IPO Note | Logistics
August 21, 2015
Navkar Corporation
SUBSCRIBE
Issue Open: August 24, 2015
Capacity Expansion to Augment Revenues; SUBSCRIBE
Issue Close: August 26, 2015
Brownfield expansion plan in Somathane CFS to trigger growth for Navkar Corporation
(NCL): Currently, the company is increasing capacity of Somathane CFS from 2,20,000
Issue Details
TEUs to 4,72,889 TEUs which would be funded through the proceeds of the upcoming IPO.
Face Value: `10
The additional capacities are expected to commence operating by 2HFY2017. As of now,
the company is operating its existing CFS capacity at more than 85% utilization level.
Present Eq. Paid up Capital: `109.7cr
Further, with the Somathane CFS having a private freight railway terminal (PFT) along with
Fresh Issue**: 3.3cr Shares
modern infrastructure, we believe that this would be an added benefit for the company.
Greenfield expansion plan of a logistics park + ICD to boost company’s revenues: NCL is
Offer for Sale**: 0.58cr Shares
setting up a fully-integrated logistics park as a one-stop solution for importers and
Post Eq. Paid up Capital: `142.6cr
exporters. The company will operate this logistics park, spread across 28 acres (90% of the
area is useable), through three models - (1) value basis, (2) space basis and (3) quantity
Market Lot: 95 Shares
basis. This facility has a huge potential to generate strong top-line growth for the company.
The company would be spending around ~`315cr to develop the logistics park and it
Fresh Issue (amount): `510cr
would be funded through the proceeds of the upcoming IPO. The logistics park is expected
Offer for sale (amount): `90cr
to commence commercial operation by 2HFY2017.
Further, NCL is also setting up a new inland container depot (ICD) at Umergaon, Valsad
Price Band: `147-155
district (near Vapi), Gujarat, over 60 acres of land. The ICD is being developed by its
Post-issue implied mkt. cap `2,096cr* - 2,210
subsidiary - Navkar Terminals Ltd (NTL) and is expected to complete by June 2016. The
cr**
project is being funded through debt as well as internal accruals (NCL has already spent
Note:*at Lower price band and **Upper price band
more than `400cr towards gross block in FY2015). This ICD will have a capacity of
~4,74,000 TEUs. Vapi is an industrial area supporting high traffic; thus, we believe that the
company would get better utilization and there would be strong potential to generate
significant revenue, going forward.
Book Building
Potential for improvement in ROE: Although the company’s RoE is currently lower, we
QIBs
50%
believe there is substantial potential for it to improve going forward. This would be owing to
Non-Institutional
15%
the following reasons: - (a) The company would be investing around ~`115cr from the IPO
proceeds towards capacity expansion. This would result in an increase in capacity by ~81%
Retail
35%
at a low investment cost. As a result, we expect the ROE to improve from the current 9.8%
to 15.7% post expansion. (b) The company has already allocated funding for the upcoming ICD
at Valsad, Gujarat, which resulted in an increase in gross block by more than `400cr in FY2015.
Post Issue Shareholding Pattern(%)
So on excluding this funding amount, the ROE would be higher compared to our calculation.
(c) The upcoming logistics park will add to the top-line and contribute towards ROE expansion.
Promoters Group
72.9
Outlook and Valuation: Currently, NCL looks slightly expensive in terms of PE valuation.
MF/Banks/Indian
Going forward, in our view, the company will be less expensive on a PE valuation basis on
27.1
FIs/FIIs/Public & Others
the back of exponential growth in revenue with strong expansion plans for existing CFSs
(capacity of CFSs to increase by 81% 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 EPS for the company. On the Price/Book value front, the
company is valued at 2.3x (at the upper end of the price band; Pre-IPO book value per share);
in terms of PE based valuation, the company is valued at 23.2x (at the upper end of the price
band; Pre-IPO EPS) on the basis of FY2015 numbers. Considering future growth potential of the
company, we recommend a Subscribe on the issue from a longer term perspective.
Key Financials (Consolidated)
Y/E March (` cr)
FY2013
FY2014
FY2015
Net Sales
333
349
329
Net Profit
57
90
73
OPM (%)
30.5
35.5
36.4
EPS (`)
5.2
8.2
6.7
P/E (x)
30.0
18.9
23.2
ROE (%)
18.4
20.8
9.8
Amarjeet S Maurya
P/BV (x)
5.5
3.9
2.3
+91 22 3935 7800 Ext: 6831
EV/EBITDA (x)
20.2
16.5
18.0
[email protected]
Source: Company, Angel Research Note: In FY15, the top-line declined due to discontinuation of the agro business;
Valuation ratios calculated at the upper end of price band; o/s no. of share considered as of FY15.
