Indo Farm Equipments Ltd. IPO: Key Details

Indo Farm Equipment

• Indo Farm Equipment is coming out with a 100% book building; initial public offering (IPO) of 1,21,00,000 shares of Rs 10 each in a price band Rs 204 -215 per equity share.
• Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
• The issue will open for subscription on December 31, 2024 and will close on January 2, 2025.
• The shares will be listed on BSE as well as NSE.
• The face value of the share is Rs 10 and is priced 20.40 times of its face value on the lower side and 21.50 times on the higher side.
• Book running lead manager to the issue is Aryaman Financial Services.
• Compliance Officer for the issue is Navpreet Kaur.

Profile of the company

Incorporated in 1994, Indo Farm Equipment Limited 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, Rotavators 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. Its 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. 

The company’s 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 it to manufacture some of the critical machine components in-house which reduces its dependence on third parties, streamlines its production process and improves its operational efficiencies. In addition, it also enables it to maintain control over the entire manufacturing process and also provide better delivery timelines to its customers at a more competitive cost.

As on September 30, 2024, its production facilities have 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 it intends to set up additional dedicated Pick & Carry Crane manufacturing unit and increase its 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. 

Proceed is being used for:

• Setting up new dedicated unit for expansion of its pick & carry cranes manufacturing capacity
• Repayment or pre-payment, in full or part, of certain borrowings availed by the company
• Further investment in its NBFC Subsidiary (Barota Finance Ltd.) for financing the augmentation of its capital base to meet its future capital requirements.
• General corporate purposes

Industry Overview

Farm Agri-equipment are the machines, tools, and devices that are used to provide aid in farming and other agricultural activities. These tools are used in farms for completing agricultural tasks in a faster, more efficient, and convenient manner. They can be used for agricultural activities of any scale and are available in a variety of sizes and price points. The India Agricultural Machinery Market size stands at around $16.73 billion as in 2024. It is expected to grow to $25.15 billion by 2029 at a CAGR of 8.5 per cent. The Indian agricultural equipment sector has shown good growth historically and the same is expected to continue in coming years also. The growth will be led by tractors and will be supported by various initiatives of Govt. of India. The agricultural machinery market is dominated by tractors. Agricultural tractors occupy 86.9% of market share. This is followed by commercial tractors 7.1% and then by agricultural trailers 4%. Tractor trolley and harvester occupies a market share of 2.1%.

Meanwhile, the Indian Agricultural Tractor Market size is estimated at $7.42 billion in 2024. It is expected to reach $10.28 billion by 2029, at a CAGR of 6.70%. Indian tractor market has been growing over the years. Today India is one of the largest Tractor producing countries of the world. The States which typically are market to majority of tractors manufactured in India are also the ones which have maximum area under cultivation. Top States with major share of sales of tractor are UP, Rajasthan, Madhya Pradesh, Maharashtra, Karnataka, Gujarat, Bihar, Haryana, Chhattisgarh, Haryana etc.

Further, Cranes are a type of construction machinery used for loading and unloading heavy materials, machines, and goods. They are equipped with cables, pulleys, hoists, and wire ropes and utilize electric motors and hydraulic systems to provide lifting capabilities. Cranes find extensive applications across the mining, construction, excavation, oil and gas and marine industries. The Indian Crane market is more or less consolidated with significant players occupying major share of the market. Some of the prominent players in the Indian crane market are Action Construction Equipment Ltd, Escorts Ltd, Liebherr - International Deutschland GmbH, Kobelco Construction Equipment etc. Overall, the Crane Industry, led by the Pick and Carry crane segment (most popular segment in India), is poised for a sharp growth. With the industry expanding in correlation to the all-round infrastructure and construction push, the existing players have an advantage in the market. This industry is capital intensive and requires high cost of maintenance and customer support. That provides a natural barrier for newer entrants. With such robust growth outlook for the industry, a capex cycle for the market players is expected during the near future.

Pros and strengths

Fully integrated and established manufacturing setup: The company’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 and Pick & Carry Cranes. The company’s facility is equipped with induction furnaces, pneumatic molding machines, automatic molding line, sand plant, fully equipped metallurgy and Sand Testing Laboratory, Machining Center, Gear Shop, Hydraulic shop, Sheet metal, Press shop Fabrication Shop, Paint Shop, Assembly unit, Quality Room & Utility room. Its integrated operations enable it to manufacture some of the critical machine components in-house which reduces its dependence on third parties, streamlines its production process and improves its operational efficiencies. In addition, it also enables it to maintain control over the entire manufacturing process and also provide better delivery timelines to its customers at a more competitive cost.

In-house NBFC setup: In 2017, to further compliment & grow the business it has launched its in-house NBFC company for providing tractor finance for its buyers through its subsidiary entity “Barota Finance Limited”. As on June 30, 2024, its NBFC has a total Loan Book (Vehicle Finance) of Rs 1,271.55 million and served over around 5,900 active customers. Its NBFC has a strong asset quality and track record. Its Gross and net NPA as on June 30, 2024 are 4.13% and 3.00% respectively. It has over the years created a fully integrated eco-system for ensuring high quality products and financial support for its customers. Easy in-house finance facilities enable its customers to purchase its products with ease of finance.

Manufacturing wide range of products: The company is having the product range in tractors from 16 HP - 110 HP in 2 WD & 4 WD range. This range meets out around 80% of global market requirement especially 4WD tractors and 65, 75, 90 and 110 HP range which are developed for export markets such as Africa, Latin America, Middle East, Central and South East Asia and its 1,026 (26 HP range) is developed & homologated especially for European market. The company manufactures Pick & Carry Cranes which are widely used throughout engineering, construction and infrastructure industry. It offers customers a Pick & Carry mobile crane that epitomizes safety, quality, operator productivity, innovative features, and competitive total cost of ownership. The company currently manufactures these cranes from 9 tons to 30 tons capacity available in 2-wheel drive and 4-wheel drive variants.

