NAVKAR CORPORATION

Navkar Corporation (NCL) is majorly engaged in providing services of Container Freight Station (CFS). Custom Freight Station offers a wide range of services including customs clearance, handling and the temporary storage of import or export laden and empty containers. It has three CFS’ units, which are strategically located in Panvel, Maharashtra, in close proximity to the JN Port, the largest container port in India. It will hit the capital market on August 7 with its initial public offer (IPO) and close on August 24, 2015. The price band at which company is offering its share is Rs 147-155 and aims to raise Rs 600 crore in the upper price band by issuing 3.87 crore equity share of Rs 10 each (fresh issue for Rs 510 crore + offer for sale of Rs 90 crore).

The main objectives of the issue, especially 85 per cent through a fresh issue, are: (a) capacity enhancement of the Somathane CFS, (b) development of the non-notified areas of their CFS’, and (c) establishment of a logistics’ park at Valsad (near Vapi) (together, “Objects of the Fresh Issue”). Further, the company expects that the listing of the equity shares will enhance the visibility and brand image among their existing and potential customers. No funds from the ‘Offer for Sale’ will be attributed to the company as the same will be utilised towards part repayment/pre-payment of its existing shareholders.

As of May 31, 2015, its CFS’ had an aggregate installed handling capacity of 3,10,000 TEUs per annum on the basis of current infrastructure and operating equipment. The company also owns and operates a private railway freight terminal (PFT) equipped with 461 trailers for the transportation of cargo between CFS’ and the JN Port by road. As of May 31, 2015, it also owns and operates 516 trailers for the transportation of cargo between CFSs and the JN Port by road. The company also offers cargo storage facilities at CFS’ and additionally services of packing, labelling/bar-coding, palletizing, fumigation and other related activities are also provided at the warehouse which occupies an aggregate area of 5,00,000 sq. feet.

On the negative front, the company has benefitted majorly due to high traffic at JN Port which, if in case it does not increase as projected, could have an adverse effect on its business operations and financial condition. With effect from April 1, 2014 the company has discontinued one of its segments i.e. trading of agro products, which was reaping substantial portion of revenues.

On the financial front, on a consolidated basis the company has posted turnover and net profit of Rs 338 crore/Rs 56.7 crore (FY13), Rs 370.2 crore/Rs 90 crore (FY14) and Rs 330.9 crore/Rs 73.1 crore (FY15). Thus, for the last fiscal, it has suffered a setback. Overall, net profit grew at a compounded growth rate of 16 per cent. Based on the earnings of FY15, the issue is priced at 30 and 29 times its earnings at the upper and lower price band respectively.

As regards the valuation, at a higher price band the company is available at a P/E of 30.71x post issue equity share as against its peers such as Allcargo Logistics and Gateway Distriparks which are trading at around P/E of 17 and 22 respectively. In FY15, NCL’s return on net worth (RoE) was 9.8 per cent, while those of Allcargo and Gateway were 13.4 and 20.7 per cent respectively. Looking at the company’s fundamentals and valuation we believe the subscriber should avoid this issue due to higher valuation than its established listed peers.