Carraro India

One of the leading tier 1 suppliers of transmissions systems and a key supplier of axles in the agricultural tractor and construction vehicle industries in India with competitive moat for mission critical and complex driveline components.

Customer-centric, one-stop shop offering customized solutions to a longstanding OEM customer base.

Longstanding relationships with marquee local and international supplier base.

Strong, in-house R&D capabilities with proprietary IP rights to facilitate innovation of future-ready products.

Technologically advanced manufacturing plants with large production capacities.

Stable and experienced senior management team with strong industry knowledge and proven track record of growing the business and achieving margin optimization.

The company derived 69.55% and 87.88% of its revenue in the six months ended September 30, 2024 and 69.37% and 85.39% of its revenue in Fiscal 2024 from the company top five and top 10 customers, respectively, and any inability to retain its key customers or attract new customers and expand the company customer network, could negatively affect its business and results of operations.

The company depends partially on other entities in the Carraro Group for its operations, such as the license of the Carraro brand, customer sourcing, procurement, R&D and general support of the company operations. The Carraro Group was its largest customer in the six months ended September 30, 2024 and 2023 and Fiscals 2024, 2023 and 2022. For the six months ended September 30, 2024 and Fiscal 2024, the company derived 33.27% and 33.91% of its total revenue from the Carraro Group and have purchased 3.81% and 4.91% of its raw materials from the Carraro Group, respectively. Any disruption in this relationship could have a material adverse impact on its operations.

The company has entered into and may continue to enter into related party transactions with the Carraro Group, Directors and Key Managerial Personnel. The company incurred 33.89% and 34.67% of its total income and 6.70% and 8.63% of the company total expenses in transactions with related parties in the six months ended September 30, 2024 and Fiscal 2024, respectively. Such transactions may require significant capital outlay and there can be no assurance that the company will be able to make a return on these transactions or investments.

Its agricultural tractor business is seasonal in nature and a decrease in its sales during some quarters could have an adverse impact on the company financial performance.

The company and certain of its Group Companies have common pursuits as they are engaged in similar business or segments within the automotive components industry and may compete with it, and that there may be conflict of interest in allocating business opportunities between the company and such Group Companies.

Its Promoters and certain of the company Directors may be involved in ventures which are engaged in the same line of activity or business as that of the Company and this may result in conflicts of interest with it. The company Directors, Key Managerial Personnel and Senior Management may have interests in the Company in addition to their remuneration and reimbursement of expenses.

The company is dependent on the performance of the tractor and construction vehicle markets, as its agricultural tractors sector and construction vehicles sector constituted 45.05% and 41.29% of its revenue from product sector only for Fiscal 2024, 49.37% and 38.43% of the company revenue for Fiscal 2023 and 50.59% and 36.12% of its revenue for Fiscal 2022, respectively. Any adverse changes in the conditions affecting the tractor or construction vehicles markets can adversely impact its business, financial condition, results of operations, cash flows and prospects.

Its EBITDA margins and PAT margins were lower than the EBITDA margins and PAT margins of the company industry peers in the six months ended September 30, 2024 and September 30, 2023 and Fiscals 2024, 2023 and 2022, as disclosed in this Red Herring Prospectus, and the company cannot assure you that its will be able to continue to improve the company EBITDA margins and PAT margins in comparison to its competitors or at all.

The company currently manufacture its axles, transmissions and gears at the company manufacturing plants in Pune, India. Any disruptions or stoppages at its manufacturing plants could adversely impact the company operations, financial condition and results of operations.

As the company derives 34.60%, 36.09%, 35.87%, 38.19% and 36.80% of its revenue from exports from the six months ended September 30, 2024 and 2023 and Fiscals 2024, 2023 and 2022, respectively, the company heavily rely on its extensive global customer base of OEM customers and the company inability to maintain the stability of its OEM customer base and attract additional customers may have a material adverse effect on its results of operations and financial condition.

The Company, its Subsidiary and the company Promoters are involved in outstanding legal proceedings and any adverse outcome in any of these proceedings may adversely impact its business, reputation, financial condition and results of operations.

