Huge accumulated deficit notwithstanding, promoter’s lineage, company’s business volume and logistics industry’s growth potential warrant investment.
|
TVS SUPPLY CHAIN OFFER AT A GLANCE |
|
| Offer Type | Book Built |
| Platform | Main Frame |
| Fresh Issue | Rs 600 Cr (3,04,56,853 shares) |
| Offer for Sale | 1,42,13,198 shares (Rs 280 Cr) |
| Face Value | Re 1 |
| Price Band | Rs 187–197 |
| Mkt/Bid Lot | 76 Nos. |
| Implied M-Cap | Rs 8745 Cr |
| Implied Eq-Cap | Rs 44.39 Cr |
| Implied Free Float | 57.2 % |
| Lead Manager | JM Financial, Axis Cap, J.P.Morgan, BNP Paribas, Nuvama Wealth and Equirus Cap |
| Registrar | Link Intime |
| Listing At | BSE, NSE |
|
INDICATIVE ISSUE SCHEDULE |
|
| Opening :10-Aug-2023 | Closing :14- Aug-2023 |
| Allotment :21- Aug-2023 | Refunding :22- Aug-2023 |
| DematCredit :23- Aug-2023 | Trading :24- Aug-2023 |
The Offer
After a gap of four decades (since the debut of Srichakra Tyres in 1982), TVS Mobility Group controlled by TS Rajam Family of the Tamil Nadu’s most trusted business house (TVS) is entering the capital market. The Madurai registered and Chennai head-quartered TVS Supply Chain Solutions Ltd (TSCS) is making an initial public offer of Rs 880 Cr which translates into 4,46,70,051 equity shares at the cap price. The IPO consists of a fresh issue of Rs 600 Cr (3,04,56,853 equity shares) from the company and an Offer for Sale of 1,42,13,198 equity shares (Rs 280 Cr) from the private equity and individual investors. The offer is being made through the book-building route with a price band of Rs. 187-197 for Re 1 paid up share.
Applicants should bid for a minimum lot of 76 shares and multiples thereof. The shares are proposed to be listed on the main frame of BSE and NSE on August 24, 2023. Investment bankers JM Financial, Axis Capital, J P Morgan, BNP Paribas, Nuvama Wealth Management (formerly Edelweiss Securities) and Equrius Capital are acting as managers to the offer and Link Intime has been roped in as the registrar to the issue. The bidding opens on Thursday August 10 and closes on Monday, August 14, 2023.
The Company proposes to utilise the proceeds from the fresh issue towards repayment/ prepayment of loans availed by TSCS and its subsidiary, TVS LI UK.The balance amount is earmarked for general corporate purposes.
Lineage
TSCS is controlled by the great grand children of the Tamil Nadu’s most illustrious promoter, Thirukkurungudi Vengaram Sundram (TVS) Iyengar. T V Sundram Iyengar began with Madurai’s first bus service in 1911 and founded TVS, a company in the transportation business with a large fleet of trucks and buses under the name of Southern Roadways. Old timers in Tirunelveli (the birth district of TVS) used to say that they would set/adjust their watch according to TVS bus time! That was the punctuality of the TVS’ transport service.
The TVS group is not new to investors. The group managed by families of the four sons of TVS Iyengar has eleven listed companies whose combined market capitalization is more than Rs 135,000 Cr. In fact just three companies, TVS Motors, Sundaram Finance and Sundram Fasteners, account for more than Rs 115,000 Cr. In 2022 the 110-years-old TVS group family split the group companies amicably among themselves and TSCS became a part of TVS Mobility Group controlled by TS Rajam Family whose only listed company is TVS Srichakra which commands a market cap of about Rs 2,300 Cr.
Coming to TSCS, the company was originally incorporated as TVS Logistics Services Ltd in November 16, 2004. The name was changed to the present one in February 2019. Between 2005 and 2021 the company has chartered its growth through the inorganic route. In 2005 it subscribed to 55% of the paid-up equity share capital of TVS SCS (Siam) Ltd (formerly known as TVS Logistics SIAM Ltd, Thailand), as part of the group’s entry strategy for south-east Asia. In 2007 it invested in 75% of the equity share capital of TVS SCS Global Freight Solutions Ltd (previously known as TVS Dynamic Global Freight Services Ltd).
