Indo Farm Equipment IPO Lists at 20% Premium, Below Expectations: Should You Buy, Sell, or Hold?

The shares of Indo Farm Equipment debuted on the exchanges on Tuesday with a premium of 20.2 per cent. The stock was listed at Rs 258.4 on the BSE, against the issue price of Rs 215. On the National Stock Exchange (NSE), the stock was listed with a 19.1 per cent premium at Rs 256.

Although the offer was considered somewhat expensive, the Rs 260.15 crore issue received a strong response from investors, particularly from the NII category, which saw bids exceeding 500 times the category's allotment. The retail investors' segment also witnessed an impressive 104 times subscription. Overall, the IPO was oversubscribed by 227.67 times, making it the second most subscribed mainboard IPO of 2024. Indo Farm Equipment IPO was open for subscription from 31 December to 2 January.

Indo Farm Equipment shares extended their gains after listing. At 3:00 PM on Tuesday, the stock was trading at Rs 276.11 per share on the NSE, Rs 20.11 or 7.85 per cent up from its listing price. The stock jumped Rs 61.11 per share or 28.42 per cent from its issue price.

According to analysts, the strong demand for the IPO can be attributed to the company's strategy of utilising the proceeds to enhance its dealer network, which is expected to drive future tractor sales. The company plans to expand its dealer network from 175 to 500 over the next five years, boosting sales. Additionally, the company is expanding its capacity for pick-and-carry cranes to meet increasing demand. Its robust backward integration model further supports higher EBITDA margins compared to competitors. With optimistic growth prospects in both the agriculture and crane sectors, driven by significant infrastructure spending from both the government and private industries, the company's outlook remains positive.

Indo Farm Equipment IPO - Should You Buy, Sell, or Hold?

While the issue is priced at a P/E ratio of 51.8x over its upper price band based on FY24 earnings, Palak Devadiga, research analyst at StoxBox, recommends that investors who have been allotted shares consider holding their positions from a medium to long-term perspective, citing the company’s strong growth prospects and favourable industry trends.

Prashanth Tapse, Senior VP (Research) at Mehta Equities Ltd, said that despite the overwhelming response, the Indo Farm Equipment listing was below his expectations. "We believe the listing was lower considering the market mood after panic Monday," he said.

"Considering renewed market sentiments, we recommend that conservative allotted investors can think of booking profits above our expectations. While long-term investors should consider holding it for the long term despite knowing short-term volatility post-listing and risks in the markets. For non-allotted investors, we advise accumulating if we get dips post-listing due to profit booking attempts," Tapse added.

On the financial front, the company reported a turnover of Rs 352.6 crore, Rs 371.8 crore, and Rs 376 crore for FY22, FY23, and FY24 respectively, on a consolidated basis. It posted net profit of Rs 13.7 crore, Rs 15.5 crore, and Rs 15.6 crore respectively for the aforementioned period, witnessing improvement in margins.

Vikas Jain, head of research at Reliance Securities, said the company has increased its revenue percentage in the cranes business from 22 per cent to 48 per cent over the last three years. The current capacity expansion will drive strong growth in the coming years for both the crane business as well as financing for tractors, improving its capacity utilisation.

The company aims to utilise the net issue proceeds for setting up a new dedicated unit for expansion of its pick-and-carry cranes manufacturing capacity, repayment or pre-payment, in full or part, of certain borrowings availed by the company, further investments in its NBFC subsidiary, Barota Finance Ltd, for financing the augmentation of its capital base to meet its future capital requirements, and for general corporate purposes.

"Indo Farm is in a fairly strong position in both the segments it operates in, with the possibility of substantial market expansion in the near future. The company has a fully integrated manufacturing plant with 40-60 per cent of products being made in-house. Its strong R&D and product development capabilities, along with a robust industry structure and strong promoter pedigree, augur well for multifold growth in the coming years," Jain said.

About the Company

Incorporated in 1994, Indo Farm Equipment is a leading manufacturer of tractors, pick-and-carry cranes, and ancillary farm equipment such as harvester combines and rotavators. It also operates Barota Finance Ltd, an RBI-registered NBFC, facilitating tractor sales through financing. The company’s fully integrated facilities ensure efficient production and timely delivery, with a diverse tractor range catering to 80 per cent of global market requirements and cranes widely used in infrastructure.

The company operates two brands: Indo Farm and Indo Power. They export their products to countries like Nepal, Syria, Sudan, Bangladesh and Myanmar, among others. The company manufactures tractors ranging from 16 HP to 110 HP and pick-and-carry cranes ranging from 9 to 30 tons. The facility in Baddi, Himachal Pradesh, spans 127,840 sq metres and includes a foundry, machine shop and assembly units. The company has an annual production capacity of 12,000 tractors and 1,280 pick-and-carry cranes.

The company has acquired additional industrial land near the current facility to build a new pick-and-carry crane manufacturing unit, aiming to increase capacity by 3,600 units per year.

(Disclaimer: The views expressed by the spokespersons in this article are their own and do not constitute financial advice.)