Mumbai2 minutes agoAuthor: Abhishek Kumar Tripathi
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Today is the second day of bidding for the Initial Public Offer (IPO) of Carraro India Limited. Investors can bid for this issue till tomorrow i.e. 24th December. The company’s shares will be listed on Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) on December 30.
Managing Director of the company, Balaji Goplan said that Carraro India is the only company in the country to provide axles and transmission gearboxes for tractors. He said that we provide axle and gearbox transmission to the smallest regionalized tractor manufacturers ranging from Mahindra Group, Escorts Kubota. One or the other product of ours goes to every tractor company.
Dainik Bhaskar asked the company’s MD questions about Carraro India’s journey and other things related to the IPO…
1. How has been the journey of Carraro India Limited so far… How did it start?
Carraro India Limited was a subsidiary of an Italian multinational company, set up around 1996. That company’s chairman Rajan Nanda had a joint venture (JV) with Escort Limited. This joint venture was very good, but we ended the joint venture in 2006-2007.
This joint venture ended because Escort had different priorities and Carraro had different core competencies and business plans. Then it was decided that we would leave the JV, but our relationship as customer and supplier would continue. What is now Escorts Kubota is still our oldest customer.
Gopalan said that after this we established two plants in Pune. One of them is a gear plant and the other is an assembly plant, which use very advanced technology. Along with this, we have an advanced water based plant, where we give final painting to the products and give them to the customer. Apart from this, we have a gear factory, in which we also manufacture gears.
He told that we also have an Engineering Research and Development Center in Pune itself. There we design the product, do virtual validation and analysis of that product. We also have a lab that can do load testing. Our company has been in India for 25 years, in which we have built our infrastructure and capacity by focusing on it.
2. What is the core mission and vision of the company?
Responding to this, Gopalan said that it is very clear… The earlier tractors in India were all two wheel drive and of low horse power. The equipment used in tractors for other purposes including farming can comfortably fit in tractors with high horse power and four wheel drive.
Carraro is contributing to this space. Those who are our equipment and tractor manufacturers provide them with the right technology. He said that the government says Make in India, we as an Italian company feel that the environment in India, the support we are getting and the skill level available is the best in the world.
That’s why Carraro Group is focusing here. Here we are not only doing Make in India but also taking a step ahead and taking Design in India.
3. How many assembly lines and manufacturing facilities does the company have?
We have 53 acres of land in Ranjan village MIDC, Pune, in which we have 2 factories. About 1800 people work in it. We have 8 modern automatic assembly lines, which work in air pressurized rooms. So that even dust cannot enter.
4. Who is your primary customer and have you made any plans to increase it?
Our biggest customer is Mahindra Group. After this there are other companies including Escorts Kubota. I can proudly say that from Mahindra to the smallest regionalized tractor manufacturers in India, we provide either axles, gearbox transmission or both. One or the other product of ours goes to every tractor company. We have 38 customers including construction vehicles and tractors and we export to 6 customers.
5. Can you tell us any product innovation of the company that makes you different from others?
Our product is a differentiated product from every other product. We do not provide any standard product from catalog to the customer. According to the customer, we give them suitable product, which we modify according to them.
6. Which are the competitor companies of Carraro India?
Gopalan said that first of all, if we talk about the competing companies in the agriculture sector, other Indian companies including Mahindra have gear box mechanicals and they have capabilities of 60 to 70 horse power. If they have to source it from outside, then only Carraro India supplies gear boxes for tractors in the entire world. We do not have any competitor in this.
At the same time, when we talk about axles, American company Dana’s focus is largely on agricultural axles. However, their business in India is much smaller than ours. The latter, an Italian manufacturer of axles only for construction vehicles, is much smaller than Carraro in terms of manpower and revenue.
The third largest German company is ZF, but their focus is on commercial vehicles and passenger vehicles. Their revenue from our industry is only 20%. He said that I do not want to say that Dana and ZF do not have gear boxes. I have to say that in India they do not manufacture gear boxes, they have to be imported from outside. This is not a farewell for them. In such a situation, Carraro India is the only company in the country providing axle and transmission gearbox, hence it is also growing. That is why we have got the status of preferred supply of customers.
7. What are the company’s future plans and when did you think of launching an IPO?
According to SEBI regulation, I cannot talk about future predictions. All I can say is that we were worth 800-900 crores 5-6 years ago, today we have reached close to 1800 crores. This trend that has come, this market is absorbing four wheel technology, higher technology, semi automatic gear box and automatic gear box in construction vehicles.
Because of this, we are seeing a good market and we are getting orders automatically. The past growth seen by the company is half-baked, our future is quite good.
8. There is a total OFS of Rs 1250 crore in this IPO, from which the company will not get any money. How do you see this?
This is a very positive thing for the financial health of the company. We have not come to the market to collect money to do business. Our company is financially quite stable. This offer for sale is being brought by the company through IPO, it will be available to those shareholders who have invested about Rs 2000 crore in the last 25 years.
It is normal that those who have invested so much money need to get returns. That is why he is selling his shares, but this money is going under Carraro Group. With this, what infrastructure to increase in Carraro Group and where to invest will be thought at the global level.
Whereas, if we talk about India, we have sufficient funding. We do not feel that it is necessary to take this money now and keep it in India. It is very important to have circulation of money, it is important to have rotation.
9. How can the stock perform in the coming 2-3 years?
Responding to this, Gopalan said that the market for four wheel drive tractors in India was only 2% 5-6 years ago. Now it is 15%-17%. Whereas, if we talk about any other developed country like Europe or US, then 98% of the tractors there are four wheel drive.
Carraro India is going to get maximum advantage in this transition to four wheel drive. We have captured 65% market share in non-captive in the last 4 years alone. Going forward, if any company from outside wants to get four wheel drive or transmission, then Carraro will be preferred. The tractor industry in India has 10 lakh tractors, out of which only 1.5 lakh are in four wheel drive.
10. How has been the financial performance of the company in the last 5 years? Can you give a summary of it?
The financial performance of the company has been quite consistent and stable. We have focused on market penetration, right product and technology. With this we have established brand credibility with the customers. Its long-term advantage is that when technology moves, customers are already familiar with the company. Due to this, there are more chances for our business to grow.
Earlier the technology that was being used in India was of very medium level. At the same time, the real strength of Carraro is technology. Our role starts from here, when technology is upgrading. He said that 4-5 years ago we used to import 43% components from outside, due to which our margins were low. Now we have developed local suppliers. As of today, we have become 64% to 70% localized.
11. Any special thing related to the company or IPO that you want to share with investors?
This is a technology based global company. This is such a multinational company, which has chosen that my future is in India. She wants to expand India. As of today, Carraro India contributes 20% of the revenues to the Carraro Group.
He said that India will become the largest destination of Carraro Group. It is a young and global organization, which is getting technology support from the group. Everyone knows that India is a developing country and the government is also supporting the business. So we feel that we are in the right place at the right time.