Kross IPO: 10 key risks investors should know before subscribing to the ₹500 crore-issue

Kross IPO: The public subscription period for the Kross IPO, which has a price band of ₹228–240 per share, opened on September 9 and ends on September 11. Bids may be placed for 62 equity shares as a minimum, and subsequently in multiples of 62 equity shares.

The IPO of the Jamshedpur-based firm consists of an offer for sale (OFS) by the founders totalling up to ₹250 crore and a new issue of equity shares valued at ₹250 crore.

The equity shares that make up the OFS part are valued at up to ₹168 crore for Sudhir Rai and ₹82 crore for Anita Rai.

Kross intends to use the net proceeds of the new offering to pay down debt, support the company’s working capital needs, and buy machinery and equipment. Additionally, a percentage will be applied to general business needs.

Having been established in 1991, Kross is a multifaceted company that specialises in producing and supplying trailer axle and suspension assemblies as well as an extensive array of high-performance safety vital parts that are precisely machined and forged for medium and heavy commercial vehicles and agricultural equipment markets.

The book running lead manager for the Kross IPO is Equirus Capital Private Limited, and the registrar for the issue is Kfin Technologies Ltd.

Here are some of the key risks listed by the company in its Red-Herring Prospectus (RHP):

Kross IPO – Key Risks

Customer concentration risk – The top five clients of the business accounted for over 66.00% of its revenues in each of the preceding three fiscal years. Their company, financial situation, operational outcomes, and future prospects might all suffer with the loss of a significant client or a decline in demand for their products from any of their main clients.

End-user industry risk – The expansion and patterns in the company’s clients’ car purchases are related to the demand for its goods. The market for their products may be negatively impacted by declining client sales, which would therefore have a negative effect on their business, finances, operational performance, and future prospects.

Manufacturing facility disruption risk – Operating hazards exist for the company’s manufacturing plants. Reduced sales and negative effects on their business, cash flows, operational performance, and financial position might come from any shutdown of their current or prospective manufacturing facilities, as well as other production issues brought on by unanticipated circumstances.

Product quality risk – The firm must adhere to stringent quality standards; any problems with product defects or noncompliance might have a negative impact on its operations, financial situation, cash flows, and overall business performance.

Lack of long-term contracts – There are no hard contracts between the business and its clients. Their firm, financial situation, cash flows, and operational performance might all suffer significantly if their clients decide not to source from them for their needs.

Inventory management risk – The business may have to pay for excess inventory, such as raw material costs, an extended working capital cycle, and storage costs, all of which can have a negative effect on their financial performance, profitability, and future prospects. This can also happen if they are unable to predict the demand for their products or if customers change or cancel production orders.

Raw material sourcing risk – Because the company relies on a small number of outside parties to supply raw materials, changes in the cost and availability of these resources could have a negative impact on its operations, financial standing, business, and prospects. It is also possible that our suppliers won’t fulfill their obligations.

Profit margin related risk – The firm competes in a market where a number of elements, such as labor costs, financing costs, raw material costs, and pricing pressure, have an influence on profitability. Because of the unpredictability of their profitability margin, revenue growth does not always translate into higher profits.

Competition risk – The company is up against competition from both local and foreign companies, and their incapacity to do so might seriously harm their operations and business affairs.

Intellectual property infringement risk – The company’s corporate name and emblem are not registered trademarks, thus we might not be able to defend against trademark infringement or unlawful product passing off.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.