Future Supply Chain IPO fairly valued, say analysts

Mumbai: As the initial public offering (IPO) of Future Supply Chain Solutions Ltd opens for subscription on Wednesday, analysts said that the issue is fairly priced. The IPO of the logistics arm of Kishore Biyani-led Future Group has set a price band of Rs660-664 per share and will close on 8 December. The third party logistics (3PL) company aims to raise Rs650 crore through the sale.

According to Centrum Broking Ltd, at the higher end of the price band of Rs664, the issue is priced at price to equity (PE) of 58.1 times on FY17 and 39.9 times on first half of FY18 basis, which appears to be fairly valued. “In case of closely listed peers like Mahindra Logistics, which recently came out with an IPO that was at an expensive valuation, is currently trading at Rs 441, 3% above its issue price of Rs 429 and PE of 68.8 times on FY17 basis. However, given that the current goods and service tax (GST) environment has good growth opportunities for organized 3PL players, the stock’s performance post listing could depend on its ability to capture the same,” the brokerage firm said in a note on 4 December.

It said that FSCS has an asset light business model where in the company leases out warehouses and certain vehicles which gives it the flexibility to customize services.

Over FY15-17, the company registered revenue and net profit compound annual gross rate (CAGR) of 17% and 36%, respectively. Earnings before interest, tax, depreciation and amortization (EBITDA) margins contracted to 13.2% in FY17 from 15.7% in FY15.

Antique Stock Broking Ltd said that at the higher end of the price band of Rs664, the stock is valued at 57 times FY17 and 39 times FY18 PE which is fair. “FSC offers attractive medium to long term growth opportunities, as industry proportion of 3PL grows. While we like the story as one of the key 3PL play especially in the context of expected pickup in relevance of 3PL in GST regime, we believe the IPO is fairly priced versus peers at offered valuations,” it said in a report on 1 December.

According to Antique the stock could be further rerated on the company’s ability to duplicate the success and learning of the anchor group’s supply chain management to outside group customers, improvement of working capital cycle for the company and turnaround of investment in Coldchain segment.

It added that despite diversification into non-Future group clients, FSC’s dependence on the parent group has still been very high while contribution from Future group in fact moved up to 70% in six months of FY18 from 62% in FY17. “For the Contract logistics segment, the revenue contribution proportion from parent group is even higher. Business from parent group has been much stronger owing to consolidation/expansion of group,” Antique said.

GEPL Capital Pvt. Ltd feels that any failure to maintain the company’s relationship with these key customers (Future entities) will have a material adverse effect on its financial performance and results of operations.

Parent Future Enterprises Ltd and special situations fund SSG Capital will collectively sell 9.78 million shares. The offer will see a total stake dilution of 24.43%. The company will not receive any funds raised from the issue. The object of the issue is to achieve benefits of listing and enhance company’s visibility and brand image along with providing liquidity to its shareholders.