IPO Size: Rs. 493 cr

• Rs. 400 cr is Fresh Issue for (i) Rs. 164 cr debt repayment, out of Rs. 352 cr gross debt (ii) Rs. 152 cr capex, over 3 fiscals
• Rs. 93 cr is Offer For Sale (OFS) by the promoter (100% stake to drop to 72%)

Price band: Rs. 163-172 per share

M cap: Rs.1,754 cr, implying 28% dilution

IPO Date: Fri 13^th Sep to Wed 18^th Sep 2024, Listing Mon 23^rd Sep 2024

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

Asset-Light Logistics Company

Kolkata-headquartered Western Carriers is India’s largest private, multi-modal, rail focused, 4PL (fourth-party logistics) company in terms of container volumes handled by private players, with a domestic and exim (export-import) container market share of 6% and 2% respectively.  

Capex for Growth

Having invested Rs. 30 cr capex in FY23 and FY24 each, fixed assets have doubled in past 2 years, to Rs. 71 cr, as of 31.3.24. Another Rs. 50 cr annual capex is planned for FY25E to FY27E, providing healthy growth visibility. However, since company’s business is tailored for customers (in metals, FMCG, pharma sector), this capex can not be easily quantified for incremental revenue.

Average Financials

Due to middle-east crisis, FY24 revenue grew at just 3% YoY (against 11% YoY growth in FY23) to Rs.1,686 cr. Operating leverage lead to a high profit growth, with PAT up 12% YoY to Rs. 80 cr, translating into a net margin of 4.8%, up 38 basis points YoY. EPS stood at Rs. 10.2 for FY24, on an equity of Rs. 39 cr and a net worth of Rs. 398 cr. Gross debt of Rs. 352 cr, as of Jul 2024, will halve, post repayment from IPO proceeds.  

Attractive Valuation

Interest cost savings on retiring half the debt and sizeable capex undertaken till date lead to an estimated FY25E EPS of about Rs. 10.75. This translates into a PE multiple of 16x on current year basis, which is attractive for 22% RoE and an asset light business model (capital needed only for receivables financing).   

Western’s net margin of mid-single digit is lower than B2B peers TCI Express (10%) and Container Corp (14%) ruling at PE multiples of 31x and 41x respectively, which is adequately compensated by a lower valuation multiple. Some logistics companies such as Mahindra Logistics and TVS Supply Chain are loss making, even having attained scale. 

Supportive Government of India policies around Dedicated Freight Corridor and Multi-Modal Logistics Parks, act as a tailwind for Western Carriers, making the sector efficient and cost optimal.