TVS Supply Chain Solutions IPO Analysis
Contents
History of company
Industry overview
Geographical presence
Operating metrics
Financials
IPO Size & utilization of funds
Points to consider
Valuation
History of company
TVS Suppy Chain Solutions started in 1995 as a part of TVS Logistics, got separated in 2004,is promoted by TVS group, currently owned partly by TVS Mobility and TS Rajan Rubbers. It operates as an Integrated Supply Chain Solutions provider, right from Sourcing/ Inbound logistics, In plant logistics, Outbound logistics of finished goods and after-market goods. It also operates in critical last mile solutions.Industry overview
Domestic transportation happens 71% via road, 29% by rail. Logistics industry is mainly driven by factors like road quality , government has been spending a lot on roads development- F 23 budget outlay for roads has been 52% higher YOY. Other influencing policy factors- National Logistics Policy, Gatishakti, PLI Scheme, CMVR rules amendment ( truck axle load carrying capacity enhancement).
Logistics spends of India is 13% of GDP ( 8% in US, Europe), Logistics spends industry is Rs 16.8 lakh crore- 65% of which is transportation, and 35% is warehousing and supply chain solutions. 94% is unorganised sector. Organised sector of 6% is projected to grow at 32% CAGR with the industry shifting to integrated solutions provider than a mere transportation provider.
Supply chain solutions market is 86000cr ( projected to grow at 23% CAGR), 72% of which is organized. Biggest industries requiring supply chain solutions are Auto/ Auto Ancilliaries, Retail ( online/ offline), FMCG, Healthcare.
Among the listed organized players, TVS Supply Chain is largest in terms of revenues, holds 7% market share among listed players.
The entire industry is characterized by high debt, low ROCE, cost of manpower as a major cost component and low profitability as on date.
Geographical presence
TVS Supply Chain operates in 26 countries with 70% revenues from outside India. Revenue contribution as follows
India 30%
UK 30%
Europe ( ex-UK) 13%
Australia 8%
North America 7%
4. Operating metrics
Company operates in the major industries contributing to revenues as follows-
Industrial 35%
Auto 25%
Tech 12%
Consumer 12%
Operates in asset-light model- mostly takes warehouse ( 3 year lease) and vehicles on lease, sometimes manages warehousing operations of clients.Top 2 customers contribute 39% of business.
They have long- term relationships ( > 8 years) with Sony, Hyundai, Johnson controls, Daimler CV, TVS Srichakra, Hero, Panasonic etc). This is an important moat for the company.
They operate in the following areas-
1. Integrated supply chain solutions
2. Network solutions ( Air/ Ocean/ Land)
3. Time critical final mile solution ( pickup & delivery of critical parts)
Financials
If we look at the expenses, major expense heads are
Employee 2093 cr ( 20%)
Freight forwarding/ handling 3730 cr ( 36%)
Raw materials 1400cr
EBITDA 45 cr ( EBITDA margin 0.4%)
Goodwill is 600cr ( Total fixed assets 6200cr)
Cash on balance sheet 1080cr
Trade receivables 1230 cr ( 12% of revenues)
Debt equity is 2.6 ,very high.
Total debt 1990 cr, 73% of the debt is in foreign currency.
IPO Size & utilization of funds
Post issue market cap 8600cr.
Total offer of 880cr. IPO 600 cr, OFS 280cr
Promoters TVS Mobility and TS Rajan Rubbers hold 42% stake.
Selling parties on OFS
TVS Motors 2.6%
Kotak fund 4%
Omega TC 3.9%
Out of 600 cr, they will use 525 cr in debt reduction. (Total debt - 1990cr).
Debt/ Equity after this will be 1.93, still high.
Rest funds to be used for operations.
Issue size 600 cr ( 75% for QIB, 15% for NII, 10% Retail )
Points to consider
High debt company with low ROCE though industry growth potential is high.
High freight forwarding cost contribution can jeopardize P & L statement if fuel prices go northwards out of proportion.
73% of debt being in foreign currency, drastic forex changes can lead to unprecedented losses.Valuation
Other companies trade between 40-50.
Listing P/E is 45.
Listing price is 187-197.
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