Carraro India Ltd is set to launch its Initial Public Offering (IPO) on December 20, 2024, with a closing date of December 24, 2024. This IPO will raise up to ₹1,250 crore, with the issue being an entirely Offer for Sale (OFS) by existing shareholders, meaning the company will not receive any proceeds from the sale. All proceeds will go to the selling shareholders, including Tomaso Carraro, Enrico Carraro, Carraro S.p.A, and Carraro International S.E., who currently hold a 100% stake in the company.
IPO Details:
- IPO Opening Date: December 20, 2024
- IPO Closing Date: December 24, 2024
- Price Band: ₹668 to ₹704 per equity share
- Face Value: ₹10 per share
- Issue Type: Book Built Issue IPO
- Total Issue Size: 1,77,55,680 shares (Aggregating up to ₹1,250 crore)
- Offer for Sale: Entirely Offer for Sale (OFS) of 1,77,55,680 shares
- Shares Offered:
- QIB Shares: 50% of the Offer
- Retail Shares: 35% of the Offer
- NII (HNI) Shares: 15% of the Offer
- Listing: On the BSE and NSE
Business Overview:
Carraro India Ltd is a technology-driven, integrated supplier specializing in complex engineering solutions for Original Equipment Manufacturer (OEM) clients. The company focuses on axles, transmission systems, and gears for the agricultural tractor and construction vehicle industries in India. Additionally, it supplies gears for industrial and automotive markets, spare parts for tractors and construction vehicles, and non-core components.
With state-of-the-art manufacturing plants located in Pune, Maharashtra, the company has established a robust supplier network, working with 220 suppliers across eight Indian states and 58 international suppliers.
Financial Performance:
Carraro India has demonstrated impressive financial growth between FY22 and FY24, with a Compound Annual Growth Rate (CAGR) of 10% in revenue and 67% in net profit. In FY24, the company reported:
- Revenue: ₹1,807 crore
- Net Profit: ₹62.56 crore
- Profit Before Tax: ₹84.37 crore
The H1FY25 performance also suggests a 59% increase in net profit compared to FY24, although revenue growth remained modest at 2%. The company has significantly reduced its borrowings from ₹213 crore in FY22 to ₹196 crore as of September 30, 2024, reducing its interest burden.
Valuation and Competitive Position:
The issue is priced at a P/E ratio of 40x based on annualized FY25 earnings, which is on the higher side compared to some of its competitors. For reference, here are the key financial metrics of listed peers:
| Company | P/E | P/B | RoE |
|---|---|---|---|
| Carraro India Ltd | 40 | 10 | 18% |
| Escorts Kubota Ltd | 32 | 4 | 12% |
| Schaeffler India Ltd | 57 | 10 | 20% |
| Sona BLW Precision Forgings Ltd | 67 | 7 | 21% |
| Ramkrishna Forgings Ltd | 36 | 6 | 17% |
Although Carraro India shows a decent Return on Equity (RoE) of 18%, it is priced at a P/B ratio of 9.54x, which is relatively high compared to some competitors.
Risks and Recommendations:
Carraro India’s growth has been steady, but its revenue is heavily concentrated, with 85% of its FY24 revenue coming from the top 10 customers. The company is also dependent on the agricultural tractor sector, which accounts for 45% of its revenue. Given the seasonal nature of the agricultural industry, this poses a risk of fluctuating demand and revenue.
Despite these risks, Carraro India has shown consistent growth in both revenue and profitability, and its solid position in the Indian market makes it a potential long-term play.
Final Verdict:
We recommend that risk-tolerant investors with a long-term outlook consider subscribing to this IPO. Although the valuation appears high, Carraro India’s strong market position, consistent growth, and financial discipline make it a worthwhile investment for those willing to take on a moderate level of risk.
