Indo Farm Equipment IPO review (May apply)

•    The company is fully integrated tractor and pick and carry cranes and, farm equipments manufacturer.
•    The company marked almost static top and bottom lines for FY23 and FY24. 
•    It is in the expansion mode for its pick and carry cranes capacities to meet rising demands.
•    Based on recent financial numbers, the issue is aggressively priced. 
•    Well-informed investors may park moderate funds for long term.

ABOUT COMPANY:
Indo Farm Equipment Ltd. (IFEL) is a more than two decade old fully integrated established manufacturer of Tractors and Pick & Carry Cranes. It also deals in other farm equipment such as Harvester Combines, Rotovators and other related spares & components, which do not materially contribute to total revenue of the Company. Its products are being exported to various countries. Its total sales for last three financial years include around 93% domestic sales and around 7% export sales.

IFEL’s ISO 9001:2015 certified 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. Its 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. Its integrated operations enable the company to manufacture some of the critical machine components in-house which reduces its dependence on third parties, streamlines production process and improves operational efficiencies. 

In addition, it also enables IFEL to maintain controls over the entire manufacturing process and also provide better delivery timelines to customers at a more competitive cost. As on September 30, 2024, its production facilities had a capacity to manufacture 12,000 Tractors p.a. & 1,280 Pick & Carry Cranes p.a. It is currently manufacturing Tractors ranging from 16 HP to 110 HP and Pick & Carry Cranes ranging from 9 tons to 30 tons. It has recently acquired industrial land near its manufacturing facility wherein the company intends to set up additional dedicated Pick & Carry Crane manufacturing unit and increase additional capacity by 3,600 units p.a. 

Its products have a proven standing and market in various sectors such as Agriculture, Infrastructure, Construction, Heavy Engineering and Industrial Projects. It has been a profit-making company with over two decades of consistent track record. Further in the year 2017, it launched in-house NBFC Company for providing retail financing for tractor. Its products are marketed and distributed by 175 dealers from various states such as Punjab, Haryana, Uttar Pradesh, Maharashtra, Gujarat, Rajasthan etc. It has over the years created a fully integrated eco-system for ensuring high quality products and financial support for customers. As on June 30, 2024, it had 938 employees on its payroll on a consolidated basis.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route combo IPO of 12100000 equity shares worth Rs. 260.15 cr. (at the upper cap). The IPO consists of 8600000 fresh equity shares (worth Rs.  184.90 cr. at the upper cap), and an Offer for Sale (OFS) of 3500000 equity shares (worth Rs. 75.25 cr. (at the upper cap). The company has announced a price band of Rs. 204 – Rs. 215 per equity shares of Rs. 10 each. The issue opens for subscription on December 31, 2024, and will close on January 02, 2025. The minimum application to be made is for 69 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 25.18% of the post-IPO paid-up equity capital. From the net proceeds of the fresh equity issue, the company will utilize Rs. 71.13 cr. for setting up of new dedicated unit for expansion of pick and carry cranes manufacturing, Rs. 50.00 cr. for repayment/prepayment of certain borrowings, Rs. 45.00 cr. for investment in NBFC - Barota Finance Ltd. to augment its capital base, and the rest for general corporate purposes. The company did a pre-IPO placement of 1900000 shares at Rs.  185 per share in April – May 2024.

The sole Book Running Lead Manager (BRLM) to this issue is Aryaman Financial Services Ltd., while MAS Services Ltd., is the registrar to the issue. Aryaman Financial Services Ltd. is also the syndicate members.

Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs. 185.00 – Rs. 187.50 (based on Rs. 10 FV) between September 2018, and July 2024. It has also issued bonus shares in the ratio of 1 for 1 in March 2005, 1 for 1 in February 2022, and 1for 1 in August 2023. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 2.11, and Rs. 3.67 per share. 

Post-IPO, its current paid-up equity capital of Rs. 39.45 cr. will stand enhanced to Rs. 48.05 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 1033.11 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit of Rs. 352.52 cr. / Rs. 13.72 cr. (FY22), Rs. 371.82 cr. / Rs. 15.37 cr. (FY23), and Rs. 375.95 cr. / Rs. 15.60 cr. (FY24). For Q1 of FY25 ended on June 30, 2024, it earned a net profit of Rs. 2.45 cr. on a total income of Rs. 75.54 cr. 

For the last three fiscals, the company has posted an average EPS of Rs. 4.05 and an average RoNW of 5.06 %. The issue is priced at a P/BV of 2.48 based on its NAV of Rs. 86.75 as of June 30, 2024, and at a P/BV of 1.96 based on its post-IPO NAV of Rs. 109.70 per share (at the upper cap).

If we attribute FY25 annualized earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 105.39, and based on FY24 earnings, the P/E stands at 66.15. The issue appears aggressively priced on the basis of its recent earnings. 

According to the management, the historical trends for their industry is first half always gets around 30-35% of the annual revenue and the second haft gets the rest. Thus annualized earnings based on Q1 numbers will not give the exact financial evaluations. The company is poised to get benefits from its expanded capacities for Pick and Carry cranes as well as support from their proposed financial arm that will help lifting their tractor sales resulting in higher turnover and profits going forward.

For the reported periods, the company has posted PAT margins of 3.90% (FY22), 4.15% (FY23), 4.16% (FY24), 3.27% (Q1-FY25), and the RoCE margins of 7.96%, 8.84%, 8.96%, 1.73% for the referred periods respectively. Its Net Debt/EBITDA Ratio of 18.82 as of June 2024 raises concern.

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy, based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown, Escorts Kubota, Action Construction Equipment, as their listed peers. They are trading at a P/E of 30.4, and 47.8 (as of December 24, 2024). However, they are not truly comparable on an apple-to-apple basis.

MERCHANT BANKER’S TRACK RECORD:
This is the 16th mandate from Aryaman Financial Services in the last three fiscals. Out of last 10 listings, 1 opened at discount, and the rest with premiums ranging from 0.03% to 31.15% on the date of listing. Thus it has an average track records.