Reblog: Future Supply Chain IPO review

Future Supply Chain Solutions Ltd. (FSC) is one of India’s largest organized third-party logistics service operators. It offers automated and IT-enabled warehousing, distribution and other logistics solutions to a wide range of customers. Company’s service offerings, warehousing infrastructure, pan-India distribution network, “hub-and-spoke” transportation model and automated technology systems support its competitive market position. FSC’s customers operate in various sectors across India, including retail, fashion and apparel, automotive and engineering, food and beverage, fast moving consumer goods (“FMCG”), e-commerce, healthcare, electronics and technology, home and furniture and ATMs. According to management, its business model enables it to act as a service provider that can comprehensively cover customers’ supply chain needs. It currently operates with 14 hubs, 106 branches and dedicated containerized fleet of 526 vehicles. Its Mihan-Nagpur distribution center is the most modern and highly automated one.

FSC provides services in three areas i.e. 1. Contract Logistics: warehousing, distribution and other value-added services; 2. Express Logistics: point-to-point, less-than truck-load, time-definite transportation services; and 3. Temperature-Controlled Logistics: cold-chain warehousing, transportation solutions and distribution of perishable products. On one hand implementation of GST with “one nation – one tax” regime, logistics and warehousing scenario is going to change with major work being outsourced, on the other hand, logistics segment being tagged as infrastructure sector is going to bring more investments and expansion. FSC being the first mover in this arena is going to benefit immensely going forward on both these counts.

FSC is coming out with a maiden secondary IPO by way of offer for sale from existing stakeholders for providing partial exit as well as listing gains. It is offering 9784570 equity shares of Rs. 10 each via book building route with a price band of Rs. 660-664 to mobilize Rs. 645.78 – Rs. 649.70 crore (based on lower and upper price bands). Issue opens for subscription on 06.12.17 and will close on 08.12.17. Minimum application is to be made for 22 shares and in multiples thereon, thereafter. Post allotment shares will be listed on BSE and NSE. Offer constitutes 24.43% of the post issue paid up capital of the company. BRLMs to this offer are Edelweiss Financial Services Ltd., CLSA India Pvt. Ltd., Nomura Financial Advisory & Securities (India) Pvt. Ltd., IDFC Bank Ltd., IIFL Holdings Ltd. and Yes Securities (India) Ltd. Link Intime India Pvt. Ltd. is the registrar to the offer. Having issued equity shares at par from March 2006 to June 2009, it raised further equity in the price range of Rs. 135 to Rs. 599.16 between August 2009 and November 2017. Being OFS, its post issue paid up capital remains same at Rs. 40.06 crore. Cost of acquisition of shares by promoters is Rs.23.49 per share and by PE firm Griffin is Rs. 323.02 per share.

On performance front, FSC has reported turnover/net profits of Rs. 410.72 cr. / Rs. 24.66 cr. (FY15), Rs. 528.47 cr. / Rs. 29.43 cr. (FY16) and Rs. 576.99 cr. / Rs. 45.75 cr. (FY17). For first half of the current fiscal it has posted net profit of Rs. 33.33 cr. on a turnover of Rs. 365.20 cr. FSC has posted CAGR of 17.3% in revenues and 36.2% in PAT for FY15-17. Company has reported an average EPS of Rs. 9.13 and average RoNW of 13.7% for last three fiscals. Issue is priced at a P/BV of 7.97 on the basis of NAV as on 30.09.17. If we annualize latest earnings and attribute on post issue equity then asking price is at a P/E of around 40 against listed peer Mahindra Logistics trading at a P/E of around 67. Post GST due to understanding of its impact FSC witnessed down trend in third party service providing, but now it’s the past and more new third party services are being lined up. On real terms, it has no listed peers to compare with as it is the first mover with fully automated technology system support in place.

On BRLMs front, six merchant bankers associated with the offer have handled 38 public offers in the past three years, of which 10 issues closed below the offer price on listing date.

Conclusion: FSC happens to be the first mover in automated technology system support in consumption related segments; it will attract more fancy post listing going forward. Investors may consider investment for medium to long term. (Subscribe).

The original review has been written by Dilip Davda, appears on and is available here.

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