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Sunday, August 23, 2015

Navkar Corporation Limited IPO Review

Issue Highlights

Issue Period
24/8/15-26/8/15
Price Band
Rs. 147-155
Issue Size(shares)
3.87 crore shares #
Issue Size (Rs.)
600 crore
Issue Type
100% Book Built
Face Value
Rs. 10
Listing
BSE,NSE
Industry
Container Industry
Registrar
Link Intime India Pvt. Ltd.
Minimum Bid Quantity
95 shares
Maximum Retail Subscription
Rs. 1,91,425 (13 Lots)
# derived figure

Issue Details


Offer For Sale:  58 lakh equity shares/ Rs. 90 crore
Fresh Issue:  3.29 crore equity shares/ Rs. 510 crore
Equity Shares Outstanding Prior To The Issue: 10,97,04,798 equity shares
Equity Shares Outstanding After The Issue: 14,26,08,024 equity shares #
#derived figure

Objects of the Issue
Capacity expansion at Somathane CFS
Rs. 115 crore
Development of the non-notified areas of CFSs
Rs. 54 crore

For the establishment of a logistics park at Valasad
Rs. 315 crore


Industry Profile

Container Industry primarily provides 2 facilities, CFS (Container Freight Station) and ICD (Inland Container Depot).  Both these CFSs and ICDs provide a wide range of services like custom clearance, handling & temporary storage of laden and empty containers (imported or to be exported).
 A CFS is located near a dock port whereas an ICD is situated in the hinterlands. For FY 14, container industry in India was worth Rs. 45 billion (CFS: Rs. 30 billion, ICD Rs. 15 billion).

Company Profile

Navkar Corporation Ltd. is a CFS operator in India with 3 CFSs with the aggregate installed handling capacity of  3,10,000 TEU (Twenty-Foot Equivalent Unit) per annum to its credit-Ajivali CFS 1&2 and Somathane CFS –which are strategically located in the proximity of the JN port. Besides this, Navkar Corp also owns and operates 516 trailers plying between CFSs and the JN port by road.
Navkar Corp also offers the temperature control and hazardous cargo storage and handling services. Its warehouses spread over an aggregate area of around 5,00,000 sq. ft.
A few big shipping line players like United Arab Shipping Agency, NYK line Ltd., Hyundai Merchant Marine, Evergreen Shipping etc avails the company’s services.
Its CFSs are located in close proximity to the JN port in Panvwel and it is worth noting that JN port handles around 56 % of the total container traffic across all the major ports of India.
Navkar Corp Ltd. proposes to establish  a fully integrated logistics park and an adjacent ICD at Umergaon at the Valsad district, Gujarat thus creating a one-stop solution for importers and exporters.

Risks & Threats

(1)    Company’s operations significantly depend on the flow of container traffic through JN Port and any diversion of this traffic to newer ports of the west coast shall adversely impact the revenue of this company
(2)    Navkar’s  Corp’s business infrastructure and operations are concentrated around Panvel and any major geological, economical or other upheaval  shall not auger good for the company
(3)    Growth of the container industry depends on container traffic and the global traffic has been modestly growing at a CAGR  of just 3% for last two years
(4)    The delay in the implementation of the GST (which is supposed to come in effect from April 1,2016) is supposed to affect its revenue growth negatively
(5)    In case of the application of GAAR provisions on the company, the impact on viability and growth of the company would be a severely negative one
(6)    Income tax exemptions u/s 80-IA (4) (1) shall conclude in FY 17 and FY 19 for its two and one CFS respectively
(7)    Being a player of the highly capital intensive industry, high interest regime will be unfavorable for its growth  prospects

Financial Profile #

Parameter
FY 15
PEG (Profit, trailing 4 years)
1.4
Net Profit Margin (%)
22.4
Return on Capital Employed (%)
8.8
Return on Equity (%)
15.8
Total Liability to Net worth
1.1
Price to Book Value
4.4
Operating Cash to Net Profit
.9
TIE (Times Interest Earned)
3.1
AR collection Period (Days)
85
EV/EBITDA
22.6
M-Cap to Sales
6.7
Current Ratio
.9
Profit CAGR (%)
21.8 %

# using upper end of the price-band at post issue equity


Comparison with the Peers #


PEG
NPM (%)
ROCE(%)
ROE(%)
Navkar
1.4
22.4
8.8
15.8
Gati
1.45
2.5
12.9
7.6
GDL
1.91
16.9
23.5
20.3
Container corporation
NM
17.1
17.5
14
Allcargo Logistics
4.07
4.26
15.6
12.6



# moneycontrol data

Inference

The 'comparison with the peers' data shows that valuations of Navkar are not much cheaper than the industry ace GDL. Besides return ratios, GDL is a better company with reliable promoters and better operational expertise. As per the investment perspective in the mind, investing in GDL instead seems as a better and secure choice. The revenue for the company comes from JN port and this dependence on a single source makes it vulnerable to uncertainties.
But considering the present government’s thrust on improving the Indian transportation environment and under this initiative port based SEZs, port connecting highway project at JN port and DFC(Dedicated Freight Corridor) between Mumbai and Delhi  etc will be set up and the same is supposed to boost Navkar’s volume growth.
Clearly, Nvakar is not a short term bet!
Listing gains will depend on the overall market conditions and the underlying euphoria.

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