Raigad-based logistics company Navkar Corporation (NCL) hit primary markets on Monday with an initial public offering (IPO) of 3.87-4.08 crore equity shares with a face value of Rs 10 each.

Post-issue, the shareholding of the promoters in the company will fall to 71.7-72.9 per cent from the current holding of 100 per cent. The issue is priced at Rs 147-155 per share and the company intends to raise Rs 600 crore.

The company plans to use the net proceeds for capacity enhancement of the Somatane container freight station (CFS; Rs 114.5 crore), development of the non-notified areas of its CFSs (Rs 54.3 crore) and for the establishment of a logistics park at Valsad (Rs 314.6 crore).

The issue will close on August 26, 2015. Axis Capital, Edelweiss Financial Services, SBI Capital Markets are the lead managers to the issue.

Business and Background
Navkar Corporation is a CFS (Container Freight Station) operator in India with three CFSs; Ajivali CFS I, Ajivali CFS II at Ajivali and Somathane CFS at Somathane, which are strategically located in Panvel, Maharashtra, in close proximity to the Jawaharlal Nehru Port (JN Port), the largest container port in India. At present, the company’s three CFSs have an aggregate installed handling capacity of 310,000 TEUs (twenty feet equivalent units) per annum on the basis of its current infrastructure and operating equipments.

The company also has a private railway freight terminal, which allows it to load and unload cargo from container trains operating between its Somathane CFS and the JN Port and to transport domestic cargo to and from inland destinations on the Indian rail network. The company’s revenues grew from Rs 2,68 crore in 2011-12 to Rs 328.8 in 201-15, translating to a CAGR of 7 per cent. Operating profit, during the same period, grew from Rs 90.1 crore to Rs 120 crore at CAGR of 10 per cent, while net profit grew from Rs 47 crore to Rs 73.1 crore at CAGR of 16 per cent over FY12-FY15.

The company was incorporated in 2008 and promoted by Shantilal Jayavantraj Mehta and Nemichand Jayavantraj Mehta.

What brokerages are saying about the IPO

Reliance Securities: NCL’s current capacity utilisation stands at around 95 per cent. Therefore, in order to meet the growing container freight traffic in India, the company has embarked on an ambitious expansion plan including both greenfield and brownfield expansion. It has thus increased capacity by around 3times from 0.31mn TEU’s to 1.04 mn TEU’s. This expansion is expected to be completed by mid FY17E and is expected to start contributing to revenues and profits immediately upon implementation.

In a research note, Reliance Securities said, “At the price band of Rs 147-155, the issue is priced at P/E of 28.7x and 30.2x on its FY15 diluted EPS. Based on our back-of-the-envelope calculation, NCL is valued at 20.4/21.5x FY17E EPS. While in the short-term, valuations may seem expensive, but considering the long-term growth prospects of the company on the back of increasing capacity and utilisation coupled with higher EXIM trade due to various initiatives taken by the government, makes it a compelling story as valuations will continue to taper. As per industry reports, the Indian logistics market is expected to grow at a CAGR of around 7 per cent till 2020. We are positive on the company from a long term perspective and hence recommend subscribe to the issue.”

Sharekhan: NCL at the upper price band is likely to trade at P/E and EV/EBITDA of 30.2 and 22.3 respectively its 2014-15 earnings. As compared with the large players like Container Corporation of India and Gateway Distriparks, the valuation multiples seem higher although Sharekhan believes the company’s expansion plans which are likely to be materialised during 2016-17 will significantly increase its capacity and lead to higher earnings. Further, the logistics sector has been in the limelight on account of proposed dedicated freight corridors, Goods and Services Tax (GST) policy and huge investments in the sector. Consequently, considering the company’s line of business and growth strategy the brokerage house has a positive view on the company.

KR Choksey Shares & Securities: The brokerage house is also suggesting investors to go for NCL IPO as the company’s present CFSs are well positioned to service container traffic in northwest, west and central India. NCL seeks to explore the Rail Logistics Network across the country by setting up distribution hubs or ICDs near railway sidings in major business cities to capitalise on the growing container traffic in the country. The railways in India is the preferred mode of transport for bulk commodities since they have large rakes which can carry a higher load. In addition, the cost of freight transportation by rail is lower than road freight tariffs. Also the rail sidings are generally installed at plants or warehouses in the case of large businesses in the bulk commodities segment. This eliminates multiple handling and lowers last mile connectivity costs, which makes the railways a more economical route for transportation of bulk commodities.

It is engaging with shipping lines and customs house agents they work with to provide solutions for their ancillary cargo handling requirements such as packing, labeling, palletising, shrink wrapping, strapping, jumbo-bags packing and carting. A greater focus on such services will allow to attract more cargo volumes as all cargo handling requirements will be catered to by a single service provider.

Angel Broking: At present, NCL looks slightly expensive in terms of P/E valuation. Angel Broking believes the company will be less expensive on a P/E valuation basis in future on the back of exponential growth in revenue with strong expansion plans for existing CFSs (capacity of CFSs to increase by 81 per cent to 5,62,889 TEUs at a low investment cost). The opening of the new ICD (4,74,000 TEUs) and the logistics park will also add to the revenues, thus leading to a higher earnings per share (EPS) for the company. On the Price/Book value front, the company is valued at 2.3 (at the upper end of the price band; Pre-IPO book value per share); in terms of P/E based valuation, the company is valued at 23.2 (at the upper end of the price band; Pre-IPO EPS) on the basis of FY2015 numbers. Considering future growth potential of the company, the brokerage house recommend a subscribe on the issue from a longer term perspective.

ICICI Securities: The company has an agreement with Central Railways to operate a private railway freight terminal (PFT). This allows the company to load and unload cargo from container trains operating between Somathane CFS and JNPT port and even further to and from inland destinations to move domestic cargo on the Indian rail network. Navkar’s CFS is strategically located and well equipped to differentiate itself from other small CFS’ located in the periphery. ICICI Securities believes the business model is highly dependent on volumes from a single port and the issue is richly valued. Thus, the brokerage house recommends avoid.