IPO Analysis: TVS Supply Chain Solutions Ltd

IPO Rating: Apply for long term

About the issue:

TVS Supply Chain Solutions provides supply chain management services for international organisations, government departments, and large and medium-sized businesses. The company is coming out with its initial public offering (IPO) of equity shares with a face value of Rs 1 per equity share. The price band of the issue has been fixed at Rs 187 to Rs 197 per equity share. The issue size is Rs 880 crore at a higher price band.

The IPO opening date is August 10, 2023, and it will be closing on August 14, 2023. The issue is likely to be listed on the exchange on August 23, 2023. The IPO market lot size is 76 Shares and in multiple thereof. A retail-individual investor can apply up to a maximum of 13 lots (988 shares or Rs 194,636) at the upper price band.

Objects of the Issue

The company intends to utilize the net proceeds from the issue towards the funding of the following objects:

1. Prepayment or repayment of all or a portion of certain outstanding borrowings availed by the company and subsidiaries, TVS LI UK and TVS SCS Singapore; and
2. General corporate purposes.

Promoter holding

The pre-issue shareholding is 46.65 per cent, post the IPO the promoter stake will be 41.6 per cent.

About the company

TVS Supply Chain Solutions Ltd (TSCSL) is India's largest and fastest growing integrated supply chain solutions provider in terms of revenues and revenue growth in Fiscal 2023 among Indian listed supply chain solutions companies. The Company is a multinational corporation based in India that pioneered the development of the supply chain solutions market in India. It is promoted by the former TVS Group, one of India's most reputable business groups, and is now part of the TVS Mobility Group.

It has managed large and complex supply chains across multiple industries in India for over 16 years and selects global markets through customised tech-enabled solutions. TSCSL has grown significantly during this period. It is an Indian provider of supply chain logistics solutions with global capabilities and networks across the value chain, as well as cross-deployment capabilities. Its technology, combined with deep domain expertise and global expertise, enables it to develop and offer customised solutions to customers, enabling agile and efficient supply chains on a large scale.

Customers outsource portions of their supply chain to it as part of its engagement with them in order to improve efficiency and better manage their resources. TSCSL's solutions, which span the entire value chain from sourcing to consumption, are classified as (i) integrated supply chain solutions (ISCS) and (ii) network solutions (NS). The ISCS segment's capabilities include sourcing and procurement, integrated transportation, logistics operation centres, in-plant logistics operations, finished goods, aftermarket fulfilment, and supply chain consulting. While its capabilities under the NS segment include global forwarding solutions (GFS), which involves managing end-to-end freight forwarding and distribution across ocean, air and land, warehousing and at port storage and value-added services, and time-critical final mile solutions (TCFMS) which involves closed-loop logistics and support including spares logistics, break-fix, refurbishment and engineering support, and courier and consignment management.

During Fiscals 2021, 2022, and 2023, it provided supply chain solutions to 11,546, 10,531 and 8,788 customers globally, while in India, it provided solutions to 1,120, 1,044 and 902 customers respectively. In Fiscals 2021, 2022, and 2023, it added a total of 1,179, 152, and 177 new customers (i.e. new customers to whom the Company did not provide any services the previous year). Its global customers in Fiscal 2023 included 72 'Fortune Global 500 2022' companies, while its Indian customers included 25 'Fortune Global 500 2022' companies.

Its customers come from a wide range of industries, including automotive, industrial, consumer, technology and technology infrastructure, rail and utilities, and healthcare. It has established long-term relationships with a number of clients, which has helped to sustain its revenue and profitability. Some of its customers with whom it had long-term relationships as of March 31, 2023, include Sony India Private Limited (12 years), Hyundai Motor India Limited (13 years), Johnson Controls-Hitachi Air Conditioning India Limited (3 years), Ashok Leyland Limited (17 years), TVS Motor Company Limited (17 years), Diebold Nixdorf (8 years), TVS Srichakra Limited (10 years), Lexmark International Technology Sarl (6 years), VARTA Microbattery Pte Ltd (7 years), Daimler India Commercial Vehicles Private Limited (12 years), Hero MotoCorp Limited (8 years), Modicare Limited (7 years), Panasonic Life Solutions India Private Limited (12 years), Dennis Eagle Limited (17 years), Electricity North West Limited (5 years), Yamaha Motor India Private Limited (7 years) and Torrot Electric Europa, S.A. (3 years).

The company commenced operations as 'TVS Logistics', a division of TVS & Sons in 1995 before being incorporated as a separate company in 2004. The core values of 'TVS' stands for trust, value and customer service.

TSCSL is an asset-light company that leases its warehouses (primarily after-market warehouses, dedicated consumer product and retail warehouses, multi-client facilities, and national distribution centres) and vehicles to its network partners. While it does not own these assets, it has control over its capacity and fleet, and it manages the scheduling, routing, storing, and delivery of goods. Furthermore, it operates customer-owned/leased warehouses.

Financial

On the financial performance front, for the last three fiscals, TSCSL has (on a consolidated basis) posted a revenue/net profit/(loss) of Rs 6933.6 crore /Rs (76.34) crore (FY21), Rs 9249.79 crore/Rs (45.8) crore (FY22), and Rs 10235.38 crore/Rs 41.76 crore (FY23).

Valuation and Outlook

If we attribute FY23 earnings to post-IPO fully diluted paid-up capital, then the asking price is at a P/E of around 202.64. The issue is priced at a P/BV of 10.43 based on its NAV of Rs. 18.89 as of March 31, 2023, and at a P/BV of 4.29 based on its post-IPO NAV of Rs. 45.95 per share (at the upper cap). Thus, the issue appears aggressively priced.

According to the offer document, the company has mentioned TCI Express, Mahindra Logistics, Blue Dart Express and Delhivery Ltd. as its listed peers. They are currently trading at a TTM P/E of 39.4x, 637.93x, 47.7x, and 00 (as of August 09, 2023).

The company has not paid any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy based on its financial performance and future prospects.

The company has maintained its leadership in the supply chain solutions segment. The issue is priced aggressively. However, given the legacy of TVS group, we recommend investors to subscribe the issue with a long term perspective.