Indo Farm Equipment IPO fully subscribed on Day 1; here's a peer comparison

The public issue of the tractor and allied equipment maker will be open for subscription from December 31, 2024, to January 02, 2025. This issue is a combination of a fresh issue worth ₹184.90 crore and an offer for sale of ₹75.25 crore, aggregating ₹260.15 crore. The price band is set between ₹204- ₹215 per share, at the upper price band the company's market capitalisation is around ₹1,033 crore.

The agriculture industry is growing rapidly with the rise in population, thereby leading to a high demand for food. With the ever-increasing demand for food production, agricultural machinery has become an essential part of the farming process.

The Indian agricultural equipment sector has shown good growth historically and the same is expected to continue with strong support from government initiatives. According to a B2K Analytics report, The global tractor market is projected to grow from $84.80 billion in 2024 to $114.5 billion by 2029, at a CAGR of 5.90%.

Globally the mobile crane market size is anticipated to grow from $21.10 billion in 2024 to $29.10 billion by 2029, at a CAGR of 6.65%. The global agriculture equipment market is projected to grow from $180.81 billion in 2023 to $296.61 billion by 2030, at a CAGR of 7.3%.

Incorporated in 1994, Indo Farm Equipment Ltd is a fully integrated manufacturer of Tractors & Pick & Carry Cranes, with ancillary manufacturing of other farm equipment such as Harvester Combines, Rotavators and other related spares and components. The company is also engaged in the asset financing business (with a focus on retail financing of tractors) through a subsidiary named “Barota Finance Ltd”, a RBI registered NBFC. In FY24, Indo Farm Equipment Ltd earned 52.16% of revenue from tractors, whereas 47.77% was derived from Pick & Carry Cranes and 0.07% from other farm equipment.

Among listed companies, the major peers are Action Construction Equipment Ltd and Escorts Kubota Ltd. Other listed players across segments include Mahindra & Mahindra Ltd and VST Tiller Tractor, however their comparison with Indo Farm will not be suitable.

Indo Farm Equipment peer comparison

Indo Farm Equipment’s valuation looks premium at a P/E of 67x, compared with peers, the Escort Kubota trades at an attractive P/E of 31.8x, However on EV/EBITDA multiple the Indo Farm remains the most attractive among peers at 20.34x. While Action Construction Equipment valuation remains premium at an EV/EBITDA multiple of 31.7x.

A glance at listed peers

Escorts Kubota Ltd, established in 1944, is a leading conglomerate in India. The company has three major manufacturing businesses – Agri-machinery, Construction and material handling Equipment and Railway equipment. Farmtrac and Powertrac are popular company tractor brands.

Action Construction Equipment Ltd is a leading Material Handling and Construction Equipment manufacturing company with a focus on Mobile Cranes and Tower Cranes. The company also offers loaders, graders, forklifts, and agricultural equipment.

Comparison of financial indicators for FY24

In FY24, Action Construction Equipment witnessed the highest revenue growth of 34.92%, followed by Escort Kubota at 5%, and Indo Farm Equipment at 1.21%. During the previous financial year, Indo Farm Equipment reported ₹375 crore in revenue, whereas Escort reported the highest at ₹8,850 crore and Action Construction Equipment ₹2,914 crore in revenue.

At the EBITDA level, Indo Farm Equipment led with a 16% margin, followed by Action Constrution’s 14% and Escort Kubota’s 12%. Also, Indo Farm Equipment’s PAT margins stood at 4% significantly lower compared with Escort Kubota’s PAT margin of 11.85% and Action Construction Equipment 11.26%. The major reason for the lower PAT margin is the high-interest cost. Indo Farm Equipment has a high debt-to-equity ratio of (0.70x) while Escort and Action have insignificant debt.

Comparison of operational indicators for FY24

Indo Farm’s operating profitability is decent at a gross margin of 25.5%, while Escort has 28.44% and Action’s 24.38%. The Raw Materials Cost to Sales ratio at 63% is better than Action’s 71%. Indo Farm’s Net Working Capital is quite high at 270.73 days compared with Kubota’s 25 days and Action’s 10.86, primarily because of the high Inventory holding period. Indo Farm, unlike these companies, is also into the production of Cranes along with Tractors and the majority of its components are made in-house, leading to a high inventory holding period.

Indo Farm’s IPO provides an opportunity to invest in a solid sector, considering its position in tractors and cranes. Its EBITDA margin is competitive, and its high debt levels and lower PAT margin indicate financial constraints. However, at EV/EBITDA of 20.3x Indo Farm looks attractive compared with peers.