumes. Domestic goods are delivered or picked up, while exports move by truck to port and then by sea, air or road through third-party logistics. Revenue is recognised when control passes, usually on dispatch or delivery.

All profit-and-loss figures below are on restated consolidated basis for full 12 months ended 31 March, with no stub period, which means no part-year column. Revenue from operations was Rs 139.94 crore for the year ended 31 March 2026, Rs 133.89 crore for 2025 and Rs 124.53 crore for 2024. That comprises sale of products of Rs 127.11 crore, Rs 121.21 crore and Rs 110.48 crore, plus miscellaneous sales of raw materials and polymers and other operating revenue from scrap, export incentives and job work.

End-use mix, as % of revenue from sale of products:

Automotive has grown in both rupees and share, while non-automotive has fallen in absolute rupees from FY24 to FY26. Within automotive, classification reflects intended use by distributors and Tier-1 buyers, since Adroit rarely sees the end vehicle.

Product form, as % of revenue from sale of products:

The catalogue reached 5,250 SKUs as on 31 July 2026, up from 4,452 in FY25 and 3,821 in FY24. Finished shafts account for 1,355 SKUs, yokes for 1,950 SKUs across end, slip, flange, tube and shaft types, shaft parts for 450 SKUs, flanges for 244 SKUs, joints for 250 SKUs, and other driveline parts for 1,001 SKUs including a new 16-SKU aluminium range launched in 2025. Typical piece weight ranges from under 1 kg to about 30 kg.

Adroit sells only to businesses. Distributors, who stock for workshops and retailers, contributed Rs 79.38 crore or 62.45% in FY26, with 153 distributors served. Tier-1 driveline suppliers, who integrate shafts for vehicle makers, contributed Rs 41.77 crore or 32.86%, from 13 buyers. Direct sales to domestic and foreign vehicle makers were only Rs 5.96 crore or 4.68%, from 22 buyers. Repeat buyers supplied Rs 114.72 crore or 90.26% of product sales in FY26, and buyers of over three years supplied 71.91%, which shows stickiness once a 12 to 18 month qualification is cleared, but also dependence.

Geography is heavily export-led. Sales outside India were Rs 121.24 crore or 95.39% of sale of products in FY26, against domestic product sales of Rs 5.87 crore. The company exported to over 32 countries. The United States was Rs 65.18 crore or 53.76% of exports in FY26, down from 66.68% in FY25 and 71.93% in FY24, followed by Colombia at 11.62%, Canada at 8.88%, plus Australia, Mexico, Turkey, the United Kingdom and Peru. Support comes from Adroit Driveshafts Canada and a new US unit, Adroit Driveshafts USA LLC, set up in April 2026.

Capacity explains the IPO. Dewas forging ran at 87.87% in FY26 on effective capacity of 2,515 MT, after installed capacity rose to 3,000 MT in January 2026. Pithampur machining and assembly ran at 74.70% on 900,000 numbers. Sanwer fell to 33.45% on 85,000 numbers after machines moved to Pithampur and renovation. The plan is to lift Dewas to 5,500 MT and Pithampur to 1,800,000 numbers.

3. Use of Funds

The fresh-issue proceeds, net of expenses, will be used in this order:

• Rs 19.91 crore for machinery and a vehicle at the Dewas facility in the company.
• Rs 43.96 crore as equity into Adroit Driveshafts Private Limited for machinery and a vehicle at Pithampur.
• Rs 24.12 crore as equity into the same subsidiary to repay or prepay part of its borrowings.

Proceeds from the OFS of up to 1,350,000 shares will go to the selling shareholder, not to the company.

4. Financials Overview

Revenue grew 7.52% in FY25 and 4.52% in FY26, while PAT grew 24.90% and 44.17% in the same years. EBITDA margin moved from 23.84% to 23.17% to 27.66%. The jump in FY26 came with lower material, other and finance costs, not with strong volume growth. Net working-capital days stayed at 237 days in FY26, against 238 days and 237 days before.

