The ₹880 crore-initial public offering (IPO) of TVS Supply Chain Solutions opened for subscription today, and will close on Monday, August 14. The company has set a price range of ₹187-197 for the issue, which includes a fresh equity share sale of ₹600 crore and an offer-for-sale (OFS) for 1.42 crore shares worth ₹280 crore.
Subscription Status: The issue received a decent response from its investors and was subscribed to 22 percent till 1:20 pm on Day 1. It received bids for 53.09 lakh shares as against 2.45 crore shares on the offer. Its retail portion was subscribed to 1.08 times whereas the non-institutional investors' quota was bid just 7 percent. Meanwhile, the part reserved for qualified institutional buyers had received any bids till now.
Retail investors can submit bids for up to 13 lots, each consisting of 76 shares. The net offer will be reserved for qualified institutional buyers at 75 percent of the total offer size, non-institutional investors at 15 percent, and retail investors at 10 percent.
Net proceeds from the fresh issue will be utilised towards prepayment or repayment of all or a portion of certain outstanding borrowings availed by the company and subsidiaries, TVS LI UK and TVS SCS Singapore; and general corporate purposes. Proceeds from the OFS will go to the selling shareholders of the company.
TVS Supply Chain Solutions provides supply chain management services for international organisations, government departments, and large and medium-sized businesses. It offers its services in two segments namely - integrated supply chain solutions (ISCS) and network solutions (NS). It listed peers include TCI Express, Mahindra Logistics, Blue Dart, and Delhivery.
Ahead of its IPO, TVS Supply Chain Solutions raised ₹396 crore from 18 anchor investors by allocating 2.01 crore equity shares at an issue price of ₹197 apiece. The marquee anchor investors included Authum Investment, Winro Commercial, Societe Generale, BNP Paribas Arbitrage, Copthall Mauritius, Aurigin Master Fund and various mutual funds.
The share allotment will be finalised on August 21 and the tentative listing date is August 28. JM Financial, Axis Capital, J P Morgan India, BNP Paribas, Edelweiss Financial Services, and Equirus Capital are the book-running lead managers to the issue.
GMP: On the first day of subscription, the company's shares in the grey market are trading at a healthy premium of ₹30.
Brokerage firms were mixed on the issue. While some suggested subscribing to the issue due to its asset-light business model, strong parentage, and growth prospects; others recommended avoiding the issue on the back of its expensive valuations as compared to peers. Let's see what different brokerages say:
Reliance Securities: Subscribe for long term
TVS Supply Chain operates an asset-light business model and operates through leases with its network partners and clients. It has a long and consistent track record of successful integration of 20 acquisitions supplementing its operations to support capabilities and customer acquisition.
The margin trend is improving YoY and is expected to smoothen further as the company is focusing on the C3 framework – Customer, Capability and Country with outsourcing trend and presence in high-growth sectors. The issue is priced at 10.5 times based on its NAV of 18.89 as of March 2023. Given good legacy parentage, tech-enabled and process-driven solution company and retirement of debt from IPO proceeds to improve net margins, we recommend a “Subscribe” to the issue for long-term rewards.
Geojit Financial Services: Subscribe
The company's asset-light approach, diverse global services, long-term contracts, and integrated capabilities position it well for growth. At the upper price band of ₹197, TVS Supply Chain is available at a P/E of 209x (FY23), which appears aggressively priced compared to peers.
At the upper price band, the issue is available at a P/E of 209 times (FY23), which appears aggressively priced compared to peers. However, favourable factors include the fragmented Indian logistics market, growth potential, post-GST logistics focus, and outsourcing trends. We assign a "Subscribe" rating for the issue on a short-to-medium-term basis.
Hensex Securities: Subscribe with caution
The company’s revenue from operations showed steady growth, with a CAGR of 10.66 percent in FY23 respectively. It has developed long-term relationships with a number of clients; however, it has served a total of 8,788 customers during FY23, said Hensex Securities, suggesting that medium-to-high-risk investors may apply for the issue.
Despite reporting losses in FY21 ( ₹76.3 crore) and FY22 ( ₹45.8 crore), the company saw an 88 percent jump in net profit in FY23 at ₹41.76 crore. The company's revenue from operations, meanwhile, saw steady growth, with a 10.6 percent compounded annual growth rate (CAGR) in FY23.
The company's heavy dependence on its top five customers for revenues and exposure to foreign currency rate fluctuations are key concerns. We have a “subscribe with caution" rating for the issue.
Swastika Investmart: Avoid
TVS Supply Chain Solutions is a leading multinational supply chain solutions provider with a strong track record in India. It has a strong domain expertise and knowledge base, as well as robust in-house technology differentiation. It has also been consistently successful in integrating and acquiring new businesses.
However, there are some concerns with the company. It has a large exposure to the international market, which could be a risk if there is a slowdown in global trade. The company is also operating in a highly competitive industry, and it has reported losses in the past two years. The valuation is very high, at a price-to-earnings ratio of 189x, which is significantly above the industry average of 43.03. We recommend staying away from it for now as we believe the risks outweigh the potential benefits.
