Upcoming IPO with around 40 per cent GMP: Should you consider investing?
In this IPO analysis, we take a closer look at Indo Farm Equipment Ltd and present you with exclusive details.
About the issue
Indo Farm Equipment Ltd is preparing to launch its Initial Public Offering (IPO) for equity shares. Below are the issue details.
| IPO Details |
| IPO Opening Date |
December 31, 2024 |
| IPO Closing Date |
January 02, 2025 |
| Issue Type |
Book Built Issue IPO |
| Face Value |
Rs 10 per equity share |
| IPO Price |
Rs 204 to Rs 215 per equity share |
| Min Order Quantity |
69 shares |
| Listing At |
BSE, NSE |
| Total Issue |
1,21,00,000 shares of FV Rs 10* |
| (Aggregating up to Rs 260.15 Cr)* |
| Fresh Issue |
86,00,000 shares of FV Rs 10* |
| (Aggregating up to Rs 184.90 Cr)* |
| Offer for Sale |
35,00,000 shares of FV Rs 10* |
| (Aggregating up to Rs 75.25 Cr)* |
| QIB Shares Offered |
50% of the Offer |
| Retail Shares Offered |
35% of the Offer |
| NII (HNI) Shares Offered |
15% of the Offer |
| *At Upper Price Band |
|
Objects of the Issue
The offer encompasses both the fresh issue and the offer for sale. It's important to note that the company will not accrue any proceeds from the offer for sale. The company plans to allocate the net proceeds raised from the fresh issue for the following purposes:
1. Setting up a new dedicated unit for expansion of their pick & carry cranes manufacturing capacity.
2. Repayment or pre-payment, in full or part, of certain borrowings availed by the company.
3. Further investment in NBFC subsidiary (Barota Finance Ltd) for financing the augmentation of its capital base to meet its future capital requirements.
4. General corporate purposes.
Promoter holding
Ranbir Singh Khadwalia and Sunita Saini are the promoters of the company. The promoters currently hold a pre-issue shareholding stake of 78.52 per cent in the company.
DSIJ's 'Value Pick' service recommends long-term stocks based on Value Investing Philosophy. If this interests you, do download the service details here.
Company profile
Incorporated in 1994, Indo Farm Equipment Ltd is an integrated manufacturer specializing in tractors and pick-and-carry cranes. The company also offers other farm equipment such as harvester combines, rotavators, and related spares and components, though these contribute minimally to its total revenue.
Indo Farm operates under two brands, Indo Farm and Indo Power, producing tractors ranging from 16 HP to 110 HP and pick-and-carry cranes with capacities from 9 tons to 30 tons.
The company's manufacturing facilities are located in Baddi, Himachal Pradesh, with an annual production capacity of 12,000 tractors and 1,280 pick-and-carry cranes as of September 30, 2024.
In 2017, the company launched its in-house NBFC to provide retail financing for its tractors, further enhancing accessibility for customers.
Financials
| Rs (in crore) |
FY22 |
FY23 |
FY24 |
Q1FY25 |
| Revenue |
352.52 |
371.82 |
376 |
75.54 |
| Profit Before Tax |
19.27 |
22.25 |
23.89 |
3.75 |
| Net Profit |
13.72 |
15.37 |
15.6 |
2.45 |
After demonstrating notable growth in FY23 compared to FY22, the company's topline and bottom-line figures remained largely unchanged in FY24. Also, the Q1FY25 performance showed only minimal growth.
When annualized, the Q1FY25 results suggest an approximate 20 per cent decline in revenue and a 37 per cent drop in net profit compared to FY24. Management attributes this to historical industry trends, where the first half typically accounts for 30-35 per cent of annual revenue, with the second half contributing the majority. Nevertheless, given the past track record, uncertainties still persist.
Valuation & Returns
| Company Name |
P/E |
P/B |
RoE (%)* |
| Indo Farm Equipment Ltd |
85 |
2 |
5 |
| Listed Peers |
| Escorts Kubota Ltd |
32 |
4 |
12 |
| Action Construction Equipment Ltd |
47 |
12 |
31 |
*RoE: Based on FY24 data
The issue is priced with a P/BV ratio of 2.48 times, calculated using its Net Asset Value (NAV) of Rs 86.75 as of June 30, 2024. At the upper price cap, it is priced at a P/BV ratio of 1.96 times, considering its post-IPO NAV.
Considering the company's annualized FY25 earnings and fully diluted equity capital, the price-to-earnings (P/E) ratio stands at 85x. Even with improved FY24 earnings, the company’s P/E ratio stands at 52x, notably higher than that of its peers.
The company delivered a modest return on equity (RoE) of 5 per cent and a return on capital employed (RoCE) of 9 per cent for FY24.
With other stocks available at relatively lower valuations and delivering higher returns than Indo Farm Equipment Ltd, the comparison loses its appeal.
Outlook
Despite the company’s smaller scale, it possesses several strengths that enhance its competitiveness. The company benefits from an integrated manufacturing system, in-house R&D, and an in-house NBFC for tractor financing, which not only supports operations but also improves customer accessibility.
However, the company faces risk due to its reliance on a few major states, top dealers, and suppliers for a significant portion of its revenue. Additionally, its smaller market presence relative to industry leaders underscores the importance of strategic growth to remain competitive in the market.
Given the high valuation, relatively modest returns, and uncertainties surrounding future performance, we recommend that investors avoid this issue.