Zinka Logistics filed its draft red herring prospectus with the markets regulator, SEBI, on July 08. Here are some key risks that the company outlined in its DRHP:
Six Key Risks in Zinka Logistics DRHP
Negative Cash Flow in Past
Zinka Logistics and its subsidiary TZF Logistics Solutions incurred losses and had negative operating cash flows in the past, along with another subsidiary, BlackBuck Finserve, facing a similar issue. The company had a loss before tax of Rs 194.45 crore in the financial year 2024, Rs 297.15 crore in FY23, and Rs 293.42 crore in FY22.
Zinka Logistics sales and marketing expenses for FY24 were Rs 157.78 crore, which was 32.6% of the total expenditure on a standalone basis. While the figure was higher in FY23 standing at Rs 177.71 crore, over 41% of total expenditure.
Highly Dependent on Business Partners
The company depend on its business partners for payments and vehicle financing offerings. The company’s partners in payment offering contributed 45.26% of total revenue in FY24. “The loss of any such partners may adversely affect our business, results of operations and financial condition,” said the Zinkalogistics. The company’s business is highly dependent on the bank it has partnered up with to provide FASTag, in FY24 the company’s 33.51% revenue came from this partner. Also, “We enter into non-exclusive agreements with our business partners and certain of these agreements may be terminated by our partners without cause,” Zinka Logistics said.
Highly Dependent on suppliers
Zinka Logistics highly depends on certain key suppliers to procure a significant portion of their vehicle tracking solutions. Any loss of the relationship with these suppliers or any supply chain disruption could adversely affect the company’s business, results of operations, and financial condition, read the DRHP of the company. “In the absence of exclusive or long-term contracts, our suppliers may not be obligated to supply their products to us and/or may choose to sell their products to our competitors,” said the company.
Limited Experience in Vehicle Financing
Zinka partnered with its financial partners to provide vehicle financing loans on a pilot basis from June 2022, giving it limited experience in disbursing vehicle financing loans through on-balance sheet transactions to customers. Its subsidiary, BlackBuck Finserve, is a non-banking financial company that received a license to carry on the business of a non-banking financial institution without accepting public deposits from the RBI in August 2023. “Certain of our competitors may have a longer operating history and more experience as compared to us in this business offering,” the company said.
Legal Proceedings Pending Against Zinka Logistics and Directors
There are outstanding legal proceedings involving Zinka Logistics, its promoters, and its directors. An adverse outcome in any of these proceedings may affect the reputation and standing and impact the future business of Zinka. It could have a material adverse effect on the business, results of operations as well as on financial conditions. “As of the date of this Draft Red Herring Prospectus, we are involved in certain tax, regulatory and criminal legal proceedings, which are pending at different levels of adjudication before various courts, tribunals, forums and appellate authorities. We cannot assure you that these legal proceedings will be decided in our favour,’ said Zinka.
Penalised by RBI for Late Submission
The company has accepted that it has in the past compounded delays in the filing of certain forms with RBI for certain allotments made by it. Due to this, it had to pay a compounding fee. “We have also paid late submission fees for delays in filing of forms with RBI in respect of certain allotments made by our company,” accepted Zinka Logistics. “Pursuant to an order dated May 22, 2024, the RBI compounded the above-mentioned contraventions in terms of the Foreign Exchange Management Act (FEMA), 1999 and Foreign 38 Exchange (Compounding Proceedings) Rules, 2000 and directed our Company to pay Rs 4,28,500 (“Compounding Order”). Pursuant to the Compounding Order, our Company paid the required amount on May 23, 2024, and a certificate acknowledging the payment was issued by RBI on June 10, 2024,” said the company in its DRHP.
