Indo Farm Equipment Limited

Basic details of Indo Farm Equipment Limited

• Open Date: 31 December

• Close Date: 2 January

• Allotment Finalization Date: 3 January

• Listing Date: 7 January

Valuation and Fundamentals of Indo Farm Equipment Limited

Issue Details

• Total Issue Size: ₹260 Crores

• Offer for Sale: 29% of the total issue

• Fresh Issue: 71% of the total issue

Revenue and Profit Growth

• Revenue Growth:

  • Increased by 1% in FY 2023-24 compared to FY 2022-23.

  • Increased by 5% in FY 2022-23 compared to FY 2021-22.

• Profit Growth:

  • Grew by 1% in FY 2023-24 compared to FY 2022-23.

  • Grew by 11% in FY 2022-23 compared to FY 2021-22.

Reduction in Borrowings

The company has made significant progress in reducing its borrowings:

• FY 2022-23: ₹109 Crores

• FY 2023-24: ₹83 Crores

Utilization of Funds from Fresh Issue

1. 38%: Setting up a new dedicated unit to expand the manufacturing capacity of Pick & Carry Cranes.

2. 27%: Repayment or prepayment of certain borrowings.

3. 24%: Further investment in the company’s NBFC subsidiary, Barota Finance Ltd.

4. 10%: General corporate purposes.

Business Revenue Segmentation

• 77% of revenue comes from tractors.

• 21% comes from cranes.

Comparison with Peer Company

• Peer Company: Escorts

  • Price-to-Earnings (P/E) Ratio: 30

  • Price-to-Book (P/B) Ratio: 3.5

• Indo Farm Equipment Limited:

  • IPO P/E Ratio: 71

  • P/B Ratio: 3

Key Observations

• Valuation: At a P/E of 71, the IPO is priced significantly higher than its peer Escorts, which trades at a P/E of 30. However, the P/B ratio for Indo Farm is 3, slightly lower than Escorts' 3.5, indicating that the company’s book value may be fairly priced.

• Growth: Both revenue and profit growth have slowed in the last fiscal year (1% growth), indicating potential challenges in scaling.

• Debt Reduction: The company has effectively reduced its borrowings, which could improve profitability in the long term.

Conclusion

The IPO of Indo Farm Equipment Limited is coming at a relatively high valuation compared to its peer Escorts. While the company has shown commitment to reducing debt and expanding its crane manufacturing capacity, its recent growth rates in revenue and profit are modest. Investors should weigh the high valuation against the company’s growth potential and market position before making a decision.