Omnitech Engineering, a precision engineering firm with an order book worth Rs 1,700 crore, is using the public markets to finance new capabilities and capacity development.
The Rs 583 crore offering combines an offer-for-sale with a new issue. Udaykumar Parekh, the promoter and CMD, discussed working capital trends, client concentration issues, and values.
Here are some edited quotes from the discussion
Q: Why are you entering the market at this time?
A: We have over 100 new clients in the last three to four years, a robust order book worth Rs 1,700 crore, and a 90% recurring customer base. To increase capacity and capabilities, the IPO funds will finance two new facilities as well as expensive machinery.
Q: The problem is completely priced, according to analysts. Would you reevaluate your assessments?
A number of anchor investors provided us with market comments. They trade at much greater PE multiples than our counterparts in comparable technical industries. Our capabilities and infrastructure are comparable to those of our peers.
Q: Motion control and industrial equipment are losing market share, while the energy industry currently accounts for over half of H1 sales. Why?
A: Revenues from motion control, automation, and industrial equipment are still increasing in absolute terms. Energy’s percentage share has increased merely because it is expanding more quickly. All three of our categories have a robust order book.
Q: Capacity usage ranges from 63 to 70 percent. Why are you now making investments in new facilities?
A: The establishment of our high-precision engineering facilities takes nine to fifteen months. According to our growth forecasts, existing plants will reach full capacity by FY27, and additional capacity derived from IPO funds will be available by Q1 FY28, when we will require it.
Q: One customer has an order of Rs 1,038 crore, indicating a high level of client concentration. How are you reducing the risk of this?
A: About 30% of H1 revenues come from our top customer, and roughly 56% come from the top 10. We have several clients in each segment. We supply a variety of product lines even inside that one big client relationship, which offers internal diversification. A revenue split of about 40-30-30 percent for each segment maintains a low risk profile.
Q: Approximately 60% of revenue comes from the US. Did tariffs affect you?
A: Since ex-works pricing is the foundation of our business strategy, tariffs are outside the purview of our cost structure. More significantly, our product development cycles, which include approvals and pressure testing, last eight to sixteen months. Due to short-term tariff changes, our customers—multibillion dollar corporations with a five to ten year strategic supply chain view—cannot and do not change suppliers.
Q: You intend to pursue careers in railroads, semiconductors, aircraft, and military. Why these sections?
A: To support the expansion of current segments, we consistently introduce new revenue streams. For instance, energy was added in 2016 and is currently a sizable category. In line with Make in India campaigns, the defense and aerospace industries are also experiencing rapid expansion. Defense customers have already given us several orders and permissions.
Q: Operating cash flow was negative, and working capital increased from 139 days in FY23 to 283 days in FY25. What is causing this?
A: The main factor was the commissioning of our new plant in FY24, which increased revenues by 85–90%, from Rs 178 crore to Rs 343 crore. Purchasing raw materials at minimum order quantities (MOQs) from suppliers is necessary for scaling up, which causes inventory to momentarily increase.
Absorption of this inventory occurs as revenues increase. We anticipate that working capital will return to the historical range of 180–200 days, having already improved from 283 days to 256 days in FY26. This ramp-up caused our operating cash flow, which was positive in FY23 and FY24, to turn negative in FY25. We anticipate that it will turn positive again in FY26.