Please refer to important disclosures at the end of this report
1
Navkar Corporation | IPO Note
Company background
Navkar Corporation Ltd (NCL) is a CFS operator having three units - Ajivali CFS I
and Ajivali CFS II at Ajivali, and Somathane CFS at Somathane. All of the three
CFS units are located in close proximity to the Jawaharlal Nehru Port, India’s
largest container port. As of March 2015, the company’s aggregate installed
handling capacity stood at 310,000 TEUs per annum. The company also offers
services like cargo storage facilities at CFSs, packing, labeling/bar-coding,
palletizing, fumigation and other related activities. It also provides warehousing
facilities, for which, it occupies an aggregate area of 500,000 sq ft. Further, the
company owns and operates a private railway freight terminal equipped with
461 trailers for the transportation of cargo between CFSs and the Jawaharlal
Nehru Port.
Issue detail
The company is raising money through an IPO (fresh issue+ offer for sale) via the
book building process aggregating to `600cr. This includes offer for sale to `90cr
shares and could be subscribed to in the price band of `147-155 (face value of
shares: `10/- each).
Exhibit 1: Shareholding pattern
Particulars
Pre-Issue
Post-Issue
No. of shares
(%)
No. of shares
(%)
Promoter group
10,97,04,798
100.0
10,38,98,346
72.9
Others
0
3,87,09,677
27.1
Total
10,97,04,798
100.0
14,26,08,024
100.0
Source: Company, Angel Research Note: No. of share calculated at the upper end of price band
Objects of the offer
Capacity enhancement of the Somathane CFS.
Development of the non-notified areas of CFSs.
Establishment of a logistics park at Valsad (near Vapi, Gujrat).
August 21, 2015
2
Navkar Corporation | IPO Note
Key investment arguments
Capacity expansion to trigger growth
NCL operates three CFSs, of which, two CFSs are in Ajivali and one in Somathane
village in Panvel, Maharashtra. All the three CFSs are in close proximity to India’s
largest container port - Jawaharlal Nehru Port. The company is raising `510cr
through IPO for capacity expansion.
Exhibit 2: Expansion plan
FY2015
FY2016E FY2017E
Ajivali (TEUs)
CFS I
25,000
25,000
25,000
CFS II
65,000
65,000
65,000
Somathane (TEUs)
CFS
2,20,000
2,20,000
4,72,889
logistics park at Valsad (near Vapi) Sq. ft
11,00,000
Subsidiary -Navkar Terminals Ltd (NTL)- ICD (TEUs)
4,74,000
Source: Company, Angel Research
Somathane CFS
NCL is expanding its facilities and infrastructure to service the growing container
freight traffic in India. It is enhancing its existing capacity and operational efficiency
by increasing the stacking capacity at the Somathane CFS through technology
upgrade. Currently, the company has a capacity of handling 2,20,000 TEUs,
which would go up to 4,72,889 TEUs, post expansion. The company would be
spending around ~`115cr (raised through the upcoming IPO) towards the same.
The additional capacity is expected to start commercial operation by 2HFY2017.
Going forward, we believe that the company would be able to utilise the additional
capacity as the Somathane CFS has a private freight railway terminal along with
modern infrastructure.
Logistics park at Valsad (near Vapi, Gujrat)
The company is setting up a fully-integrated logistics park as a one-stop solution
for importers and exporters, which will provide a host of warehousing and other
value added services, including cold storage facility for perishable goods, a
container maintenance, repair, servicing and cleaning yard, an empty container
yard, and garage facility with a workshop for maintenance of vehicles. The
logistics park is being established nearby its upcoming inland container depot at
Umergaon, Valsad district (near Vapi), Gujarat. The company will operate this
logistics park, spread across 28 acres of land, through three models - (1) value
basis, (2) space basis and (3) quantity basis. This facility has a huge potential to
generate strong top-line growth for the company. The company would be
spending around ~`315cr to develop the logistics park and it would be funded
through the proceeds of the upcoming IPO. The logistics park is expected to
commence commercial operation by 2HFY2017.
August 21, 2015
3
Navkar Corporation | IPO Note
Inland Container Depot being developed by subsidiary - NTL
The company is also setting up a new ICD at Umergaon, Valsad district (near
Vapi), Gujarat, over 60 acres of land. The ICD is being developed by its subsidiary
- NTL and is expected to complete by June 30, 2016. The project is being funded
through debt as well as internal accruals. This ICD will have a capacity of
~4,74,000 TEUs.