In 2009 TSCS’s foreign subsidiary TVS Logistics Investment UK Ltd acquired YeleStre Holdings Ltd. In 2012 TSCS took over FLEXOL Packaging (India) Ltd, Rico Logistics Ltd (UK) and TVS Supply Chain Solutions North America, Inc. (formerly Wainwright Industries Inc). In 2015 TSCS acquired Drive India Enterprise Solutions Ltd and T.I.F.
Holdings Pty Ltd was acquired through TVS Supply Chain Solutions Australia Holdings Pty Ltd.
In 2017, SPC International Ltd, UK was acquired through Rico Logistics Ltd (UK). Same year TSCS acquired the telecom division from T. V. Sundram Iyenger & Sons Private Ltd and also annexed TVS SCS International Freight (Spain) S.L.U. (formerly known as Nadal Forwarding,S.L.) facilitating entry into the Spanish market. Further it acquired TVS SCS Singapore Pte Ltd (formerly Pan Asia Logistics Singapore Pte Ltd) and TVS SCS International Pte Ltd (formerly Pan Asia Logistics International Pte Ltd), providing network expansion to Singapore and China.
The year 2018 saw the acquisition of TVS SCS Logistics Management Co Ltd (formerly TLM Logistics Management Co Ltd, Thailand) through TVS Supply Chain Solutions (Thailand) Limited, acquisition of Triage Holdings Ltd through Rico Logistics (UK) and the acquisition of White Data Systems India Private Ltd. In 2021 TSCS acquired FIT 3PL Warehousing Private Ltd.
With regard to capital infusion, in 2008 first external funding was received from Goldman Sachs through GS Logistics Holdings Ltd. In 2012 the company received private equity investment from Zumrut Investments Ltd, Mauritius. Omega TC Holdings Pte Ltd and Tata Capital Financial Services Ltd invested in the company in 2015. In 2016 CDPQ Private Equity Asia Pte Ltd acquired 38.17% equity of TSCS from GS Logistics Holdings and Zumrut Investments.
In 2020 the company received private equity investment from Mahogany Singapore Company Pte Ltd (Gateway Group) and strategic investment from Mitsubishi Corporation (Japan) for a minor stake. In 2021 TSCS received private equity investment from Exor Special Opportunities Master Fund. Thus, as on the date of the RHP, more than 54% of the company’s equity capital is held by non-promoter shareholders.
Key Management
Mahalingam Seturaman (75), who has been associated with TSCS since February 20, 2015 and has several years of experience in the finance industry, is the Chairman and Independent Director. In the past, he has been associated with Tata Consultancy Services in various positions.
Fourth generation TVS family member and joint managing director of T. V. Sundram Iyengar & Sons Private Ltd, R Dinesh (58), is the Executive Vice Chairman of TSCS. He has been associated with TSCS since its incorporation and has 34 years of experience in the auto retail services, digitisation and logistics industries.
Ravi Viswanathan (60), who has been associated with TSCS since February 29, 2020, is the Managing Director. He has 33 years of experience in the technology industry. Prior to joining TSCS, he was with the TATA group for over 29 years holding various positions.
Non-Executive Director Sargunaraj Ravichandran (68), who holds 1.35% of the company’s equity capital, has been on the company’s board since November 15, 2013. He has reportedly been associated with the company in various designations since inception. He has several years of experience in the automobiles and logistics industries. He is said to be responsible for the company’s inorganic growth. Prior to TSCS, he was associated with Mahindra & Mahindra.
Managing director of group company TVS Srichakra Ltd, Shobhana Ramachandhran (63), is designated as a Non-Executive Director of TSCS. Exor Special Opportunities Master Fund is represented by Ashish Kaushik (38) and private equity investor Mahogany Singapore is represented by Anand Kumar (55).
Stakeholders
As per the RHP, the company’s equity capital amounts to Rs 41.35 Cr and the following 14 shareholders hold 86.73%: TVS Mobility Private Ltd (25.94%), T.S. Rajam Rubbers Private Ltd (15.87%), Exor Special Opportunities Master Fund (10.29%), Mahogany Logistics Services (9.07%), Mahogany Singapore Company (4.56%), Kotak Special Situations Fund (3.97%), Omega TC Holdings (3.84%), Hero Enterprise Partner Ventures (3.61%), TVS Motor Company (2.58%), R Dinesh (1.74%), State Bank of India (1.44%), Sargunaraj Ravichandran (1.35%), Dhinrama Mobility Solution (1.29) and Pratithi Investment Trust (1.19%). Post-IPO, of the capital of Rs 44.40 Cr, the promoter group will hold 42.76%.
