Accuracy Shipping

Verdict: Not an attractive sail

IPO Snapshot:

Accuracy Shipping is entering the primary market on Monday 11^th June 2018 with a fresh issue of up to 43 lakh equity shares of Rs. 10 each in the price band of Rs. 81 to Rs. 84 per share. Representing approximately 28% of the post issue paid-up share capital, issue will raise Rs. 35.8 crore at the upper end of the price band, and close on Thursday 14^th June. Listing on NSE Emerge (SME exchange) is likely on 22^nd June.

Company Overview:

Accuracy Shipping is a Gujarat based end-to-end multi-modal logistics player, serving 1,300 clients, mainly engaged in import-export of marble, Besides own fleet of over 150 vehicles to meet inland transportation needs, company hires fleet from third-party for its operations spread across 35 countries, such as South Africa, Egypt, Turkey, Italy, Colombo etc. In May 2018, it undertook a pre-IPO placement of 6.8 lakh equity shares, at Rs. 84 per share (upper end of price band), raising Rs. 5.7 crore from Pantomath Fund (BRLM’s group firm), Kenneth Andrade’s Vantage Equity Fund and 8 individual investors.

Objects of Issue:

Fresh issue proceeds of Rs. 35.8 crore are proposed to be used for:

1. Working Capital Rs. 15.0 crore
2. Loan repayment Rs. 7.5 crore
3. Purchase of goods transport vehicle Rs. 5.2 crore
4. General corporate purposes and issue expenses Rs. 8.1 crore

Shareholding Pattern:

Currently, promoters hold 86.30%, while 4.96% is held by Pantomath, 1.11% by Vantage Fund and balance 7.63% by 12 individual shareholders. Post IPO, promoter holding will contract to 61.90%.

Financial Performance:

From FY15, company’s turnover increased at 30% CAGR, from Rs. 161 crore in FY15 to Rs. 266 crore in 9MFY18, while EBITDA margin, which has historically been around 2%, has improved to 7% in 9MFY18. Net profit for 9MFY18 was at Rs. 6.8 crore, against FY17 net profit of Rs. 2 crore, resulting in 9mFY18 EPS of Rs. 7.24, on equity of Rs. 10.12 crore. It is surprising to see that interest cost for 9MFY18 stood at Rs.2.54 crore, as against FY17’s Rs. 2.66 crore, when total debt as of 31-12-17 more than doubled to Rs. 39 crore, from Rs. 18 crore as of 31-3-17. Even if we give the benefit that most debt would have increased towards a later half of the 9 month period, it means interest burden for Jan-Mar 2018 quarter will be quite steep. Company’s growth has been funded by high proportion of debt, with total debt rising from Rs. 8 crore (31-3-15) to Rs.39 crore (31-12-17), leading to net debt to equity ratio of 1.3:1, on net worth of Rs. 21 crore, as of 31-12-17. Post IPO, however, the debt equity ratio will moderate to 0.5:1.

Valuation:

At Rs. 84 per share, company’s market cap will be Rs. 126 crore, with EV of Rs. 157 crore, which leads to EV/EBITDA and PE multiples of 6x and 14x respectively, based on FY18E performance, and 5x and 10x on FY19E respectively. Given its size and scale of operations, these multiple are in line with main bourse peers and higher than SME peers. NSE Emerge listed Total Transport Systems, with FY18 topline of Rs.200 crore and higher net margin of 4%, is currently ruling at PE multiple of 6 times FY18 earnings. While Accuracy’s  financial growth since FY15 has been encouraging, one must gauge performance for few more quarters post listing, if margins can catch up to (main board) peers who clock double digit EBITDA margins.  

Positive:

• 9MFY18 performance has been very good, with healthy topline growth and margin expansion, with net margin improving from 1% in FY17 to 2.6% in 9MFY18. 
• Debt to equity ratio will drop to 0.5:1 post listing, from 1.8:1, as of 31-12-17.

Negatives:

• Company operates in a highly competitive sector, with low barriers to entry, with large presence of unorganized players, which keeps margins slim and under pressure.
• While the financials have improved since the past couple of years, scale of operations is still low, with profitability needing to catch up, both in absolute terms and on peer comparison.

Conclusion:

While Accuracy Shipping has shown healthy growth in the past couple of years, it is still not attractive enough, both in terms of margins and valuations. Hence IPO can be given a miss. 

Disclosure: No interest.