Divgi TorqTransfer Systems Limited

Summary

A IPO Analysis

About company

Incorporated in 1964, Divgi TorqTransfer Systems Limited is engaged in the business as an automotive component entity. They are among the very few automotive component entities in India with the capability to develop and provide system-level transfer cases, torque couplers, and dual-clutch automatic transmission solutions.

Divgi TorqTransfer is one of the leading players supplying transfer case systems to automotive OEMs in India and the largest supplier of transfer case systems to passenger vehicle manufacturers in India. Not only thi are also the only player manufacturing and exporting transfer cases to global OEMs from India, and the only manufacturer of torque couplers in India.

Divgi TorqTransfer Systems Limited manufactures and supplies its products under a wide range which includes-

1. Torque transfer systems (which includes four-wheel-drive ("4WD") and all-wheel-drive ("AWD") products);
2. Synchronizer systems for manual transmissions and DCT;
3. Components for the above-mentioned product categories for torque transfer systems and synchronizer systems in manual transmission, DCT, and EVs.

Alongside, they have also developed

1. Transmission systems for EVs;
2. DCT systems;
3. Rear wheel drive manual transmissions.

Divgi TorqTransfer Systems Limited also takes pride in being among the few companies that serve as both, systems-level solution providers and component kit suppliers to global OEMs and Tier I transmission systems suppliers.

Business Overview

This company amongst the very few automotive component entities in India who have the capability to develop and provide system level transfer case, torque coupler and dual clutch automatic transmissions (“DCT”) solutions. The company are one of the leading players supplying transfer case systems to automotive OEMs in India and the largest supplier of transfer case systems to passenger vehicle manufacturers in India. They are also the only player manufacturing and exporting transfer cases to global OEMs from India, and the only manufacturer of torque couplers in India. Company also have the capability to develop and provide transmission systems for electric vehicles (“EVs”) and are in the process of designing and developing prototypes of transmission systems for EVs pursuant to receipt of a business award for this purpose. As on the date of this Draft Red Herring Prospectus, we have been awarded a contract for the supply of EV transmission systems for one of the leading providers of EVs in India, and for supply of components for Hybrid Vehicles for a global OEM. Company is actively collaborates with Europe’s transmission engineering consulting firms like FEV and Hofer.

The company manufacture and supply a variety of products under the broad categories of (i) torque transfer systems (which includes fourwheel-drive (“4WD”) and all-wheel-drive (“AWD”) products); (ii) synchronizer systems for manual transmissions and DCT; and (iii) components for the above-mentioned product categories for torque transfer systems and synchronizer systems in manual transmission, DCT, and EVs. Company have also developed (i) transmission systems for EVs; (ii) DCT systems; and (iii) rear wheel drive manual transmissions. The company are one of the few companies who serve both as systems level solution provider as well as component kit supplier to global OEMs and Tier I transmission systems suppliers.

The company have an in-house software development capability which helps them in providing system level solutions offering software that controls the vehicle dynamics. They are also one of the first few suppliers of steel and carbon-based synchronizer systems for the
Indian markets, and are one of the leading manufacturers of steel synchronizers in India.

The company have achieved leading positions for select products in their portfolio through focus on innovation; offering of customized solutions in distinctive products; in-house software development capability; and product development and production at quality standards acceptable to their clients and at optimized costs. The company are in the process of launching domestically manufactured DCT systems for the Indian market. Once launched, They will be the only manufacturer of DCT systems in India. Very few component suppliers as well as OEMs globally have the capability to develop the system integration software solutions in-house. Given this, they believe that system level solution providers such as them are likely to be highly valued by vehicle manufacturers globally.

Their diverse capabilities enable them to service customers across segments in the automotive industry, including passenger vehicles, utility vehicles and commercial vehicles. The company believe that having the ability to provide end-to-end solutions under one roof enables them to provide value added offerings, and increases their operational efficiency, resource optimization, and customer retention. The company supply to and have long term relationships with OEMs such as Mahindra & Mahindra, an Indian supplier to global automotive OEM, and a USA based multi-national automotive supplier. They have a client base of global OEMs and global transmission systems suppliers, with their top five customers accounting for 91.28%, 92.86%, and 86.94% of their revenue from operations for Fiscal 2022, Fiscal 2021 and Fiscal 2020, respectively.

