Tractor maker Carraro India’s IPO has opened. The company aims to raise Rs 1250 crore and reiterated that it is in India for the longer term. The company highlighted that the demand scenario seems favourable for the tractor markets given improving market dynamics. Most analysts have suggested that the IPO is a subscribe for the longer-term.
Speaking to Financial Express.com about the timing of the IPO, Tomaso Carraro, Vice Chairman- Carraro Group pointed out that the company has long connection in India, starting from a join venture, then going independent, growing in the market, building the plants, building R&D Centre and explained how the growth over the last four years makes it a right time for launching the IPO now, “There was something that we were expecting for a long time. The growth is made by the change in technology for tractors. They are all going for the four-wheel drive tractors. So there is a big opportunity. So we have a big opportunity in India. So we wanted to establish a real Indian company, not just a branch of a multinational. The decision to go with the IPO is to only reiterate our intent.”
Carraro India: Business dynamics
Though globally there has been a slowdown in markets like Europe and US, Carraro explained that the balanced revenue portfolio is one of the company’s biggest positives. “We have 65% coming domestically and 35% from exports. In that again, there is a division between agriculture and construction, which is again 45% and 41% of the market. So in all ways, we have enough leverage that if one is a little bit slow, the other compensates for it. All in all, we feel there is not going to be any major setback from what is being estimated. But even if the market is flat, the forward driver grows 5% for us. It’s a big opportunity,” added Carraro.
Dr Balaji Gopalan, MD, Carraro India explained that “The timing for IPO is also critical, because we feel we are at the right threshold where the company is expecting the market in India to kind of grow up the technology ladder that is existing. So there will be a fundamental shift in the technologies as far as tractors and farm mechanization is concerned, if we have to get into food security, if we need to improve the food grain output in India, in spite of all the climate related issues, we still have to work around it and make sure that our agriculture produce is growing year on year to meet the population demand. Now this can be achieved by only getting into farm mechanization. And for farm mechanization, sectoral shift that is expected is from a lower horsepower two-wheel drive tractor to a higher horsepower four-wheel drive tractor.” he went on to elaborate that the “cost of ownership justifies a higher horsepower tractor or a four-wheel drive version. We feel Carraro has got the market and we are riding the demand wave.”
Moreover, he added that from the sentiment perspective too, favourable monsoon, encouraging Rabi sowing and overall political stability in the country augur good news.
Valuation of the Carraro India IPO
The GMP has not moved much but how do the valuations stack up? Davide Grossi-CFO, Carraro India highlighted that they wanted to offer fair value to investors as they are here for the longer term, “ We believe that the price band that we are offering is quite fair. Carraro believes in a bright future ahead for the company. We want to add value, we want to increase the valuation by performing in the Indian market, whereby our prices will grow. Investors will also grow with us. So we want people to be part of the journey and not look at it from a short-term perspective of getting a very high valuation and then abandoning. We are in India for the long-term.”