Carraro India IPO analysis

Carraro India Limited IPO (initial public offering) will open for subscription on December 20, 2024, and close on December 24, 2024. Below is a breakdown of the auto component manufacturer's strengths, weaknesses and growth prospects to help investors make an informed decision. Carraro India IPO in a nutshell Quality: Between FY22 and FY24, Carraro India reported an average three-year ROE and ROCE of around 13.7 and 15.2 per cent, respectively. Growth: During FY22-24, its revenue and profit after tax grew annually by 9.3 and 69.2 per cent, respectively. Valuation: At the upper price band of Rs 704, the stock is valued at a P/E and P/B ratio of 45.8 and 9.6 times, respectively. Overview: Carraro India can benefit from India being the world's largest tractor market, which consumes nearly 35-40 per cent of all tractors sold globally. A surge in demand for construction vehicles fueled by rapid urbanisation and infrastructure development initiatives is also expected to fuel the company's growth. However, the presence of established players both in India and abroad can affect its prospects. About Carraro India Incorporated in 1997, Carraro India designs, manufactures and supplies axles, transmissions and gears that are crucial components in agricultural tractors (45 per cent of revenue in FY24) and construction vehicles (41 per cent of revenue in FY24). The company sells its products directly to OEMs (original equipment manufacturers). As of FY24, Carraro India derived 64 per cent of its revenue from India and the rest from exports. Presently, the company has over 1,700 employees spread across its two manufacturing plants and a research and development centre in Pune. Strengths of Carraro India Established clientele: The company has a strong customer base both in India and abroad. Some of its major clients include Mahindra, ACE, Volvo, TAFE and CNH Industrial. Weaknesses of Carraro India Revenue concentration: As of FY24, Carraro India derived 85 per cent of its revenue from its top 10 customers. Hence, a loss of any of the key customers can significantly impact the company's financials. Seasonality in business: The company derives 45 per cent of its revenue from the agriculture tractor business as of FY24, which is seasonal in nature. For example, in the Indian agricultural market, tractor demand typically peaks between June and November, driven by the arrival of the monsoon and kharif crop season. Thus, during periods of poor or low demand, Carraro India's financials are also affected. Carraro India IPO details Total IPO size (Rs cr) 1,250 Offer for sale (Rs cr) 1,250 Fresh issue (Rs cr) - Price band (Rs) 668 - 704 Subscription dates December 20-24, 2024 Purpose of issue Offer for sale Post-IPO M-cap (Rs cr) 4,002 Net worth (Rs cr) 419 Promoter holding (%) 68.8 Price-to-earnings ratio (P/E) 45.5 Price-to-book ratio (P/B) 9.6 Financial history Key financials (Rs cr) 2Y annual growth (%) TTM FY24 FY23 FY22 Revenue 9.3 1,743 1,789 1,713