Business Track
The Indian logistics market has been dominated by monoline service providers who partner with industry players and their captive logistics arms for transportation or warehousing requirements until the early 2000s when some captive logistics players like TSCS started using their capabilities to service other players as a third-party vendor. This pioneered the development of supply chain solutions in the market which were provided by large players having the capability to manage scale and supply chain complexities. As supply chains became more complex, players like TSCS introduced concepts of 4PL (around 2010) and integrated supply chain solutions (around 2015). TSCS claims to have pioneered the development of the Supply Chain Solutions market in India.
TSCS is said to be the country’s largest and among the fastest growing integrated supply chain solutions provider among Indian listed supply chain solutions companies in terms of revenues and revenue growth, respectively, in fiscal 2023. For more than 16 years, TSCS has managed large and complex supply chains across multiple industries in India and select global markets through customized tech-enabled solutions. During this period it has grown significantly, registering revenue of more than Rs 10,000 Cr in last fiscal.
TSCS’s solutions spanning the entire value chain from sourcing to consumption is divided into two segments: integrated supply chain solutions (ISCS) and network solutions (NS). Its capabilities under the ISCS segment include sourcing and procurement, integrated transportation, logistics operation centers, in-plant logistics operations, finished goods, aftermarket fulfilment and supply chain consulting. Its capabilities under the NS segment include global forwarding solutions, which involves managing end-to-end freight forwarding and distribution across ocean, air and land, warehousing and at port storage and value added services, and time critical last mile solutions which involves closed loop logistics and support including spares logistics, break-fix, refurbishment and engineering support, and courier and consignment management.
Globally TSCS provided supply chain solutions to 11,546, 10,531 and 8,788 customers during fiscals 2021, 2022 and 2023, while domestically it provided solutions to 1,120, 1,044 and 902 customers in the same years. In Fiscal 2023, its global customers included 72 ‘Fortune Global 500’ companies, while its Indian customers included 25 ‘Fortune Global 500’ companies. TSCS’ customers span across numerous industries such as automotive, industrial, consumer, tech and tech infra, rail and utilities, and healthcare.
Financial Track
In less than two decades TSCS has achieved a commendable scale of operations. Particularly, the company’s growth in last two fiscals has been very impressive. In fiscal 2023, on an equity capital of Rs 36 Cr, the company logged Rs 10,254 Cr income and posted Rs 706 Cr as EBIDTA. After charging a hefty depreciation of Rs 524 Cr the company netted a profit of Rs 42 Cr. The company’s net operating cash flow amounted to Rs 712 in fiscal 2023.
The company has an accumulated deficit of Rs 618 Cr at the end of fiscal 2023 but it has Rs 2,069 Cr as share premium which will be enhanced to about Rs 2640 Cr post public issue. As the substantial part (Rs 525 Cr) of the fresh issue is going to liquidate the company’s debts, interest burden is expected to decrease considerably in the coming years which could significantly boost the company’s bottom line.
|
TVS Supply Chain Consolidated Financials (in Cr) |
|||||
| Year Ended |
Mar-23 |
Mar-22 | Mar-21 | Mar-20 |
Mar-19 |
| Revenue |
10241 |
9250 | 6934 | 6605 |
6780 |
| Operating Profit |
693 |
639 | 427 | 306 |
538 |
| OPM% |
6.8 |
6.9 | 6.2 | 4.6 |
7.9 |
| Other Income |
13 |
50 | 66 | 188 |
54 |
| EBIDTA |
706 |
689 | 493 | 494 |
592 |
| EBIDTA % |
6.9 |
7.4 | 7 | 7.3 |
8.7 |
| Interest |
190 |
155 | 176 | 231 |
140 |
| Depreciation |
524 |
461 | 443 | 445 |
418 |
| Except Item |
48 |
-61 | 7 | -60 |
-26 |
| Tax |
50 |
51 | -17 | 26 |
33 |
| Net Profit |
42 |
-46 | -76 | -248 |
-33 |
| Cash Profit |
565 |
415 | 367 | 197 |
385 |
| Equity (Implied) |
44 |
36 | 32 | 32 |
32 |
| Reserves (Implied) |
2642 |
1335 | 914 | 898 |
717 |
| Accumulated Loss |
618 |
657 | 455 | 419 |
129 |
| Borrowing |
1990 |
1764 | 1548 | 2160 |
1489 |
| Fixed Assets |
1723 |
1566 | 1544 | 1575 |
747 |
| Net Operating Cash Flow |
712 |
601 | 712 | 190 |
372 |
Valuation
The IPO cap price of Rs 197 discounts the company’s latest earnings more than 220 times which may look absurd. However, TSCS’ other multiples like Price/Revenue , Price/Book Value, Price/Net Block, Price/EBIDTA, Price/Cash EPS, etc. compare favorably with its listed peers. Moreover, if the loss-making Delhivery, whose accumulated loss is mounting over Rs 7,000 Cr, can command a market cap of more than Rs 30,000 Cr, TSCS, whose credentials are far superior to Delhivery, deserves better valuation than its IPO-based market cap of Rs 8746 Cr.
