Indo Farm Equipment Ltd

Risks

• The company derives a significant portion of its revenue from the sale of tractors (approximately 52.16%) & Pick & Carry cranes (Approximately 47.77%) during the Fiscal 2024 and any reduction in demand or in the manufacturing of such products could have an adverse effect on its business, results of operations and financial condition.

• If the company is not able to obtain, renew or maintain its statutory and regulatory licenses, registrations and approvals required to operates its business, it may have a material adverse effect on the company`s business, results of operations and financial condition.

• The company proposed expansion plans w.r.t its new manufacturing facilities being set up are subject to the risk of unanticipated delays in implementation and cost overruns.

• Average Capacity utilization for FY 2022 to FY 2024 is 32% for tractors and 87% for cranes. Under-utilization of our manufacturing capacities and an inability to effectively utilize its expanded manufacturing capacities could have an adverse effect on its business, future prospects and future financial performance.

• The company has not yet placed orders in relation to the capital expenditure to be incurred for the proposed expansion project. In the event of any delay in placing the orders, or in the event the vendors are not able to provide the machines and equipments in a timely manner, or at all, may result in time and cost over-runs and its business, prospects and results of operations may be adversely affected.

• The capacity expansion for the manufacturing of Pick & Carry cranes is based on the expected domestic demand in India, with no confirmed order book for the additional production, and the company sales are concentrated primarily in India, making it vulnerable to market fluctuations, regulatory changes, and economic downturns.

• The company has recorded low growth in Revenue and PAT margins in the last three Fiscals of the Company and its Subsidiary. The company PAT Margin for the quarter ended June 30, 2024, for Fiscal 2024, Fiscal 2023 and Fiscal 2022 were 3.27%, 4.16%, 4.15% and 3.90% respectively.

• Its ability to sell tractors is heavily dependent on financing support from Banks, NBFCs, and the company subsidiary NBFC, which exposes it to risks related to financing availability, regulatory compliance, and operational performance of its subsidiary NBFC.

• The Company, its Promoters, its Directors, and its Subsidiary are parties to certain legal proceedings. Any adverse decision in such proceedings may have a material adverse effect on its business, results of operations and financial condition.

• The geographical concentration of its manufacturing facilities in Himachal Pradesh may restrict the company operations and adversely affect its business and financial conditions.

• The Company has received complaints after filing of the Draft Red Herring Prospectus and receiving observations from SEBI, alleging misreporting in its financial statements and non compliance with applicable law in relation to leasehold land and other aspects. These complaints by third parties may adversely affect its reputation and business.

• Its top ten customers/ dealers contribute to 39.10%, 23.13%, 19.73% and 23.63% for the period ended June 30, 2024 and financial years ended March 31, 2024, March 31, 2023 and March 31, 2022 of its revenue from operations. If the company existing dealers does not deal with it, or the company relationships are impaired or terminated, its revenue could decline, and its results of operations would be adversely impacted.

• The value of its Primary security (the company obtain only primary security in form of hypothecation of tractor and no collateral is available except personal guarantee) may decrease or its may experience delays in enforcing Primary security when borrowers default on their obligations, which may result in failures to recover the expected value of collateral security exposing it to potential loss.

• Non-compliance with RBI norms and direction or other regulatory requirements could lead to adverse actions from such regulatory bodies, which may have a material adverse effect on its business, financial condition, results of operation or cash flows.

• Any failures on its part to effectively manage the company inventories along with fluctuations in operational scale and inventory levels, may result in an adverse effect on its operating results and financial condition.

• Operational Inefficiencies, Inventory management risks, and raw material price volatility may adversely impact financial performance and sustainability.

• Its revenue from manufacturing operations is significantly concentrated in the top 5 states, which contributed to 68.27%, 56.92%, 63.07% and 62.81% to its total revenue for the Fiscal Year 2021-22, 2022-23, 2023-24 and period ended June 30, 2024 respectively. Any adverse political or economical stability in such States may have a material adverse effect on its business, results of operations and financial condition.

• The company relies on its top 10 suppliers for raw materials and work-in-progress goods, but operate without long-term or binding agreements with any suppliers. Any shortages, delays, or disruptions in supply may have a material adverse effect on its business, financial condition, results of operations, and cash flows.

• External Factors shall impact its tractor demand and business operations such as government policies, agriculture sector, changes in diesel prices, bank credit extended towards tractors, seasonality of demands etc.

• The Objects of the Offer for which funds are being raised have not been appraised by any bank or financial institution. The fund requirements, the deployment of funds and the intended use of the Net Proceeds as per the details mentioned in the section titled "Objects of the Issue" are based on its current business plan, management estimates, current and valid quotations and other commercial and technical factors. Any revision in the estimates may require us to reschedule its expenditure and may have a bearing on the company expected revenues and earnings.

• During Fiscal 2022 to Fiscal 2024, the company derives more than 99% of its revenue of tractor division from dealers. Pricing pressure may adversely affect its gross margin, profitability and ability to increase the company prices, which in turn may materially adversely affect its business, results of operations and financial condition.

• The Improper handling, manufacturing or storage of raw materials or products, damage to such raw materials and products, could subject it to regulatory and legal action, damage the company reputation and have an adverse effect on its business, results of operations and financial condition.

• Some of its business operations are being conducted on leased / rented premises. The company inability to seek renewal or extension of such leases may materially affect its business operations.

• Adverse changes in its credit ratings could materially adversely affect the company ability to raise funds and hence affect its financial conditions.

• Any failures of the company information technology systems could adversely affect its business and the company operations.

• Information relating to the installed capacity, actual production and capacity utilization of its manufacturing facilities included in this Red Herring Prospectus are based on various assumptions and estimates and future production and capacity may vary.

