Indo Farm Equipment IPO - Should You Subscribe? Read Anand Rathi's Analysis

Anand Rathi Report

Indo Farm Equipment Ltd. will launch its initial public offering on December 31 and the offer closes for subscription on January 02. The manufacturer of tractors and pick and carry cranes has fixed the price band in the range of Rs 204–215 per share. Bids can be made in minimum lot sizes of 69 shares, and in multiples of thereafter.

The Rs 260.15 crore IPO comprises of a fresh issue of Rs 184.90 crore and an offer-for-sale component of Rs 75.25 crore.

Objects of the Issue

• Setting up new Dedicated Unit for Expansion of their Pick and Carry Cranes Manufacturing Capacity.

• Investment in NBFC Subsidiary (Barota Finance Ltd.) for financing the augmentation of its capital base to meet its future capital requirements.

• Repayment or pre-payment, of borrowings availed by the company.

Valuation & outlook

Indo Farm Equipment brings investor an opportunity to invest in a fully integrated and well researched manufacturer agriculture and construction equipment. The business model consists of three rewarding segments i.e tractors, pick-and-carry cranes and NBFC Company. The company manufactures a wide range of tractors from 16 HP to 110 HP and pick and carry cranes from 9 tons to 30 tons.

Additionally, the company's investment in Barota Finance out of IPO proceeds is anticipated to strengthen the dealer network, leading to higher tractor sales.

On valuation parse at the upper band of Rs 215/-, the issue is asking for a market Cap of Rs 10,331 million and enterprise value/Ebitda at 17 which excludes impact of interest outgo. Based on FY24 earnings, the company is asking a PE of 65 times times which is fully priced. Therefore we believe that the Indo Farm with traditional business value and experienced promoters and well planned capacity expansion, debt repayment and strengthening of financial arm are expected to be capitalising over long run. Hence considering all parameters, we recommend the issue can be consider as “Subscribe for Long Term”.

Key Risks

Revenue Concentration:

Tractors and Pick & Carry cranes accounted for nearly 100% of FY24 revenue, making financials highly sensitive to demand or production fluctuations.

Expansion Risks: Planned manufacturing facility expansions face risks of unexpected delays and cost overruns.

Capacity Utilization: Average utilization from FY22 to FY24 was 32% for tractors and 87% for cranes; inefficiencies could impact future performance.

Demand Uncertainty: Crane production expansion relies on projected demand in India without confirmed orders, exposing the company to market and economic risks.

Margin Stagnation: Revenue and PAT margins have shown minimal growth over the last three fiscals, with PAT margins between 3.27% and 4.16% from FY22 to FY24.

Legal Proceedings: Ongoing legal cases involving the company, its promoters, directors, and subsidiary pose potential risks to business, operations, and financial health.

Geographical Concentration: Manufacturing facilities concentrated in Himachal Pradesh may limit operational flexibility and impact business resilience.

Customer Dependence: Significant revenue contribution from the top ten customers/dealers makes the company vulnerable to revenue and operational risks from their potential loss.

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