Its warranty reserves may be insufficient to cover future warranty claims, which could adversely affect its financial condition and results of operations.

The company is subject to strict quality requirements and any product defect issues or failures by it or the company raw material suppliers to comply with quality standards may lead to the cancellation of existing and future orders, recalls or exposure to potential product liability claims.

The examination report on the Restated Consolidated Financial Information discloses an emphasis of matter for the financial years ended March 31, 2024, 2023 and 2022. Further, audit reports on its audited financial statements include certain adverse remarks and observations required to be disclosed under the Companies (Auditor`s Report) Order, 2020 as of and for Fiscals 2024, 2023 and 2022, and the company cannot assure that its financial information for future periods will not contain emphasis of matters, adverse remarks or observations.

The company may be negatively impacted by any early obsolescence of its manufacturing equipment and the spare parts or software used in such equipment.

Its agricultural tractor business may be susceptible to changes in climate and weather pattern, which could have an adverse impact on its financial performance.

The Company has a high working capital requirement and had total borrowings of Rs.1,957.77 million, Rs.2,125.46 million, Rs.1,883.30 million and Rs.1,781.38 million as of September 30, 2024, March 31, 2024, March 31, 2023 and March 31, 2022, respectively and a net working capital turnover ratio of 4.20, 6.35, 12.87, 10.63 and 17.87 for the six months ended September 30, 2024 and 2023 and Fiscal 2024, Fiscal 2023 and Fiscal 2022, respectively. If the company is unable to comply with repayment and other covenants in its financing agreements, the company`s business, financial condition, cash flows and credit rating could be adversely affected.

Its may not be able to compete successfully in the highly competitive and fast evolving agricultural tractor and construction vehicle markets.

The company has had negative cash flows in the past and may continue to have negative cash flows in the future.

The company has certain contingent liabilities that have not been provided for in its Restated Consolidated Financial Information, which if materialize, may adversely affect its financial condition.

Any defects in its axles, transmissions, gears or after-sales services may adversely impact the company reputation and ability to sell its products, result in claims for damages and even lead to product recalls or similar actions, which could have an adverse impact on its operations.

Disruptions of transportation network and transportation infrastructure or deficiencies in service provided by its logistic service providers may have an adverse effect on the company`s business and results of operations.

The company depends on its supplier base of 220 suppliers in India and 58 suppliers internationally for raw materials, parts and other materials as of September 30, 2024. Any interruption in the availability of raw materials, parts and other materials, or any disruption, breakdown or shutdown of its suppliers or any instability of the company supplier base could adversely impact its operations.

Increases in the prices of, or the company failures to obtain raw materials, parts and other materials required for its operations could adversely affect the company business and results of operations.

Its future success depends on the company ability to identify market trends, innovate and meet evolving customer demands and preferences profitably. If the company is unable to do so, its sales, business and results of operations would be adversely affected.

The company may be unable to adequately protect its intellectual property rights and may be subject to intellectual property infringement claims, either of which may substantially harm its business.

Errors in forecasting demand for its axles, transmissions and gears could result in the misallocation of production capacity which, in turn, could lead to decreased efficiency, increased cost and lost opportunities.

The company derives 34.60%, 36.09%, 35.87%, 38.19% and 36.80% of its revenue from exports from the six months ended September 30, 2024 and September 30, 2023 and Fiscals 2024, 2023 and 2022, respectively. Its global operations involve challenges and risks that could increase its expenses, adversely affect its results of operations and require increased time and attention from the company management.

The company is unable to trace some of its historical records including forms filed with the RoC, and certain of its forms are undated and/ or unstamped and/or have factual discrepancy. Further, the company has delayed in making certain regulatory filings required to be made with the RBI under applicable law. The company cannot assure you that regulatory proceedings or actions will not be initiated against it in the future and that the company will not be subject to any penalty imposed by the competent regulatory authority in this regard.

Its sales volumes are subject to fluctuations and are dependent on the end customers` demands. Any loss of customer relationship could have an adverse impact on its reputation, business, results of operations and financial condition.