Vapi is an industrial area supporting high traffic; thus, we believe that the
company would get better utilization and there would be strong potential to
generate significant revenue, going forward.
Potential for substantial improvement in ROE
Our preliminary analysis shows there is high potential for improvement in the
company’s ROE going forward, owing to the following reasons: -
Exhibit 3: Calculation of expected ROE
Maximum revenue potential
Current
post expansion
Capacity (TEUs)
3,10,000
5,62,889
Utilisation (%)
87
100
Volume (TEUs)
2,68,836
5,62,889
Net Revenue (` cr)
323
676
Average Realisation
12,014
12,014
PAT (` cr)
73
135
Margin (%)
22.6
20.0
Net worth
744
859
Gross Block
1,133
1,248
ROE
9.8%
15.7%
Source: Company, Angel Research
(1) The company would be investing around ~`115cr from the IPO proceeds
towards capacity expansion. This would result in an increase in capacity by
~81%. As a result, we expect the ROE to improve from the current 9.8% to
15.7% post expansion
(2) The company has already allocated funding for the upcoming ICD at Valsad,
Gujarat, which resulted in an increase in gross block by more than `400cr in
FY2015. This additional capex will contribute to the top-line and bottom-line
only by 2HFY2017. So on excluding this funding amount, the ROE would be
higher compared to our calculation.
(3) Further, the company is also setting up a new logistics park which will
contribute additional revenues for the company.
August 21, 2015
4
Navkar Corporation | IPO Note
Strategically located CFSs in close proximity to Jawaharlal Nehru Port
The company’s CFSs are strategically located at Ajivali and Somatane villages in
Panvel, Maharashtra. These are in close proximity to the Jawaharlal Nehru Port,
which handles 55.7% of all cargo handled at major ports in India. The proximity to
Jawaharlal Nehru Port enables the company to capitalise on the large volume of
container cargo traffic handled by the port. The company has entered into an
agreement with Central Railway to operate a PFT at its Somatane CFS, which helps
the company in transporting cargo by rail between Somatane CFS and Jawaharlal
Nehru Port, as well as facilitates transportation of cargo to and from inland
destinations on the Indian rail network.
Dedicated infrastructure to handle cargo
The company’s three CFSs and PFT operations are spread over an area of 3.59mn
sq ft, of which 1.63 million sq ft has been notified as a customs area. NCL’s CFSs
have an aggregate installed handling capacity of 310,000 TEUs per annum. As of
May 31, 2015, the company also owned and operated 516 trailers, most of which
are fitted with RFID and GPS tracking systems for the movement of cargo between
CFSs and the Jawaharlal Nehru Port. At its CFSs, the company has deployed 36
forklifts, 21 reach stackers and six heavy duty cranes to load and unload freight
containers from trains and trailers. NCL also owns five weighbridges, each with a
capacity of 100MT, to weigh cargo loaded on to trailers; and an in-motion
weighbridge with a capacity of 120MT, to weigh rail wagons.
August 21, 2015
5
Navkar Corporation | IPO Note
Outlook and Valuation
NCL has reported a revenue (excluding agro export business) CAGR of ~19% and
PAT CAGR of ~ 16% over FY2012-15 on the back of high volume growth, with its
CFSs located close to the Jawaharlal Nehru Port (a high traffic port in India).
Going forward, we expect the company to report strong numbers on back of
robust capacity expansion at its existing CFSs. Also, the company is setting up a
new logistics park and ICD, which would generate additional revenue growth for
the company.
Currently, NCL looks slightly expensive in terms of PE valuation. Going forward, in
our view, the company will be less expensive on a PE valuation basis on the back
of exponential growth in revenue with strong expansion plans for existing CFSs
(capacity of CFSs to increase by 81% 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 EPS for the company. On the Price/Book
value front, the company is valued at 2.3x (at the upper end of the price band;
Pre-IPO book value per share); in terms of PE based valuation, the company is
valued at 23.2x (at the upper end of the price band; Pre-IPO EPS) on the basis of
FY2015 numbers. Considering future growth potential of the company, we
recommend a Subscribe on the issue from a longer term perspective.
Key investment concerns
1) The company is exposed to currency risk with has a foreign currency debt of
`194cr on its balance sheet (as of 31-03-2015).
2) Currently the company’s depreciation expense is lower compared to its peers;
however, it could rise in future in line with its peers; this could impact its
earnings.
3) Currently the company is paying lower taxes, with it getting tax benefits for its
CFS operations. Once the exemption period is over, the company will have to
pay higher taxes, which could impact its earnings growth.