5. Financial Analysis

PAT growth from vanishing FX losses and subsidy, while sales crawl

Revenue rose only 12.38% over two years, but PAT rose 80% from Rs 14.53 crore to Rs 26.16 crore. Other expenses fell from Rs 42.47 crore to Rs 36.06 crore, largely because net foreign-exchange loss of Rs 5.38 crore in FY24 and Rs 3.81 crore in FY25 fell to nil in FY26, while a gain of Rs 50.40 lakh appeared in other income. That swing of Rs 5.88 crore explains about half the PAT increase. Other income itself rose from Rs 57.20 lakh to Rs 3.10 crore, including depreciation reversed on subsidy of Rs 1.79 crore in FY25 and Rs 69.80 lakh in FY26. Without repeat grants, both profit and the funding for expansion fade.

Cash is real, but sales are funded by receivables and inventory

Operating cash exceeded PAT in every year, at Rs 19.94 crore against Rs 14.53 crore in FY24, Rs 20.31 crore against Rs 18.14 crore in FY25, and Rs 29.41 crore against Rs 26.16 crore in FY26. Cumulative conversion is about 118%, so profits are not paper. Yet trade receivables rose from Rs 32.06 crore to Rs 39.87 crore to Rs 45.28 crore, growing three times faster than sales and reaching 118.1 days or 32.4% of FY26 revenue. Inventories added Rs 55.23 crore or 144.0 days. Together they tie up Rs 100.51 crore or 71.8% of revenue against cash of only Rs 1.50 crore.

Deleveraging is self-funded, but debt left is short-term and in the subsidiary

The company repaid Rs 33.07 crore, Rs 17.09 crore and Rs 12.40 crore over FY24 to FY26 against only Rs 21.54 crore of new borrowings in FY24. Finance costs fell from Rs 8.21 crore to Rs 4.66 crore, and interest cover improved sharply. Total borrowings fell to Rs 52.40 crore as at 31 March 2026 on Summary basis, with debt to equity down to 0.41. However, non-current borrowings are only Rs 1.88 crore, so 96.4% of debt is short-term. As at 31 July 2026, total outstanding was Rs 68.98 crore, of which 91.67% sat in the material subsidiary. The parent had guaranteed Rs 66.99 crore at March 2026 and Rs 76.18 crore at July 2026, equal to almost all of holding net assets.

Concentrated buyers outside and concentrated suppliers inside

The top one customer was Rs 26.60 crore or 20.92% of sale of products in FY26 and Rs 31.12 crore or 25.68% in FY25. The top five were 48.91% and 51.38%, and the top ten were 60.86% in FY26. Export was 95.39% of product sales, sold 62.45% through distributors with no minimum purchase promises. On the cost side, the top ten suppliers were 75.97% of purchases in FY26 and 90.41% in FY25, with the top one at 28.36% and 33.24%. Inside the group, holding sales to the subsidiary were Rs 36.88 crore in FY26, equal to 28.85% of subsidiary turnover, plus inter-corporate loans of Rs 14.39 crore. A pause by one buyer, distributor destocking or steel disruption hits both volume and margin.

6. Valuation Analysis

For a profitable operating manufacturer, the right lens is earnings multiple on post-issue shares, not pre-issue EPS or asset value. At the top of the band, Rs 134 a share, the company is valued at Rs 600.43 crore on 44,808,340 post-issue shares. That is 23.0x FY26 reported owner profit of Rs 26.13 crore and 23.5x adjusted profit of Rs 25.57 crore. At the floor, Rs 126 a share, the value is Rs 564.59 crore, or 21.6x reported and 22.1x adjusted. The prospectus EPS of Rs 7.48 gives 16.8x to 17.9x, but that sits on pre-issue shares and is not what a buyer pays.

Post-issue book is 2.2x at the floor and 2.3x at the cap. The multiple looks demanding for 4.52% sales growth that was flattered by vanishing currency losses and subsidy, with 71.8% of revenue locked in working capital and 28.5% of equity parked outside the core. Paying 22x to 23x clean earnings funds Rs 24.12 crore of debt repayment the parent already guarantees plus capacity doubling that must still be filled.