• The company is dependent on a number of key personnel, including its senior management, and the loss of, or the company inability to attract or retain such persons could adversely affect its business, results of operations and financial condition.

• The company relies on third-party transportation providers for both procurements of its raw materials and distribution of the company products. Any failures by any of its transportation providers to deliver the company raw materials or its products on time, or in good condition, or at all, may adversely affect the company business, financial condition and results of operations.

• There are certain instances of delay in payment of provident fund by the Company. Any further delay in payment of provident fund may attract financial penalties from the authority and in turn may have a material adverse impact on its financial condition and cash flows.

• The Company is involved in an outstanding legal proceeding pending before the Honble National Company Law Tribunal Chandigarh Bench. An adverse outcome of the proceeding could have an adverse impact on the Company`s business, results of operations and financial condition.

• The Offer Price, market capitalization to revenue multiple based on the Offer Price of the Company, may not be indicative of the market price of the Company on listing or thereafter.

• As on June 30, 2024, the company has certain contingent liabilities aggregating to Rs. 200.34 million that have not been provided for in the Company`s financials, which if realized, could adversely affect its financial condition.

• Its Promoters and Promoter Group will, even after the completion of the Issue, continue to be the company largest Shareholders and can influence the outcome of resolutions, which may potentially involve conflict of interest with the other Shareholders.

• The company has reported negative net cash flows in the past and may do so in the future.

• Any inability on its part to collect amounts owed to it could result in the reduction of the company profits.

• Its business is both manpower and machine intensive. The company business may be adversely affected by Strikes, work stoppages, increased wage demands by its employees, or any other kind of disputes with the company employees, and if its unable to engage new employees at commercially attractive terms.

• Its inability to fulfill the export obligation under the EPCG scheme could subject it to payment of customs duties together with interest thereby adversely impacting its financial condition.

• Its insurance coverage may not be sufficient or may not adequately protect it against all material hazards, which may adversely affect its business, results of operations and financial condition.

• A slowdown or shutdown in its manufacturing operations of the company manufacturing facilities could have an adverse effect on its business, results of operations and financial condition.

• Some of its borrowings carry restrictive covenants or conditions and could affect the company ability to manage its business operations.

• The company has in the past entered into related party transactions and may continue to do so in the future, which may potentially involve conflicts of interest with the equity shareholders.

• The Company has issued Equity Shares during the last twelve months at a price which may be lower than the Offer Price.

• The company faces competition from established competitors in the market having their own strong Non-Banking Financial Company (NBFC) network.

• Its Promoter and members of Promoter Group have mortgaged their personal properties and provided personal guarantees for its borrowings to secure the company loans. Its business, financial condition, results of operations, cash flows and prospects may be adversely affected by the revocation of all or any of the personal guarantees provided by its Promoter and members of Promoter Group in connection with the Company`s borrowings.

• Failures to meet the quality standards required by the market and by auto industry regulators could materially adversely affect its results of operations and financial conditions.

• Its business is subject to seasonality. Lower revenues in the harvest time of any Fiscal may adversely affect its business, financial condition, results of operations and prospects.

• The company failures to identify and understand evolving industry trends and preferences and to develop new products to meet its end customers` demands, which may materially adversely affect the company business.

• Activities involving our manufacturing process can be dangerous and can cause injury to people in certain circumstances and could expose it to the risk of liabilities, loss of revenue and increased expenses.

• Any failures to protect or enforce its rights to own or use trademarks and brand names and identities could have an adverse effect on its business and competitive position.

• Product liability and other civil claims and costs incurred because of product recalls could harm its business, results of operations and financial condition.

• Pursuant to listing of the Equity Shares, its may be subject to pre-emptive surveillance measures like Additional Surveillance Measure ("ASM") and Graded Surveillance Measures ("GSM") by the Stock Exchanges in order to enhance market integrity and safeguard the interest of investors.

• A significant change in the regulatory environment, government schemes or duty exemptions could disrupt its business and may affect the company cash flow and financial condition and the price of its Equity Shares.

• In addition to normal remuneration, other benefits and reimbursement of expenses of some of its directors (including the company Promoter) and Key Management Personnel are interested in the Company to the extent of their shareholding and dividend entitlement in the Company.

• Its future success will depends on the company ability to effectively implement its business and growth strategies failing which the company results of operations may be adversely affected.

• Competition in the industries in which the company operates could result in a reduction in its market share or requires it to incur substantial expenditures on advertising and marketing, either of which could adversely affect its business, results of operations and financial conditions.

• Conflicts of Interests may arise with its Promoter Group Entities in the future.

• If the company pursue strategic acquisitions or joint ventures, its may not be able to successfully consummate favourable transactions or successfully integrate acquired businesses.

• The company faces foreign exchange risks that could adversely affect its results of operations and cash flows.

• The Company will not receive any proceeds from the Offer for sale by the Selling Shareholders.

• Its may be subject to fraud, theft, employee negligence or similar incidents.

• Any material deviation in the utilization of the Net Proceeds as disclosed in this Red Herring Prospectus shall be subject to certain compliance requirements, including prior approval of the shareholders of the Company.

• The Company has not paid dividends in the last 3 Fiscals. There can be no assurance that the Company will be in a position to pay dividends in the future.

• The company relies on contract labor to some extent for carrying out certain of its operations and its may be held responsible for paying the wages of such workers, if the independent contractors through whom such workers are hired default on their obligations, and such obligations could have an adverse effect on its results of operations and financial condition.

• Certain Industry information included in this Red Herring Prospectus has been derived from the Company commissioned B2K Analytics Industry Report and the Company had paid for such Industry Report.