4) Delay in capacity expansion and lower than expected utilization of existing as
well as new capacity could impact the profitability of the company.
August 21, 2015
6
Navkar Corporation | IPO Note
Consolidated Profit & Loss
Y/E March (` cr)
FY2013
FY2014
FY2015
Total operating income
333
349
329
Total Expenditure
232
225
209
Operating Expenses
92
117
138
Purchases of Traded Goods
105
60
-
Personnel Expenses
17
19
22
Others Expenses
18
29
49
EBITDA
102
124
120
(% of Net Sales)
30.5
35.5
36.4
Depreciation& Amortisation
10
13
15
EBIT
92
111
104
(% of Net Sales)
27.5
31.8
31.7
Interest & other Charges
32
33
26
Other Income
5
21
2
(% of PBT)
7.3
21.1
2.7
Share in profit of Associates
-
-
-
Recurring PBT
64
99
80
Prior Period & Extraordinary Expense/(Inc.)
-
-
-
PBT (reported)
64
99
80
Tax
7
9
7
(% of PBT)
11.1
8.9
8.8
PAT (reported)
57
90
73
Add: Share of earnings of associate
-
-
-
Less: Minority interest (MI)
-
-
-
PAT after MI (reported)
57
90
73
ADJ. PAT
57
90
73
(% of Net Sales)
17.0
25.8
22.2
Basic EPS (`)
5.2
8.2
6.7
August 21, 2015
7
Navkar Corporation | IPO Note
Consolidated Balance sheet
Y/E March (` cr)
FY2013
FY2014
FY2015
SOURCES OF FUNDS
Equity Share Capital
17
21
112
Reserves& Surplus
292
413
632
Shareholders Funds
309
434
744
Minority Interest
-
-
1
Total Loans
376
368
458
Deferred Tax Liability
21
27
32
Total Liabilities
706
829
1,235
APPLICATION OF FUNDS
Fixed Assets
620
656
1,073
Capital Work-in-Progress
0
44
27
Investments
20
20
5
Current Assets
156
198
253
Spare Parts and Consumables
-
-
2
Sundry Debtors
63
76
77
Cash
4
1
1
Loans & Advances
76
100
143
Other Assets
12
20
30
Current liabilities
91
88
124
Net Current Assets
65
110
129
Goodwill on Consolidation
0
0
0
Deferred Tax Asset
-
-
-
Mis. Exp. not written off
-
-
-
Total Assets
706
829
1,235
August 21, 2015
8
Navkar Corporation | IPO Note
Consolidated Cash flow statement
Y/E March (` cr)
FY2013
FY2014
FY2015
Profit before tax
64
99
80
Depreciation
10
13
15
Change in Working Capital
(19)
(29)
7
Interest / Dividend (Net)
(1)
(17)
1
Direct taxes paid
(15)
(16)
(22)
Others
32
33
42
Cash Flow from Operations
73
82
123
(Inc.)/ Dec. in Fixed Assets
(130)
(93)
(178)
(Inc.)/ Dec. in Investments
(20)
-
15
Cash Flow from Investing
(109)
(93)
(194)
Issue of Equity
43
35
-
Inc./(Dec.) in loans
(5)
(25)
70
Interest / Dividend (Net)
-
-
-
Cash Flow from Financing
38
10
70
Inc./(Dec.) in Cash
1
(1)
(0)
Opening Cash balances
0
2
1
Closing Cash balances
2
1
1
August 21, 2015
9
Navkar Corporation | IPO Note
Key Ratios
Y/E March
FY2013
FY2014
FY2015
Valuation Ratio (x)
P/E (on FDEPS)
30.0
18.9
23.2
P/CEPS
25.4
16.5
19.2
P/BV
5.5
3.9
2.3
EV/Sales
6.2
5.9
6.5
EV/EBITDA
20.2
16.5
18.0
EV / Total Assets
2.6
2.2
1.6
Per Share Data (`)
EPS (Basic)
5.2
8.2
6.7
EPS (fully diluted)
5.2
8.2
6.7
Cash EPS
6.1
9.4
8.1
Book Value
28.1
39.5
67.8
Turnover ratios (x)
Asset Turnover (Gross Block)
0.5
0.5
0.3
Inventory / Sales (days)
-
-
-
Receivables (days)
69
80
86
Payables (days)
14
1
13
Working capital cycle (ex-cash) (days)
56
78
73
Note: Valuation Ratio at the upper price band
August 21, 2015
10
Navkar Corporation | IPO Note
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
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August 21, 2015
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