Airfloa Rail Technology’s IPO has created a buzz in the market, with the grey market premium (GMP) soaring above 120% and fueling bullish investor sentiment. But every IPO carries not only a growth story—it also comes with hidden challenges that smart investors must weigh carefully. A closer look at the Red Herring Prospectus (RHP) highlights several Airfloa Rail Technology IPO risk factors that raise serious questions about long-term sustainability. From revenue concentration and liquidity pressures to governance lapses and operational fragilities, these risks could significantly impact the company’s performance beyond the short-term listing gains.
Airfloa Rail Technology IPO Risk Factors
1. Business Dependency Risks
Airfloa Rail Technology derives 55–79% of its revenue from Indian Railways. Any change in railway procurement policy, slower tender allocation, or heightened margin-cutting competition could directly impact revenues and growth. Moreover, over 90% of revenue comes from the top 10 customers. Such concentrated exposure means losing even a single key client could hit both revenue and cash flows significantly.
2. Financial & Working Capital Risks
- Airfloa Rail Technology reported a negative operating cash flow of -INR 4.45 crore in FY25—indicating cash burn despite revenue growth.
- ~INR 119.11 crore is locked in working capital (inventory and receivables), creating constant reliance on bank funding and borrowings.
- Total debt stands at ~INR 59.98 crore. Breaching covenants or a repayment default could give lenders rights over company assets.
- Short-term unsecured borrowings (~INR 2.59–3.29 crore) can be recalled anytime, posing immediate liquidity risks.
Takeaway: Despite strong top-line growth, liquidity pressure and recurring negative cash flows raise serious concerns for sustainability.
3. Operational Risks
Airfloa’s operations are also exposed to several vulnerabilities:
- Raw material volatility: Steel, aluminium, and electrical components sourced from domestic and overseas suppliers are subject to price swings and supply chain disruptions.
- Supplier concentration: 50–65% procurement is from top 10 suppliers—failure of one could disrupt production.
- Capacity utilization: Currently at 77–85%; any dip in demand could lead to underutilization and higher costs.
- Labour challenges: Attrition rates have touched 40–80% in recent years, threatening operational continuity.
- Third-party logistics dependency: Transport disruptions can bring operations to a standstill.
4. Compliance, Legal & Governance Risks
- Instances of non-compliance: delayed AGMs, CSR expenditure defaults, and late auditor appointments have already attracted penalties and show-cause notices from the Registrar of Companies.
- Outstanding tax litigations (INR 1.35 crore) and GST disputes (INR 0.40 crore) could lead to direct cash outflows if judgments go against the company.
- Promoters’ track record: Past association with struck-off companies casts a shadow on governance standards.
- Limited experience with listed company compliance among directors heightens regulatory risk going forward.
5. Promoter & Management Related Risks
- Airfloa Rail Technology is heavily dependent on its promoters for strategic and operational decision-making—making succession or transition a material risk.
- Conflict of interest risk: Subsidiary Sree Dakssnaa Aerospace & Defence operates in a similar space, with no non-compete agreement in place.
- Related party transactions (rents, services, etc.) continue and may persist, raising governance concerns.
Bottom Line: The Shine vs. The Reality
While a high GMP signals strong listing gains in the short term, the real question for investors is long-term sustainability.
Key concerns include:
- High client and sector concentration
- Negative cash flows and heavy debt reliance
- Governance and compliance lapses
- Operational fragility
For serious investors, chasing GMP hype without weighing these risks could prove costly. The IPO may offer glitter on listing day, but only a cautious, risk-adjusted approach will safeguard long-term capital.