The company may not be successful in implementing its growth strategy, which may have an adverse impact on its reputation, business, prospects, results of operations and financial condition.

The company or the Carraro Group may not succeed in continuing to establish, maintain and strengthen the "Carraro" brand and the "Carraro" brand could be harmed by complaints and negative publicity, in India and globally, which could have an adverse impact on its reputation, business, results of operations and financial condition.

The company is exposed to risks in connection with the potential failure or non-performance of distributors or authorized dealers that provide after-sales services to its customers.

The company requires certain approvals and licenses in the ordinary course of business and are subject to costs, risks and uncertainties, including those associated with laws and regulations in domestic and foreign jurisdictions in which the company operates, and the failures to obtain or retain them in a timely manner may materially adversely affect its operations.

The company is subject to substantial government regulations, which are subject to change, and the failures to comply with such regulations may materially adversely affect its operations.

Failures or disruption of the company information technology systems may adversely affect its business, financial condition, results of operations, cash flows and prospects.

Its business depends on adequate and uninterrupted availability of power, fuel and water, and any disruption to power or water sources could increase its production costs and may have an adverse impact on the company operations.

Its business depends substantially on the continued efforts of the company management including its Key Managerial Personnel and the company Senior Management and other qualified personnel, and its operations may be disrupted if the company lose their services.

As of September 30, 2024, the company engaged 39 contractors and 635 contractual temporary employees in its production processes, and their failures to complete the project on time or at all may adversely affect its business and profitability.

Its may not realize the anticipated benefits of existing or future strategic alliances, acquisitions, divestitures, or business strategies.

The company has used information from the Markets and Markets Report which its commissioned for industry related data in this Red Herring Prospectus and any reliance on such information is subject to inherent risks.

Changes in tax laws may materially and adversely affect its business, prospects, financial condition, results of operations and cash flows.

The company requires significant capital, and may need to seek additional financing to support our growth strategies. Any failures to raise additional financing could have an adverse effect on its business, results of operations, financial condition and cash flows.

Foreign exchange rate fluctuations can adversely affect its financial results due to sales and expenses in different currencies and the value of the company Equity Shares.

Its business strategy and competitive position are heavily dependent on the success of its R&D activities and failures to achieve successful innovations would have an adverse impact on the company growth, business and financial condition.

The company relies primarily on third-party insurance policies to insure its operations- related risks. If the company insurance coverage is inadequate, it may have an adverse effect on its business, financial condition and results of operations.

If the company fails to maintain an effective system of internal controls, its may not be able to successfully manage, or accurately report, the company financial risks. Despite its internal control systems, the company may be exposed to operational risks, including internal or external fraud or misconduct by its employees or other third parties, which could adversely affect its reputation and our results of operations.

The company is subject to anti-corruption, anti- bribery, anti-money laundering, financial and economic sanctions and similar laws, and non-compliance with such laws can subject it to administrative, civil and criminal fines and penalties, collateral consequences, remedial measures and legal expenses, all of which could adversely affect its business, prospects, financial condition, results of operations, and cash flows.

The company may be subject to unionization, work stoppages or increased labor costs, which could adversely affect its business and results of operations.

The company regularly work with hazardous substances and activities in its operation which can be dangerous and could cause injuries to people or property.

Its ability to pay dividends in the future will depends on the company earnings, financial condition, working capital requirements, capital expenditures and restrictive covenants of its financing arrangements.

Its may be unable to renew the company existing leases or secure new leases for its existing offices.

The company track certain operational metrics and non-GAAP measures for our operations. Certain of its operational metrics are subject to inherent challenges in measurement and any real or perceived inaccuracies in such metrics may adversely affect its business and reputation.

The company is entitled to certain tax benefits. These tax benefits are available for a definite period of time, which, on expiry or if withdrawn prematurely, may adversely affect its business, financial condition, results of operations, cash flows and prospects.

If the company is classified as a passive foreign investment company for U.S. federal income tax purposes, U.S. investors in Equity Shares may be subject to adverse U.S. federal income tax consequences.

The requirements of being a listed company may strain its resources which may have a material adverse impact on the company operations.