Manufacturing Facility Details

The company have three manufacturing and assembling facilities across India located at Sirsi in Karnataka, and Shivare and Bhosari near Pune in Maharashtra, with the manufacturing facilities at Shivare and Bhosari being strategically located in proximity to their key clients, and one under-construction manufacturing facility located at Shirwal. The company have purchased 10 acres of land at Shirwal near Pune in Maharashtra and commenced construction which will help them in expanding their manufacturing capacity including for manufacture of DCT and EV transmissions. Company manufacture transmission, transfer case and synchroniser components at their facility in Sirsi. Company's Shivare facility houses grinding and superfinishing equipment to achieve standards in precision and accuracy, including those demanded by EV and DCT applications globally and transmission components. Company Bhosari facility, which is the assembling, lab testing and packing unit for their manufactured components and systems, and their Shivare facility, are strategically located in proximity to their key customers as well as the port for export located at New Mumbai. Company's key customers in close proximity to their Bhosari and Shivare facilities include Tata Motors, Mahindra & Mahindra, an Indian automotive manufacturing company and an Indian supplier to global automotive OEM.

Our business model is supported by a consistent track record of revenue growth and profitability. Set out below are certain financial metrics of our Company. 

Company's Strength

• One of the very few suppliers in India having 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 leadership across select product categories.
• Strategically located manufacturing facilities capable of producing high precision components meeting system-level design intent.
• Long-term relationships with marquee domestic and global customers.
• Experienced board of directors and senior management team supported by skilled and qualified workforce.
• Consistent financial performance with focus on innovation and R&D capabilities.

Company's Strategies

• Capturing market opportunities in the growing EV space, and the fast-growing demand for automatic transmissions in the passenger UVs segment.
• Improve our market share and wallet share by increasing customer and geographic diversification.
• Cost optimization through product engineering and localisation.
• Continued focus on R&D to manufacture diverse products and expand into products to serve new and emerging trends.

Company's Business Operation

Company design, develop, manufacture and supply engineered, turnkey solutions and components to automotive OEMs across India, USA, China, Korea, Russia and others. With their strong focus on research and development and advanced in-house hardware and software capabilities, the company 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. Company's customer base includes leading automotive OEMs such as Tata Motors, Mahindra & Mahindra, BorgWarner, a Japanese automotive supply chain company, a Chinese automobile manufacturer, an Indian automotive manufacturing company, and an Indian supplier to global automotive OEM, amongst others. 

Company's systems and component offerings include four-wheel drive and synchronizer system solutions. Company manufa

cture and supply a variety of products under the broad categories of (i) torque transfer systems (which includes 4 wheel-drive (“4WD”)/ allwheel-drive (“AWD”) products); (ii) synchronizer systems for manual transmissions and DCT; and (iii) components for the above-mentioned product categories as well as for EVs. The company have also developed (i) transmission systems for EVs; (ii) DCT systems; and (iii) rear wheel drive manual transmissions.

Set out below is a tabular representation and description of the primary automotive systems and components offered by them.

Torque Transfer Systems

Manual Transmission

Synchronizer Systems

Dual Clutch Transmission

Transmissions for BEV

Components

Customers of the Company

The company serve a broad range of customers both in the Indian and overseas markets. The table below sets forth the breakdown of their income from sale of goods across geographic markets, as a percentage of ther total sale of goods for the periods indicated.

The company have developed long term relationships with marquee domestic and global OEMs in the automobile sector, such as BorgWarner, Tata Motors and Mahindra & Mahindra, amongst others, with some of whom they have had relationships for over two decades, including through their earlier joint ventures. For instance, the company have been in strong, continued business with Tata Motors ever since 1992. Company's relationship with customers has been built around firm business relations with the upper echelons of management. their relationships with marquee global OEMs, start right from the stage of design and development.

The table below sets forth the breakdown of their income from sale of goods across their top five customers, as a percentage of their total sale of goods for the periods indicated. The order of the top five customers in the table below is based on information as of March 31, 2022.  

Key Manufacturing Processes

Manufacturing Locations

Manufacturing Facilities

Management of the company

Praveen Purushottam Kadle - Chairman and Independent Director

Jitendra Bhaskar Divgi - Managing Director

Financials of the company

Risks:

Slowdown in auto industry

Higher raw material prices

Global slowdown

Currency volatility