Incorporated in 1994, Indo Farm Equipment is a fully integrated and established manufacturer of tractors and pick-and-carry cranes. It also deals in other farm equipment, such as harvester combines, rotavators, and related spares and components, although these products do not materially contribute to the total revenue.

Manufactures a wide range of tractors, from 16 HP to 110 HP, available in both 2WD and 4WD options. This range meets approximately 80% of global market demand, especially for 4WD tractors and the 65 HP, 75 HP, 90 HP, and 110 HP models, which are developed specifically for export markets in Africa, Latin America, the Middle East, Central and Southeast Asia. Additionally, the 26 HP model has been developed and homologated specifically for the European market.

Manufactures cranes from 9 tons to 30 tons capacity available in 2-wheel drive and 4-wheel drive variants.

Tractors and Pick & Carry Cranes are sold under brand names “Indo Farm” & “Indo Power” respectively. In Q1 FY25, Tractors contributed 43.06% to total revenue, cranes 55.93% and others 1%.

The products are marketed and distributed through a network of 175 dealers across states including Punjab, Haryana, Uttar Pradesh, Maharashtra, Gujarat, Rajasthan, and others. Intends to increase its dealer base to above 500 in the next three years.

Initially, the company used to import completely assembled engines, however later on it indigenized and upgraded the engines to meet the fast changing emission norms requirements of the country.

Export products to multiple countries including Afghanistan, Algeria, Bangladesh, Belgium, Bhutan, Brazil, Chilli, Ethiopia, Gabon, Germany, Ghana, Hungary, Italy, Japan, Jordan, Kenya, Kuwait, Lebanon, Malawi, Mauritius, Mexico, Myanmar, Namibia, Nepal, Netherlands, Nigeria, Oman, Poland, Tanzania, Saudi Arabia, Spain, Sudan, Syria, United Kingdom, Uruguay, Uganda, Yemen, Zimbabwe, etc.

Over the past three financial years, approximately 93% of total sales were from domestic markets, while around 7% came from exports.

Manufacturing facilities are spread across 127,840 sq. mtrs. of Industrial lands at Baddi, Himachal Pradesh which includes a captive foundry unit and dedicated machine shop, fabrication and assembling units for Tractors, pick & Carry Cranes and other equipments.

These facilities are equipped with induction furnaces, pneumatic molding machines, automatic molding line, sand plant, fully equipped Metallurgy and Sand Testing Laboratory, Machining Center, Gear Shop, Press Shop, Fabrication Shop, Paint Shop, Assembly unit, Quality Room & Utility room.

As of September 30, 2024, the production facilities have a capacity to manufacture 12,000 tractors per annum and 1,280 pick-and-carry cranes per annum. These facilities currently produce tractors ranging from 16 HP to 110 HP and pick-and-carry cranes ranging from 9 tons to 30 tons. Additionally, industrial land has been acquired near the manufacturing facility, where a dedicated pick-and-carry crane-manufacturing unit will be set up to increase capacity by an additional 3,600 units per annum.

Launched an in-house NBFC in 2017 to further complement and grow the business. It provides tractor financing to buyers through its subsidiary, ‘Barota Finance.‘ As of June 30, 2024, the NBFC has a total loan book (vehicle finance) of Rs 127.15 crore and has served approximately 5,900 active customers. The gross and net NPAs as of June 30, 2024, are 4.13% and 3.00%, respectively.

Plans to increase focus on the niche market of Pick and Carry Cranes to get an early mover advantage.

Offer and its objects

The IPO comprises a fresh issue of 8,600,000 equity shares, worth up to Rs 184.9 crore, and an offer for sale of 3,500,000 equity shares, aggregating up to Rs 75.25 crore, by promoter Ranbir Singh Khadwalia.

Price band for the IPO is Rs 204 to Rs 215 per equity share of face value Rs 10 each.

The objectives of the fresh issue include Rs 71.13 crore for setting up a new dedicated unit for the expansion of Pick & Carry cranes manufacturing capacity, Rs 50 crore for the repayment or pre-payment of certain borrowings, Rs 45 crore for further investment in the NBFC subsidiary, and the remaining amount for general corporate purposes.

The promoters are Ranbir Singh Khadwalia and Sunita Saini. The promoters and promoter group hold an aggregate of 3,68,67,640 equity shares, aggregating to 93.45% of the pre-offer issued and paid-up equity share capital. Their post IPO shareholding is expected to be around 69.44%.

The issue, through the book-building process, will open on 31 Dec 2024 and will close on 2 Jan 2025.

Strengths

Integrated operations enable in-house manufacturing of critical machine components, reducing dependence on third parties, streamlining the production process, and improving operational efficiency.

The in-house NBFC setup complements the existing business and enables customers to purchase its products with ease.

Offers wide range of tractors and pick-and-carry cranes, catering to various market needs and customer requirement.

The growth in rural infrastructure projects and construction activities will drive demand for its products.

Extensive experience of promoters and senior management personnel.

Well-positioned to capture a larger share of the growing Pick and Carry Crane market, supported by an increased focus and enhanced capacity.

Weaknesses

The average capacity utilization for tractors from FY 2022 to FY 2024 was 32%. Continued low capacity utilization could have an adverse effect on the business.

Low growth in revenue and PAT margins over the last three fiscals.

There are outstanding legal proceedings (including criminal proceedings) involving Indo Farm Equipment and its Subsidiaries. An adverse outcome in any of these proceedings could negatively affect the business.

Complaints were received after filing the DHRP, along with observations from SEBI, alleging misreporting in the financial statements and noncompliance with applicable laws concerning leasehold land and other aspects.

As of June 30, 2024, significant contingent liabilities totaling Rs 20.03 crore (128% of FY2024 net profit) have not been accounted for in the financial statements. If these liabilities are realized, they could negatively affect the business.

Ability to sell tractors is heavily dependent on financing support from Banks, NBFCs, and its subsidiary NBFC, which exposes it to risks related to financing availability.

Face risks related to exchange rates, regulatory changes, and geopolitical factors.

Valuation

Net sales increased 1% to Rs 375.23 crore in FY2024 as compared with FY2023. The OPM improved 92 bps to 16.47%, leading to 7% increase in OP to Rs 61.79 crore. OI fell 32% to Rs 0.72 crore. Interest cost rose 2% to Rs 28.31 crore. Depreciation cost went up 17% to Rs 10.31 crore. PBT surged 7% to Rs 23.89 crore. Tax expenses were Rs 8.3 crore as compared with Rs 6.88 crore. Net profit improved 1% to Rs 15.59 crore.

The FY2024 EPS on post-issue equity works out to Rs 3.25. At the upper price band of Rs 215, P/E is 66.

Total outstanding borrowings amounted to Rs 245.36 crore as of June 30, 2024, and Rs 270.53 crore for FY2024. As much as Rs 50 crore of the debt will be repaid from the issue proceeds, bringing down interest costs substantially and boosting profit. Assuming the interest rate and other factors, including the tax rate, remain the same, the FY2024 EPS works out to Rs 4.31 after the Rs 50 crore reduction in borrowings. Consequently, the reworked P/E ratio at the upper price band moderates to 50.

Listed peers such as Escorts Kubota traded at TTM P/E of 30, Action Construction Equipment trades at TTM P/E of 48, and VST Tillers Tractors at TTM P/E of 36 as on 24 December 2024. The OPM and ROE stood at 16.47% and 5.13% respectively, in FY 2024. These were 12.26% and 11.43% for Escorts Kubota, 13.84% and 26.68% for Action Construction Equipment, and 12.83% and 13.1% for VST Tillers Tractors, respectively.