Evaluating Western Carriers (India) Ltd IPO opportunity; Should you invest?

Between FY22 and FY24, the company achieved a CAGR of 15 per cent in net profit. The impressive growth has been supported by a strong client base, including prominent names such as Tata Steel, Hindalco Industries, Vedanta, Hindustan Unilever, and Cipla.

About the Issue  

Western Carriers (India) Ltd is preparing to launch its Initial Public Offering (IPO) for equity shares. Below are the issue details.

Objects of the Issue  

The offer encompasses both the fresh issue and the offer for sale. It's important to note that the company will not accrue any proceeds from the offer for sale. The company plans to allocate the net proceeds raised from the fresh issue for the following purposes:

1. Prepayment or scheduled repayment of a portion of certain outstanding borrowings availed by the company.

2. Funding of capital expenditure requirements of the company towards the purchase of commercial vehicles, 40-foot specialised containers, 20-foot normal shipping containers and reach stackers.

3. General corporate purposes.

Promoter holding  

Rajendra Sethia and Kanishka Sethia are the promoters of the company. The promoters and promoter group currently hold a pre-issue shareholding stake of 99.99 per cent in the company.

Company profile  

Western Carriers (India) Ltd is India's largest private, multi-modal, rail-focused 4PL asset-light logistics company, based on container volumes handled by private players in FY23.

With extensive expertise in road, rail, and sea/river multi-modal transportation for both domestic and EXIM cargo, the company offers value-added services like inventory and warehouse planning, cargo handling, packaging, customs clearance, pre-shipment inspection, and containerization.

In FY23, Western Carriers held a 6 per cent share in the domestic market and a 2 per cent share in the EXIM market by container volumes handled.

The company has built long-standing relationships with clients across sectors such as metals, FMCG, pharmaceuticals, chemicals, engineering, oil & gas, and retail, with prominent names like Tata Steel, Hindalco Industries, Vedanta, Hindustan Unilever, and Cipla among its clientele.

Financials  

The company has shown consistent growth in both revenue and net profit over recent years. Between FY22 and FY24, the company recorded a Compound Annual Growth Rate (CAGR) of 7 per cent in revenue and 15 per cent in net profit. In FY24, the company reported an impressive Return on Equity (RoE) of 22 per cent and a Return on Capital Employed (RoCE) of 29 per cent.

Valuation and outlook  

The issue is priced with a P/BV ratio of 3.40 times, calculated using its Net Asset Value (NAV) of Rs 50.62 as of March 31, 2024. At the upper price cap, it is priced at a P/BV ratio of 2.20 times, considering its post-IPO NAV.

When we calculate the PE ratio for the company by considering the FY24 earnings relative to the fully diluted paid-up equity capital, the resulting PE ratio stands at 17. Considering both valuation and returns, the company has significantly outperformed its listed peers.

A limited number of key customers accounts for a significant portion of the company's revenues, which creates a risk of customer concentration. Additionally, long payment cycles are a major risk factor for the company.

The logistics industry is experiencing a highly optimistic environment, fuelled by government initiatives like the National Logistics Policy and Gati Shakti, aimed at enhancing infrastructure and streamlining operations. With a growing focus on multimodal transportation, improved supply chains, and rising demand from sectors like e-commerce, manufacturing, and exports, the company is well-positioned to capitalise on these emerging opportunities.

Therefore, we recommend investors consider subscribing to the issue with a long-term investment perspective.