Carraro
IPO Size: Rs. 1,250 cr, Entirely Offer for Sale (OFS)
- By the foreign promoter Carraro International (100% to drop to 69% post IPO)
Price band: Rs. 668-704 per share
M cap: Rs. 4,002 cr, implying 31% dilution
IPO Date: Fri 20th Dec to Tue 24th Dec 2024, Listing Mon 30th Dec 2024
Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.
Component Maker for Tractors and CE
Carraro India, a wholly owned subsidiary of Itay’s Carraro International, manufactures axles, transmission systems and gears for agricultural tractor and construction equipments (CE) in India. It supplies backhoe loaders, soil compactors, cranes, self-loading concrete mixers and small motor graders to original equipment manufacturers (OEMs). 2/3rd of Rs. 1,800 cr revenue is from India, and balance from exports, to Italian parent.
Reduced Royalty to Parent
From H2FY24, royalty payment to parent has reduced to 0.5% of revenue (only towards brand royalty), from ~2.5% earlier, as Indian subsidiary purchased 153 IPs from the parent.
Mid-Single Digit Net Margin
H1FY25 revenue slipped 5% YoY to Rs. 915 cr, as number of transmission systems sold, declined 28% YoY. EBITDA of Rs. 101 cr, led to 11% EBITDA margin, up from 7% in H1FY24, partly aided by royalty reduction. PAT for the first half stood at Rs. 50 cr, leading to 5.4% net margin and 25% annualized RoE. While company’s margins have improved in the past few years, they are still lower than peers, as detailed below.
Steep Pricing
Annualising H1FY25 EPS of Rs. 8.75, leads to a PE multiple of 40x, on current year basis, which is aggressive for a mid-single digit net margin and dependance on a highly cyclical segments, within the auto industry.
- Ramkrishna Forging’s topline, as also, margins are double of Carraro, yet it is ruling at a PE of 43x.
- Happy Forgings with Rs. 1,400 cr topline, also clocks better margin (19% net) and is trading at a PE of 37x.
- Smaller peer Kross Limited, making trailer axles and suspension assemblies, is trading at 20x PE, despite Rs. 600 cr topline, superior net margin of 7% and a higher RoE of 30%.
- Comparison with Schaeffler is inappropriate as it caters to industrial segment too (reducing dependance on automobile sector), is debt-free and clocks double digit net margin.
