Zinka Logistics IPO review (May apply)

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Review By Dilip Davda on November 9, 2024

•    ZLSL is India's largest digital platform for truck operators and is gaining momentum year on year.
•    The company marked losses till FY24 and has turned the corner from Q1 of FY25.
•    Based on FY25 annualized earnings, the issue appears aggressively priced.
•    Considering the trends in the industry, this is a pure long term story.
•    Well-informed/cash surplus/risk seekers may park moderate funds for long term. 

ABOUT COMPANY:
Zinka Logistics Solution Ltd.  (ZLSL) is India's largest digital platform for truck operators (in terms of number of users), with 963,345 truck operators in the country transacting on its platform in Fiscal 2024, which comprises 27.52% of India's truck operators (Source: RedSeer Report). India's growing economy needs the support of robust logistical capabilities and small and medium size truck operators are the backbone of logistics in the country. These truck operators are served through value chains which are unorganized and fragmented, making their operations inefficient (Source: RedSeer Report). 

The company is on a mission to digitally empower India's truck operators, helping them manage their business and grow their income. Using its platform, customers (primarily comprising truck operators) digitally manage payments for tolling and fuelling, monitor drivers and fleets using telematics, find loads on marketplace and get access to financing for the purchase of used vehicles. 

Truck operators use the BlackBuck mobile application (the "BlackBuck App") the prime product of the company, for their diverse business needs. Its gross transaction value ("GTV") in payments was Rs. 5356.20 cr. and Rs. 17396.19 cr. in the three months ended June 30, 2024 and Fiscal 2024, respectively. Its customers recharge for tolling and fuelling through BlackBuck App into the payment instrument of the FASTag and fuel partners. Significant portion of this amount is deposited into its account and onward remitted to partners account. GTV payments do not represent the revenue of the Company. Its commission income in any period/year is only an agreed percentage of the total GTV payments in that period/year. 

Its methodology of disclosing the GTV may not be comparable to the methodology used by other platform companies. Truck operators manage their truck-level tolling and fuelling operations through the BlackBuck App, and gain cost benefits and effective control over expenses through decreased risk of pilferage and unauthorized spending. Truck operators purchase telematics services such as vehicle tracking and fuel sensors to manage their drivers and fleets. It had 390,088 and 356,050 average monthly active telematics devices in the three months ended June 30, 2024 and Fiscal 2024, respectively.

Truck operators use its loads marketplace product to search for loads to fill their empty capacities or to get a better price for a load. The company had 0.71 million and 2.12 million load postings in the three months ended June 30, 2024 and Fiscal 2024, respectively, which enabled 133,369 and 256,685 truck operators to get a load during the same periods. Truck operators avail used commercial vehicle financing through its platform. As on June 30, 2024, it had facilitated disbursements of 5,109 loans amounting to Rs. 252.76 cr. Its offerings solve critical problems for customers and form an integral part of their daily lives. In the three months ended June 30, 2024 and Fiscal 2024, its monthly transacting truck operators were active for more than 16.26 days and 16.18 days, respectively, in a month and on an average spent 41.54 minutes and 39.56 minutes, respectively, daily, on the BlackBuck App. The needs of the trucking industry are very specific and the truck operator's demography in India is unique (Source: RedSeer Report). 

It follows an Omni channel customer on boarding and servicing strategy, which is made specifically for the demography of customer base. It has a digital-led marketing strategy which provides awareness of solutions and brand to customers. Using a combination of an on-ground sales force, channel partners and telesales it supports customers through their entire on boarding process. Among new-age digital platforms in the trucking sector, ZLSL has the largest physical network (in terms of number of Touchpoints) across India and as of June 30, 2024, it has sold and serviced products across 628 districts constituting 80% of India's districts, including in all of the major transportation hubs and across 76% of the toll plaza network in India (Source: RedSeer Report). The company has a digitally enabled network of 9,374 touchpoints to conduct on boarding and servicing activities as of June 30, 2024.

The Indian trucking industry stands as a vital component of the nation's logistics sector. With approximately 12.5 million trucks and 3.5 million truck operators in Fiscal 2024, traversing Indian roads, the total freight value through trucks has witnessed a steady growth rate of 8 to 9% CAGR over the past four years (from Fiscal 2020 to Fiscal 2024). Trucking in India is highly fragmented in nature, with 75% of truck operators having less than five trucks. High fragmentation in this industry is a result of multiple operationally complex processes required to run the business efficiently.