Product acceptability in multiple countries: Currently exports contribute to around 7% of its total sales, however its product acceptance track record in so many countries serves as an impressive international footprint and demonstrates its ability to provide world class products and after sales services to its esteemed customers at the affordable prices. It currently has presence in multiple countries such as 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.

Risks and concerns

Significant revenue comes from limited customers/ dealers: The company derives a significant portion of its revenue from its dealers, and focusing on catering them with its products is a part of its growth strategy. The company’s top ten customers/ dealers contribute to 39.10%, 23.13%, 19.73% and 23.63% for the period ended June 30, 2024 and financial year ended March 31, 2024, March 31, 2023 and March 31, 2022 of its revenue from operations. Even though this doesn’t show that the company has a concentrated dealer base and dependence on few dealers but it is not possible for it to predict the future level of demand from its larger dealers for its products. Its dealers typically have no obligation to maintain or expand their business relationship with it. If one or more of its dealers terminate their dealings with it, whether for convenience, for default in the event of a breach by the company, its business and results of operations could be adversely affected.

Maximum revenue comes from top 5 states: The company’s revenue from manufacturing operations is significantly concentrated in the top 5 states. The revenue from manufacturing operations for the FY 2023-24 and for the period ended June 30, 2024 is Rs 3,524.61 million and Rs 695.43 million respectively, out of which, manufacturing revenue from top five States is Rs 2,222.89 million (63.07%) and Rs 434.90 million (62.81%) respectively. The company’s manufacturing revenue from operations from top five States contribute to 68.27%, 56.92%, 63.07% and 62.81% for the Fiscal Year 2021-22, 2022-23, 2023-24 and period ended June 30, 2024 respectively. It is not possible for it to predict the future level of demand from these States for its products in future. Any materially adverse social, political or economic development, natural calamities, civil disruptions, regulatory developments or changes in the policies of the government could adversely affect its operation of its distributors in such States, which will in turn have a material adverse effect on its business, financial condition, results of operations, and cash flows.

Geographical constrain: The company conducts all of its manufacturing operations from Baddi, Himachal Pradesh. The geographical concentration of operation is in Northern India and concentration of its manufacturing facilities is in Himachal Pradesh. Further, its new proposed project will also build in Baddi, Himachal Pradesh. State of Himachal Pradesh (part of Northern India) is prone to various hazards both natural and manmade. Due to the geographic concentration of its manufacturing operations and the operations of certain of its suppliers, its operations are prone to various hazards both natural and manmade. Currently, there are no past instances of losses due to such natural/ manmade hazards in its operation, however such disruptions in future could result in the damage or destruction of a significant portion of its manufacturing abilities, significant delays in shipments of its products and/or otherwise materially adversely affect its business, financial condition and results of operations.

Business is subject to seasonality: The company is impacted by seasonal variations in sales volumes, which may cause its revenues to vary significantly between different quarters in a Fiscal. In Last 3 Fiscal years about 64.86% of the company’s revenue comes from the tractor division. The tractor industry’s cyclicality exposes it to fluctuations in the demand scenario with sensitivity to monsoons and farmer sentiments. Typically, it sees an increase in its business before the harvest time for the next sowing season. Further, the company has to maintain an adequate inventory prior to harvest season in order to meet surge in demand. Therefore, its results of operations and cash flows across quarters in a Fiscal may not be comparable and any such comparisons may not be meaningful or may not be indicative of its annual financial results or its results in any future quarters or periods.

Outlook

Indo Farm Equipment is engaging in manufacturing Tractors, Pick & Carry Cranes, and other harvesting equipment. The company operates two brands: Indo Farm and Indo Power, it exports its products to countries like Nepal, Syria, Sudan, Bangladesh, Myanmar, etc. It has fully integrated and established manufacturing setup. It is also manufacturing wide range of products. On the concern side, the company derives a significant portion of its revenue from the sale of tractors & Pick & Carry cranes during the Fiscal 2024 and any reduction in demand or in the manufacturing of such products could have an adverse effect on its business, results of operations and financial condition. Moreover, the geographical concentration of its manufacturing facilities in Himachal Pradesh may restrict its operations and adversely affect its business and financial conditions.

The company is coming out with a maiden IPO of 1,21,00,000 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 204 - 215 per equity share. The aggregate size of the offer is around Rs 246.84 crore to Rs 260.15 crore based on lower and upper price band respectively. On performance front, in fiscal 2024, the company’s revenue from operations increased by 1.21%, from Rs 3,707.59 million in fiscal 2023 to Rs 3,752.32 million in fiscal 2024. The increase in the year 2024 was due to various factors such as expanding customer base, effective marketing strategies and favorable market conditions. Moreover, the company’s profit after tax increased by 1.45%, from Rs 153.72 million in fiscal 2023 to Rs 155.95 million in fiscal 2024.

The company has over the years been a technology driven enterprise and have focused on developing strong product and established world class manufacturing facilities. It has not yet taken any external equity from PE/ VC or other such investor and have built these large manufacturing capabilities, distribution network etc. through earnings and owned funds in a slow and steady manner. Hence, it has been a consistent but not a very fast-growing organization. However, with its second generation having now committed themselves to its business it is poised to best exploit its set up and scale up its operations in order to take the company to the next level. It intends to fund its growth by raising equity capital from capital markets. This fund would be primarily used to fund its growth plans such as expansion of Pick & Carry Cranes division and to further capitalize its NBFC and also to increase thrust on branding and marketing in order to be able to increase dealer network and hence better utilize its available production capacities.