IPO Review: Navkar Corporation IPO extends logistics play

Container freight player Navkar Corporation is the latest IPO in India which investors can subscribe to when it opens for subscription next week. Navkar Corporation IPO will remain open between 24 August and 26 August in a price band of INR147 – 155 per share. The IPO will mobilize INR600 crore through a combination of fresh equity and offer for sale. Axis Capital Limited, Edelweiss Financial Services Limited, and SBI Capital Markets Limited are the book running lead managers of the issue.

Read Also: Navkar Corporation gets SEBI nod for INR600 crore IPO

Here is the IPO review for Navkar Corporation from IPO Central.

IPO dates24 August 2015 – 26 August 2015
Price bandINR147 – 155 per share
Issue sizeINR600 crore (Fresh issue – INR 510 crore, OFS – INR90 crore)
Category allocationQIB – 50%, NII – 15%, Retail – 35%
Lead managersAxis Capital Limited, Edelweiss Financial Services Limited, and SBI Capital Markets Limited
Minimum lot95 shares and in multiples thereafter
Minimum investmentINR13,965 – INR14,725

IPO structure

The INR600 crore IPO would comprise a fresh issue of shares worth INR510 crore as well as an offer of sale (OFS) from Sidhhartha Corporation worth INR90 crore.

Promoter Shantilal Jayavantraj Mehta and Nemichand Jayavantraj Mehta directly hold 7.92 crore shares or 72.19% of the company’s issued share capital while the rest is with promoter group. Sidhhartha Corporation is a prominent party in promoter group with a total of 80.9 lakh shares or 7.38% stake.

Navkar Corporation

Use of funds

Navkar Corporation plans to use IPO proceeds towards capacity enhancement of the Somathane container freight station (CFS), development of the non-notified areas of CFSs and establishment of a logistics park at Valsad in Gujarat. Out of the INR510 crore through the sale of new shares, INR314.56 crore will go towards the new logistics park at Valsad, near Vapi. Nearly INR144.53 crore will be used to expand capacity of Somathane CFS facility while another INR54.25 crore will be used to develop certain non-notified areas near its three CFSs in Panvel for additional parking facilities and drive-ways which is expected to increase its container handling capacity. The remaining amount will be used towards general corporate purposes.

Better margins underline Navkar Corporation’s financial performance

Navkar’s business primarily comes from shipping lines and customs house agents who use its services to transport cargo to and from its CFSs on behalf of exporter and importers. Over the last few years, the company has seen tremendous growth in business growth and profits. It has seen straight line acceleration from a top line of INR207.1 crore in FY 2011 to INR330.9 crore in FY 2015. During the timeframe, the company’s net profit increased from INR33.8 crore to INR73.1 crore.

Navkar Corporation’s consolidated financial performance (figures in INR crore)

 FY 2011FY 2012FY 2013FY 2014FY 2015
Total revenues207.1268.9338.0370.2330.9
Expenses166.2216.4274.2271.3250.7
Restated profit after tax33.846.956.790.073.1
Net margin (%)16.317.416.824.322.1

Source: Navkar Corporation’s Red Herring Prospectus

Client concentration coming down

During the last three fiscal years, the share of three largest clients in container volumes stood at 48.5%, 34.1% and 32.7%, respectively. Import cargo accounted for 55.3% of the total cargo volume in FY 2015. These clients included United Arab Shipping Agency Company (India) Private Limited and NYK Line India Limited. While the trend is down, 32.7% still indicates a high reliance on a few clients.

Navkar Corporation’s valuations ride high on better margins

Since the IPO entails a high number of fresh shares to be issued, this will lead to equity dilution. On a fully diluted basis, Navkar Corporation’s shares are valued at a price earnings ratio of 28.5 at the lower end of the price band, while the upper end stretches valuations to 29.8 times. This is high in view of its listed competitors which are available at lower valuations. These competitors include larger players like Gateway Distriparks and Allcargo Logistics. It is important to highlight that Navkar Corporation’s valuations are even higher to Gateway Distriparks which itself is a premium play due to strong balance sheet and better margins. Navkar Corporation’s high valuation is on account of strong net margin which, even after reducing in FY 2015, stood at 22.1%. Net profit margin in excess of 20% is a rarity in logistics sectors and companies achieving such feats are rewarded by investors.

Navkar Corporation can also get away with steep valuations as the risk appetite in the market has expanded quite a bit from the starting of the year.

Navkar Corporation background

The company operates through three CFS units – Ajivali CFS I and Ajivali CFS II at Ajivali and Somathane CFS at Somathane – all the three units are located in Panvel, Maharashtra, in close proximity to the Jawaharlal Nehru Port – India’s largest container port. As of December 2014, Navkar Corporation’s aggregate installed handling capacity stood at 310,000 TEUs (twenty-foot equivalent units) per annum. The company has a private railway freight terminal which allows it to load and unload cargo from container trains operating between the Somathane unit and the port. In addition, it owns and operates 461 trailers for the transportation of cargo between its units and the port by road. Navkar Corporation works with shipping lines, logistical service providers and customs house agents, importers and exporters. Apart from the clients mentioned above, it counts Hyundai Merchant Marine and Evergreen Shipping Agency among its prominent customers.

Trivia – Both promoters don’t have voter ID cards

Krishna Bagra

Coming from a family of investors and financial analysts, Krishna learnt wading through regulatory filings pretty early in her career. At IPO Central, Krishna plays twin roles of contributor and head of research desk. She can also be reached at +krishnabagra .

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