Closing Today: Should You Subscribe to Indo Farm Equipment IPO?

Indo Farm Equipment Ltd (Indo Farm) launched its initial public offering (IPO) on December 31, 2024, with bidding set to close on January 02, 2025. The IPO, carrying a grey market premium (GMP) of 42%, has received a solid response from investors.

However, one should get a clear understanding of both potential rewards and risks before subscribing. This IPO analysis provides a comprehensive review to help make an informed decision.

Indo Farm Equipment IPO Details 

• Issue Details: Mainstream
• Issue Size: Rs 260.15 crore
• Fresh Issue: Rs 184.90 crore
• OFS: Rs 75.25 crore
• Price Band: Rs 204 – Rs 215
• Lot size: 69 shares
• Listing Date: January 07, 2025

Indo Farm Equipment IPO Subscription Status

The IPO of Indo Farm Equipment has seen significant demand, achieving a total subscription rate of 54.74 times by January 1, 2025, the second day for bids.

Retail investors oversubscribed their quota by 46.07 times. Non-institutional investors also showed strong interest, subscribing 132.03 times their allocated portion, while qualified institutional buyers (QIBs) subscribed 11.96 times their reserved portion.

Overview of Indo Farm Equipment Ltd

Indo Farm is a well-established, fully integrated manufacturer of tractors and pick & carry cranes. Its expansive manufacturing operations cover 127,840 square meters. Originally an agricultural equipment producer, Indo Farm is transitioning into a construction equipment company. The pick & carry crane division has seen an impressive compounded annual growth rate (CAGR) of 53% from FY22 to FY24, operating at full capacity.

To accommodate increasing demand, Indo Farm has purchased additional land near its current plant to set up a specialized pick & carry crane facility. Scheduled to begin production in November 2025, this new unit aims to manufacture 3,600 cranes annually, bolstering the company's foothold in the niche crane market.

Indo Farm Equipment Key Strengths

• Consistent Growth: Indo Farm has shown steady financial growth, with operational revenue, EBITDA, and net profit registering compounded annual growth rates (CAGRs) of 3%, 10%, and 7% respectively, from FY22 to FY24.
• Robust Profitability Margins: Indo Farm stands out for having some of the highest profitability margins in the industry, with an EBITDA margin of 16.66% as of FY24. Its strong backward integration allows for high cost efficiency. This approach enables the production of a wide variety of tractors and cranes in numerous variants while maintaining most component manufacturing in-house, supporting a solid EBITDA margin.
• Extensive Dealer Network: Indo Farm's products are distributed through an extensive network of dealers, which includes 159 tractor dealers and 16 crane dealers across India. With recent equity investments, the firm plans to expand its dealer network to 500 within the next three years. Additionally, Indo Farm has a significant international presence, with operations in over 30 countries.

Indo Farm Equipment Risk Factors

• Modest Return Metrics: While Indo Farm's EBITDA margin has improved due to the higher margin contributions from crane products, the overall returns remain unimpressive. The Return on Equity stands at 5.13%, and the Return on Capital Employed is at 8.96%, both of which are significantly lower than those of its listed peers.
• Leverage Ratios: The Debt Service Coverage Ratio (DSCR) was recorded at 0.75 as of March 2024. Operating in a capital-intensive industry, Indo Farm requires continuous capital injections, which have led to high levels of debt.
• Seasonal Revenue Fluctuations: Tractor sales are closely linked to agricultural cycles, particularly the harvest season, which precedes the next planting period. As a result, about 60-65% of the company’s annual revenue is concentrated in the second half of the calendar year, leading to significant seasonal variations in earnings.

Conclusion: Should You Subscribe to Indo Farm Equipment’s IPO?

Indo Farm has experienced steady but slightly slower CAGR growth in sales, EBITDA, and PAT over the FY22-24 period. A significant expansion is underway, with the addition of 3,600 crane units annually, expected to begin impacting results in the second half of FY26.

Over the past three years, sales of Indo Farm’s pick & carry cranes have grown at a CAGR of 53%, with the facility operating at nearly full capacity. Additionally, the company aims to double the capital base of its NBFC subsidiary, likely enhancing tractor sales.

The IPO is set at a P/E multiple of 52x based on FY24 earnings. The grey market premium suggests a solid debut on the stock exchanges.

Although the valuation appears steep, the company presents potential. Investors with a higher risk appetite might consider subscribing to the IPO for the long term, whereas others may choose to invest post-listing after the stock price stabilizes in the secondary market.

 For a deep dive into other IPOs, explore: IPO Corner on Liquide