7. Peer Analysis

Peer figures come from the peers' own disclosures and exchange prices, while Adroit figures come from its draft prospectus. Adroit at 21.6x to 23.5x is up to 90% premium on existing comparables.

Business overlap is only partial. Hindustan Hardy is the closest pure-play shaft maker but is 76% domestic against Adroit at 95.39% export. Talbros makes rear axle and splined shafts largely for domestic vehicle makers. GNA makes spindles and axles at ten times Adroit scale. Adroit leads on margins, with EBITDA at 27.66% against 11.08%, 11.28% and 16.09%, and PAT at 18.69% against 7.70%, 5.44% and 7.91%, but trails Hindustan Hardy on returns, with RoNW at 22.51% against 25.00% and return on capital at 19.01% against 22.43%.

The premium is not earned on a risk-adjusted view. Adroit carries 237 days of working capital against 72, 164 and 78 days for peers, with inventory at 135 days and receivables at 111 days. It also carries single-market risk from the United States at 53.76% of exports under a continuing 25% tariff, top-ten buyer risk at 60.86% of product sales, and supplier risk at 75.97% of purchases. Peers are more domestic and more diversified by plant and customer. Overall, Adroit screens as a high-margin small exporter priced above larger and more stable peers without superior through-cycle returns or collection.

8. Moat

The moat is real but narrow. Vertical integration from forging to balancing, a 5,250-SKU library and 12 to 18 month qualification protect approved positions and support 90.26% repeat revenue. That does not give pricing power, since distributors and Tier-1 buyers multi-source, vehicle makers demand annual cost cuts, and tariffs and currency move margins directly. It is a retention moat, not a pricing moat.

9. Risks

• Trade and geography: The United States was 53.76% of exports in FY26, and driveline exports face a continuing 25% tariff with no notified relief. Loss of relief or escalation directly cuts competitiveness.
• Customer and channel: The top ten buyers were 60.86% of product sales on cancellable orders, with 95% routed via distributors and Tier-1 firms. One pause or destocking swings utilisation.
• Currency and credit: Hedged exposure was nil in all three years, with currency swings from losses of Rs 5.38 crore and Rs 3.81 crore to a gain of Rs 50.40 lakh. Receivables at 111 days and bad debts of Rs 1.12 crore in FY26 show collection strain.
• Inputs and operations: The top ten vendors were 75.97% of purchases, steel prices are volatile, and all three plants sit in one state with leased land and dependence on power and logistics.
• Governance and structure: Intra-group sales, Rs 14.39 crore of loans and Rs 66.99 crore of guarantees to the subsidiary, Rs 10.06 crore of fresh outside loans, filing delays up to 3,771 days, and contingent liabilities of Rs 4.39 crore point to weak controls.

Concentration, currency and working-capital risks are largely specific to Adroit, while steel, freight and vehicle-cycle risks are shared with peers.

10. Verdict

The call rests on four load-bearing facts already laid out: sales grew only 4.52% while margins jumped on vanishing currency losses and subsidy; operating cash is real but 71.8% of revenue is tied in receivables and inventory; 91.67% of debt sits in the subsidiary behind parent guarantees; and the buyer pays 21.6x to 23.0x reported earnings on post-issue shares, up to 90% premium to peers. Together they show a cash-generative but fragile exporter whose FY26 profit sprint cannot be extrapolated and whose balance sheet funds sales.

The thesis works only if doubled forging and machining capacity fills with diversified export and new domestic volumes at current margins while collection improves and tariff relief arrives. It breaks if the top customer pauses, distributors destock, steel spikes or the 25% tariff persists, since the same concentration then reverses through inventory, receivables and guarantees. On an earnings lens that fits a profitable maker, the price is demanding and not justified for retail investors seeking margin of safety.

11. IPO Snapshot