Future Supply Chain IPO recommendations: Analysts divided over valuations

Future Supply Chain IPO recommendations: Analysts divided over valuations

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Future Supply Chain Solutions IPO opens today for subscription as 37th mainboard IPO this year. The logistics arm of the Future Group has priced its public offer in the range of INR660 – 664 per share. However, analysts at brokerage houses have divided opinions about the prospects of the company. As a result, words like neutral, caution have dot the research reports in Future Supply Chain IPO recommendations. Here is a snapshot of what analysts have to say about the company:

Although Angel Broking has acknowledged that Future Supply Chain Solutions’ P/E ratio is lower than Mahindra Logistics’, the brokerage house has put a Neutral rating on the offer. “Despite the above favorable factors and lower valuations compared to Mahindra Logistics, we however, believe that all the positives are fully factored in the company’s current valuations, which does not provide any further upside for investors. Hence, we recommend Neutral rating on the issue,” noted Amarjeet S Maurya in his report.

Read Also: Future Supply Chain IPO Review: Better than Mahindra Logistics?

Subscribe with caution is the recommendation Choice Broking has given to investors. “At the higher price band of Rs664, FSCS’s share is available at P/E multiple of 58.2(x) and 39.9(x) based on FY17 and FY18E (annualized) EPS. FSCS’s demanding valuation compared to its peer Mahindra Logistics, which is trading at P/E multiple of 59.4(x) and 54(x) on the basis of FY17 and FY18E (annualized) EPS), looks cheap, however its one fifth of peer business size. Thus, considering the above observations, we are of the view that at P/E(x) of 58.2, the issue is aggressively priced leaving limited room for further upside. Thus, we assign ‘Subscribe with Caution’ rating to the issue,” opined the brokerage house.

SMC Global Securities has offered the IPO two stars out of five. “The company is one of the largest third-party logistics service operators offering automated and ITenabled warehousing, distribution and other logistics solutions. However, the Company is heavily dependent on machinery and equipment for its operations. Any breakdown of its machinery or equipment will have a significant adverse effect on its business. Also, this issue is offer for sale and no amount would go to the company. On the valuation front, it looks expensive,” said the firm in its note.

Analysts at Emkay find have found the IPO expensive while acknowledging that the company is well positioned to capitalise on the upcoming opportunities in the logistics sector. “We believe that the valuation of 57x on its trailing 12-month EPS leaves a limited upside for investors. However, for investors with a long term time horizon (3-5 years), FSCSL would offer steady compounding returns due to India’s steadily improving fundamental macro underpinnings,” said the brokerage house’s report.

Overall, Future Supply Chain IPO recommendations are not encouraging but grey market movement paint a different picture. Clearly, this IPO is not an obvious opportunity, although grey market premium indicates that it may be a dark horse.

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