IPO Size: Rs. 1,115 cr

• Rs. 550 cr Fresh Issue for (i) sales and marketing Rs. 200 cr (ii) capital for lending business Rs. 150 cr (iii) product development Rs.75 cr
• Rs. 565 cr Offer for Sale (OFS) by promoter (34% stake to drop to 28%) and 7 financial investors (44% stake to reduce to ~28% post IPO)

Price band: Rs. 259-273 per share

• Only 10% for retail, as losses from FY22 to FY24

M cap: Rs. 4,818 cr, implying 23% dilution

IPO Date: Wed 13^th Nov to Mon 18^th Nov 2024, Listing Thu 21^st Nov 2024

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

India’s Largest Trucking Platform

Zinka Logistics Solutions, operating under brand name BlackBuck, is a 9 year old technology solutions provider, to 9.6 lakh truck operators in India, mainly small operators (having <5 trucks). It provides solution for:

1. Payments for fuel and toll. Earns nearly 70 bps on recharge amount, which account for 40% of Rs. 300 cr revenue in FY24
2. Telematics (GPS, fuel sensor) and Loads Marketplace (for listings and freight brokerage) generate subscription fees for company, amounting to 40% of revenue
3. Vehicle Financing (20% of revenue) – till date, Rs. 253 cr has been lent towards 5,109 used-vehicles through 3^rd party financiers and own NBFC (started from Oct 2023).

Turned Profitable in Q1FY25

On FY24 topline of Rs. 297 cr, Zinka reported EBITDA of negative Rs. 139 cr, which adjusted for ESOP cost, stood at Rs. 13 cr (4% adjusted EBITDA margin). Net loss for FY24 stood at Rs. 167 cr.

Q1FY25 revenue rose 56% YoY to Rs. 92 cr, with operating leverage leading to an EBITDA of Rs. 40 cr and an adjusted EBITDA of Rs. 18 cr. Net profit, excluding exceptional and discontinued operations of contract freight business (wef Aug 2024), stood at Rs. 7 cr, leading to net margin of 7.4% and an EPS of 43 paise for the first quarter. On Rs. 345 cr net worth, company’s RoE stands in single digit.

More than Fully Valued

On an optimistic FY25E EPS of Rs. 2.6, shares are being offered at a PE multiple of 105x, on current year basis, which is more than fully priced. Even the EV/sales multiple of 12x is seen stretched. Peer CE Info Systems, offering telematics to B2B customers under brand MapMyIndia, clocks 30% net margin, 21% RoE and trades at a PE multiple of 80x.

While Zinka’s business model holds potential with high operating leverage, the IPO valuation is not welcoming. No wonder some investors like Peak XV and VEF are selling at a loss of 12% and 43% in the IPO respectively from their cost price.

Closing Thoughts

• 70 bps margin of payments business looks unsustainable in the long term
• Used vehicle financing is a competitive space and company’s underwriting skills are yet to be tested, which is a ‘make-or-break’ for lending business
• Fresh issue component of Rs. 550 cr to be used over FY25-FY27E looks unnecessary, as company has surplus cash of Rs. 224 cr as of 30.6.24 (net of Rs. 160 cr debt)
• Current secondary market conditions offer ample opportunities of companies with higher earnings visibility at more attractive valuation. Refer these in our Member Zone.