TSCS may take three years to wipe out its accumulated deficit. But, its strong parentage, resilient business model, critical scale in a fast-growing logistics market, long and consistent track-record of successful integration of acquisitions, etc. would certainly make the company a safe bet for long term investment.
| HOW TVS SUPPLY CHAIN COMPARES WITH SELECT LISTED PEERS | ||||||
| Financials | ||||||
| (Amount in Cr) | TVS Supply | Container Corpn | Delhivery | Blue Dart | TCI Express | Mahindra Logistics |
| Market Cap | 8746 | 43300 | 30060 | 15048 | 5585 | 2664 |
| Borrowing | 1990 | 6 | 199 | 250 | 1 | 401 |
| Fixed Assets | 1723 | 6457 | 1656 | 1876 | 435 | 829 |
| Revenue | 10241 | 8169 | 7225 | 5172 | 1241 | 5128 |
| Other Income | 13 | 313 | 305 | 32 | 7 | 16 |
| EBIDTA | 706 | 2179 | -147 | 970 | 202 | 276 |
| Interest | 190 | 64 | 89 | 67 | 2 | 52 |
| Net Profit | 42 | 1173 | -1006 | 378 | 139 | 25 |
| Equity Cap | 44 | 305 | 73 | 24 | 8 | 72 |
| Reserves | 2642 | 10921 | 15929 | 1156 | 589 | 490 |
| Accum. Loss | 618 | 0 | 6943 | 0 | 0 | 0 |
| Oper. Cash Flow | 712 | 1406 | -27 | 717 | 147 | 119 |
| Cash Profit | 565 | 1746 | -175 | 773 | 155 | 214 |
| Stock Features | ||||||
| Price (Rs) | 197 | 711 | 411 | 6341 | 1458 | 370 |
| Face Value (Rs) | 1 | 5 | 1 | 10 | 2 | 10 |
| Book Value | 47 | 184 | 124 | 497 | 156 | 78 |
| Promo Stake % | 42.8 | 54.8 | 0 | 75 | 69.7 | 58 |
| Debt/Equity | 0.96 | 0 | 0.02 | 0.21 | 0 | 0.71 |
| Profitability | ||||||
| OPM % | 6.8 | 22.8 | -6.3 | 18.1 | 15.7 | 5.1 |
| Net Margin % | 0.4 | 13.8 | -13.4 | 7.3 | 11.2 | 0.5 |
| Cash EPS | 12.68 | 28.67 | – | 325.73 | 40.36 | 29.95 |
| E P S | 0.89 | 19.27 | – | 159.49 | 36.37 | 3.65 |
| Discounting | ||||||
| Price/Earnings | 221.7 | 36.9 | – | 39.8 | 40.1 | 101.4 |
| Price/Cash EPS | 15.5 | 24.8 | – | 19.5 | 36.1 | 12.3 |
| Price/Book Val | 4.2 | 3.9 | 3.3 | 12.8 | 9.4 | 4.7 |
| Price/EBIDTA | 12.4 | 19.9 | – | 15.5 | 27.7 | 9.7 |
| Price/Revenue | 0.9 | 5.3 | 4.2 | 2.9 | 4.5 | 0.5 |
| Price/Fix. Asset | 5.1 | 6.7 | 18.2 | 8 | 12.8 | 3.2 |
| Distribution | ||||||
| Dividend % | 0 | 140 | 0 | 300 | 400 | 25 |
| Yield % | 0 | 1 | 0 | 0.5 | 0.6 | 0.7 |
| Pay-out % | 0 | 36.4 | 0 | 18.8 | 22 | 73.1 |