Further, high dependence on cash-handling increases leakages at various touchpoints, such as fuel, tolling and repairs and maintenance. A majority of the operations of the truck operators are managed remotely. Hence, there is a significant lack of visibility into the day-to-day activities of the trucks. This results in ineffective control, especially for fleet owners managing multiple vehicles, who often remain unaware of their trucks' status once they are on the road.

The BlackBuck App is an integral part of company's offerings and serves to bring together all service offerings under one comprehensive platform. Through the BlackBuck App, customers can manage multiple aspects of their trucking business. As of June 30, 2024, it had 1849 employees on its payroll, 3688 off-roll employees and 4174 third party agent s and channel partners.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden combo book building route IPO of 40832320 equity shares of Rs. 1 each worth Rs. 1114.72 cr. (at the upper cap). The company has announced a price band of Rs. 259 - Rs. 273 per share. The issue constitutes 20146520 fresh equity shares (worth Rs. 550.00 cr. at the upper cap), and an offer for sale (OFS) of 20685800 shares (worth Rs. 564.72 cr., at the upper cap).  The issue opens for subscription on November 13, 2024, and will close on November 18, 2024. The minimum application to be made is for 54 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The IPO constitutes 23.14% of the post-IPO paid-up equity capital of the company. From the net proceeds of the fresh equity issue, the company will utilize Rs. 200.00 cr. for sales and marketing costs, Rs. 140.00 cr. for investment in Blackbuck Finserve Pvt. Ltd. for augmenting its capital, Rs. 75.00 cr. for product development, and the rest for general corporate purposes. 

The company has reserved 26000 equity shares for its eligible employees and offering them a discount of Rs. 25 per share, and from the rest, it has allocated not less than 75% for QIBs, not more than 15% for HNIs and not more than 10% for Retail investors. 

The joint Book Running Lead Managers (BRLMs) to this issue are Axis Capital Ltd., Morgan Stanley India Company Pvt. Ltd., JM Financial Ltd., and IIFL Capital Services Ltd., while KFin Technologies Ltd. is the registrar to the issue. Syndicate member for this issue is JM Financial Services Ltd.

The company has issued initial equity capital at par value, and has issued/based on Re. 1 FV), between June 2015, and October 2024. It has issued bonus shares in the ratio of 550 for 1 in June 2024. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 0.0019, Rs. 0.0036, Rs. 3.88, Rs. 18.57, Rs. 52.04, Rs. 62.71, Rs. 69.07, Rs. 132.09, Rs. 192.14, Rs. 195.31, Rs. 308.98, and Rs. 481.84 per share. 

Post IPO, company's current paid-up equity capital of Rs. 15.63 cr. will stand enhanced to Rs. 17.65 cr. Based on the upper cap of IPO pricing, the company is looking for a market cap of Rs. 4817.81 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit/ - (loss) of Rs. 156.13 cr. / Rs. - (230.35) cr. (FY22), Rs. 195.09 cr. / Rs. - (236.85) cr. (FY23), and Rs. 316.51 cr. / Rs. - (166.99) cr. (FY24). For Q1 of FY25 ended on June 30, 2024, it posted a net profit of Rs. 32.38 cr. on a total income of Rs. 98.33 cr. Thus it has turned the corner from Q1 of ongoing fiscal. But it will take some time to wipe out its carried forward losses.

For the last three fiscals, the company has reported an average EPS of Rs. - (11.00) (on continuing business), and an average RoNW of - (55.77) %. The issue is priced at a P/BV of 14.60 based on its NAV of Rs. 18.70 as of June 30, 2024, and is at a P/BV of 5.38 based on its post-IPO NAV of Rs. 50.71 per share (At upper cap). 

If we attribute annualized FY25 earnings to post-IPO fully diluted equity base, then the asking price is at a P/E of 37.19 and based on FY24 earnings, the P/E stands negative. Thus the issue appears aggressively priced.
 
PAT margins and RoCE margins data is missing from the offer documents. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It adopted a dividend policy in June 2024, based on its financial performance and future prospects. 

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown C. E. Info Systems, as their unlisted peers. It has also shown international listed peers like Fleetcor Technologies and Full Truck Alliance Co. However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
The four BRLMs associated with the offer have handled 86 public issues in the past three fiscals, out of which 23 issues have closed below the offer price on listing date.

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