International Tractors plans to raise Rs1,200 crore via IPO in 20163 min read . Updated: 10 Dec 2015, 10:23 AM IST
PE major Blackstone, which bought a 12.5% stake for $100 million in 2012, is reportedly mulling a partial exit
Mumbai: International Tractors Ltd (ITL), the makers of Sonalika tractors, is planning to raise as much as ₹ 1,200 crore through an initial public offering (IPO), according to three people aware of the development, who spoke on condition of anonymity.
The Delhi-based company is the third largest maker of tractors in the country.
“The firm has been in discussions with investment banks for the last few months and is currently in the process of hiring banks for handling the IPO process. They are looking to hire around four banks," said the one of the people cited above.
Global private equity major Blackstone Group Lp, which invested $100 million for a 12.5% stake in the company in 2012, is looking to make a partial exit through the IPO, said a second person aware of the development. “A large portion of the IPO will be an offer for sale from Blackstone. However, the exact stake that the fund will sell is yet to be decided as it will be a function of investor interest for the issuance and the valuation they are able to get. Depending on the final valuation, the IPO size could range between ₹ 1,000 crore and ₹ 1,200 crore," he said, adding that the firm is looking to launch the IPO in the second half of the next calendar year.
The promoters will also dilute some of their holding in the company and the firm might not raise primary capital from the IPO, he said. “ITL is a zero-debt company and has almost ₹ 1,400-1,500 crore cash on its books, which can help them fund any near-term expense on capacity enhancement or small acquisitions, if needed."
A.S. Mittal, vice-chairman, ITL, declined to comment on the firm’s IPO plans. Blackstone did not respond to questions emailed on Tuesday.
The 20-year-old firm had sales close to ₹ 4,000 crore in 2014-15, according to the third person cited above. “The company is about to start a new production facility with a capacity of 40,000 units, taking its total production capacity to 100,000 units a year," he said.
Though most tractor makers were hit by this year’s weak monsoon, ITL has performed relatively better because of robust exports, he added.
Overall, tractor sales declined 20% in the first half of the current fiscal year, Mint reported on 26 October. Weak monsoon, lower minimum support price of crops and a crisis in the sugarcane industry crimped demand.
The decline is the sharpest since 2003, a year when India faced a severe drought.
During April-September, ITL’s tractor sales fell 16.7% to 30,209 units from 36,279 units a year ago. Mahindra and Mahindra group saw its tractor sales decline 21.8% to 101,289 units and TAFE’s sales declined 21.2% to 58,828 units.
According to Abdul Majeed, partner, national automotive leader at consulting firm PricewaterhouseCoopers (PwC), despite the drop in sales this year, the tractor market continues to hold potential over the medium to long term. “The market is still under-penetrated in terms of mechanization, and the government is also highly focused on increasing agricultural productivity," he said.
In recent years, tractor makers have increased exports and launched farm equipment, hedging the monsoon risk to some extent.
The ITL IPO move comes as Blackstone seeks to sell several of its India investments. The investor, which established its office in India in August 2005, has since then committed nearly $5 billion in the country. Its corporate PE arm invests out of Blackstone Capital Partners VI global fund, which has a corpus of $16.2 billion. The PE arm of Blackstone in India has committed around $1.9 billion in equity across 20 transactions.
This year, the fund has sold two of its investments and expects to sell a few more. In total, it has exited four investments, including Intelenet Global Services, Agile Electric, CMS Info and Emcure Pharmaceuticals Ltd. The fund has also made a partial exit from S.H. Kelkar and Co. Ltd through an IPO. Another Blackstone portfolio company, Nuziveedu Seeds Ltd, is also expected to launch an IPO in the coming months.