Carraro India IPO size cut as owners not happy with valuation | Company Business News-OxBig News Network

Mumbai: Automotive components maker Carraro India’s initial public offer size was cut by a third to ₹1,250 crore after its promoters were dissatisfied by the valuation, the company’s bankers said at a press conference.

The company had earlier planned to raise ₹1,812 crore through an offer for sale (OFS).

“There was a minimum (offer) size that we as banks recommended. But at this valuation, the company did not want to sell as much, which is why they pared down the OFS,” said Ashish Nigam, managing director for investment banking at Axis Capital, the lead banker to the IPO.

At the upper end of the price band of ₹704 per share, the offer values the company at a price to earnings (P/E) multiple of 64 based on its FY24 earnings. That compares to a peer average of a P/E ratio of 55.8, as mentioned in the company’s prospectus. The company’s implied market capitalization at the upper end is ₹4,002 crore.

Below expectation

While the valuation being ascribed to the company may not be as much as its Italy-based owners expect, it is still higher than in other markets, making a case for taking the company public in India, vice-chairman and promoter Tomaso Carraro said.

“The valuation in India is very attractive compared to the valuation that is there in other places,” he said at the press conference.

The high valuation was not the only reason to list the company in India, he added.

“We are doing an IPO because we think India is a big opportunity for us. Even more importantly, for Carraro, there is a big change in technology,” Carraro said. Demand for higher-power tractors with four-wheel drive is increasing in India, he said, resulting in a greater business opportunity for the company.

Primary capital not needed

The company does not need any primary capital infusion at the moment, resulting in a pure OFS, bankers further said. While Carraro India’s two manufacturing sites in Pune are running at more than 80% capacity utilization, it does not need to expand capacity immediately, and when it does, it will be done through internal accruals, they said.

The company had ₹97 crore of cash and cash equivalents at the end of September 2024, as per its prospectus.

Carraro India is predominantly present in the four-wheel drive tractor segment. It is not present in the two-wheel drive tractor segment, which presently forms the bulk of the Indian market.

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The transmission systems that the company sells account for up to a fourth of the cost of a tractor, said Balaji Gopalan, the company’s managing director. Carraro India counts tractor market leader Mahindra & Mahindra as well as Tafe and Sonalika among its customers.

“Thus, we are mission-critical to the OEM,” he said.

Carraro India is owned by Carraro International SE. The company is selling a 31.23% stake at the upper end to raise ₹1,250 crore. The issue opens for subscription on 20 December and closes on 24 December. The shares are expected to debut on the bourses on 30 or 31 December.