Carraro India Limited IPO: Check IPO Date, Lot Size, Price & Details

About the company:

Established in 1997, Carraro India Ltd specializes in designing, manufacturing, and supplying advanced transmission systems and components, catering primarily to agricultural and construction equipment for off-highway vehicles. The company’s portfolio includes axles, transmissions, and drives, as well as a broad range of high-precision gears for industries such as automotive, trucking, agriculture, and construction. Carraro India operates two state-of-the-art manufacturing facilities in Pune, Maharashtra. The driveline plant spans approximately 84,000 square meters and is equipped with advanced capabilities such as casting, machining, assembly, prototyping, testing, and painting. The gear manufacturing facility, covering about 78,000 square meters, employs specialized heat treatment technologies like carburizing, induction hardening, and nitriding, alongside machining capabilities. The company serves diverse sectors through its tailored offerings including agricultural tractors, construction equipment, and other products. Leveraging its extensive agricultural and construction equipment manufacturing expertise, Carraro India has built a robust supply chain network comprising 220 domestic suppliers across eight Indian states and 58 international suppliers. As of September 30, 2024, the company’s local quality and after-sales team includes 87 full-time professionals and 53 contractual employees, ensuring seamless operations and customer support.

IPO Details:

The objectives of the fresh issue:

The company will not receive any of the offer proceeds as the entire issue is an offer for sale and hence it will be received by the respective selling shareholders.

Key Strengths and Opportunities:

• The company has established itself as a market leader in India, offering advanced transmission systems for tractors up to 150HP and four-wheel drive capabilities. With a significant share in the non-captive agricultural tractor transmission market and a dominant 60-65% share in the non-captive construction vehicle transmission segment, the company’s specialized axles and transmission systems offer complexity and adaptability that create strong customer reliance.
• The agricultural tractor and construction vehicle sectors are set for rapid growth, driven by advancements in electric vehicles and high-tech engineering solutions. The company is strategically positioned to capitalize on these trends, leveraging its expertise to meet increasing demand for feature-rich and technologically advanced products.
• By leveraging close ties with the Carraro Group, the company benefits from shared expertise and insights into OEM requirements, gained through the Group’s global presence. This collaboration provides access to cutting-edge technologies and R&D capabilities, ensuring alignment with evolving industry standards and customer expectations. As an early entrant in the agricultural tractor and construction vehicle component markets, the company has developed a robust R&D capability. With exclusive IP rights and engineering support agreements from Carraro S.p.A., the company combines advanced design expertise with manufacturing prowess, enabling it to deliver tailored, innovative solutions for customers’ specific needs.
• The company secures long-term contracts, typically lasting at least five years, with leading customers. These contracts, coupled with the customization of products, foster enduring partnerships, as customers face significant costs to transition to alternative suppliers. Top customers have maintained continuous engagement for over 15 years, highlighting trust and satisfaction in the company’s offerings.

Risks:

• A significant portion of the company’s revenue is derived from a limited number of customers, with the top five and top ten customers contributing over 69% and 85% of total revenue, respectively, in recent periods. Any difficulty in retaining these key customers or expanding the customer base could have a substantial negative impact on business performance and growth prospects.
• The company relies on the Carraro Group for essential aspects of its operations, including licensing, customer sourcing, procurement, and R&D. With over 33% of revenue attributed to the Carraro Group and a portion of raw materials sourced from them, any disruption in this relationship could materially affect operations and financial outcomes.
• The company’s agricultural tractor business is heavily influenced by seasonal factors, with demand peaking during specific months tied to monsoon seasons and agricultural cycles. Fluctuations in demand, both domestically and in export markets, may lead to uneven sales performance across quarters, adversely affecting financial stability and operational planning.

Financial Snapshot:

Conclusion:

Carraro India Limited comes at an earnings valuation of 64x based on its earnings per share (EPS) as of March 31, 2024, and the upper price band. In comparison, its listed peers, such as Schaeffler India, Sona BLW Precision Forgings, and Action Construction Equipment exhibit PE ratios of 55x, 66x, and 49x respectively as of December 19, 2024. Financially, Carraro India has lagged behind its peers in growth metrics and profit margins. Considering the company’s financial performance, valuation, and prevailing market conditions, we advise our investors to avoid subscribing to the Carraro India Limited IPO.