TVS Supply Chain IPO review (Apply)

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Review By Dilip Davda on August 7, 2023

•    TSCSL is a supply chain solution-providing arm of the TVS group.
•    It has created a niche place among Indian listed companies. 
•    The company has turned the corner for FY23. 
•    TVS group's legacy to reward stakeholders will continue.
•    Investors may apply for this opportunity of investment in TVS group company after 1991, for medium to long-term rewards. 

PREFACE:
We have an IPO from TVS group company after a gap of 32 years. South-based TVS group is well-known among investors across the board and their shares have rewarded investors handsomely over the years. Now, this group company TSCSL is tapping the primary market. The company has done a Pre-IPO placement worth Rs. 75.00 cr. of 4476275 CCPS (at a conversion price of Rs. 167.55 per share) and another pre-IPO placement of 4010695 shares worth Rs. 75.00 cr. Thus it has done a pre-IPO placement of Rs. 150 cr. and has reduced its fresh equity issue to that extent. Now the company is coming out with an IPO of Rs. 880 cr. It's a not to miss opportunity.

ABOUT COMPANY:
TVS Supply Chain Solutions Ltd. (TSCSL) is India's largest and 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, according to the Redseer Report. The Company is an India-based multinational company that pioneered the development of the supply chain solutions market in India according to Redseer Report. It is promoted by the erstwhile TVS Group, one of the reputed business groups in India (Source: Redseer Report), and is now part of the TVS Mobility Group. 

For more than 16 years, it has managed large and complex supply chains across multiple industries in India and selects global markets through customized tech-enabled solutions. During this period, TSCSL has grown significantly. It is an Indian supply chain logistics solution provider that has global capabilities and networks across the value chain with cross-deployment abilities. Its technology coupled with deep domain expertise and global expertise enables the company to develop and offer customized solutions to customers' thereby empowering agile and efficient supply chains at a large scale.

As part of its engagement with customers, customers outsource portions of their supply chain to it in order to improve their efficiency and to better manage their resources. TSCSL's solutions spanning the entire value chain from sourcing to consumption can be divided into two segments: (i) integrated supply chain solutions ("ISCS"); and (ii) network solutions ("NS"). Its capabilities under the ISCS segment include sourcing and procurement, integrated transportation, logistics operation centres, in-plant logistics operations, finished goods, aftermarket fulfilment and supply chain consulting. While its capabilities under the NS segment include global forwarding solutions ("GFS"), 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 final mile solutions ("TCFMS") which involves closed-loop logistics and support including spares logistics, break-fix, refurbishment and engineering support, and courier and consignment management.

Globally, it provided supply chain solutions to 11,546, 10,531 and 8,788 customers during Fiscals 2021, 2022 and 2023, while in India, the company provided solutions to 1,120, 1,044 and 902 customers in the same years. It has added an aggregate of 1,179, 152 and 177 new customers (i.e. new customers whom the Company did not provide any services immediately preceding year) in Fiscals 2021, 2022 and 2023, respectively. Moreover, (i) in Fiscal 2021, its global customers included 54 'Fortune Global 500 2020' companies, while Indian customers included 24 'Fortune Global 500 2020' companies; (ii) in Fiscal 2022, its global customers included 61 'Fortune Global 500 2021' companies, while Indian customers included 24 'Fortune Global 500 2021' companies; and (iii) in Fiscal 2023, its global customers included 72 'Fortune Global 500 2022' companies, while Indian customers included 25 'Fortune Global 500 2022' companies. 

Its customers span across numerous industries such as automotive, industrial, consumer, tech and tech infra, rail and utilities, and healthcare. It has developed long-term relationships with a number of clients, which has provided resilience to its revenue and profitability. Some of its customers with whom it had long-term relationships as of March 31, 2023, include Sony India Private Limited (12 years), Hyundai Motor India Limited (13 years), Johnson Controls-Hitachi Air Conditioning India Limited (3 years), Ashok Leyland Limited (17 years), TVS Motor Company Limited (17 years), Diebold Nixdorf (8 years), TVS Srichakra Limited (10 years), Lexmark International Technology Sarl (6 years), VARTA Microbattery Pte Ltd (7 years), Daimler India Commercial Vehicles Private Limited (12 years), Hero MotoCorp Limited (8 years), Modicare Limited (7 years), Panasonic Life Solutions India Private Limited (12 years), Dennis Eagle Limited (17 years), Electricity North West Limited (5 years), Yamaha Motor India Private Limited (7 years) and Torrot Electric Europa, S.A. (3 years).

The company commenced operations as 'TVS Logistics', a division of TVS & Sons in 1995 before being incorporated as a separate company in 2004. The core values of 'TVS' stands for trust, value and customer service. 

TSCSL operates an asset-light business wherein its warehouses (primarily comprising after-market warehouses, dedicated consumer product and retail warehouses, multi-client facilities and national distribution centres) and vehicles are operated through leases with its network partners. While it does not have ownership of these assets, it has control over the capacity and fleet, and the scheduling, routing, storing, and delivery of goods are managed by it. Moreover, it also operates customer-owned/ leased warehouses.  As of March 31, 2023, it had 17913 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden combo book-building route IPO of fresh equity shares issue worth Rs. 600 cr. (approx. 30456848 shares at the upper cap) and an Offer for Sale of 14213198 shares of Re. 1 each (approx. worth Rs. 280.00 cr. at the upper cap). It has announced a price band of Rs. 187 - Rs. 197 per share and mulls mobilizing Rs. 880.00 cr. for the overall issue size of 44670046 shares. The issue opens for subscription on August 10, 2023, and will close on August 14, 2023. The minimum application to be made is for 76 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 10.06% of the post-IPO paid-up capital of the company. The company has allocated not less than 75% for QIBs, not more than 15% for HNIs and not more than 10% for Retail investors.  

From the net proceeds of the fresh issue funds, the company will utilize Rs. 525.00 cr. for repayment/prepayment of certain borrowings, and the rest for general corporate purposes.  

There are six Book Running Lead Managers (BRLMs) for this IPO. They are JM Financial Ltd., Axis Capital Ltd., J. P. Morgan India Pvt. Ltd., BNP Paribas, Nuvama Wealth Management Ltd., and Equirus Capital Pvt. Ltd., while Link Intime India Pvt. Ltd. is the registrar of the issue. 

The company has already issued/converted shares worth Rs. 150 cr. in two pre-IPO placements at a price of Rs. 180 (Rs. 75 cr.) and Rs. 187 (Rs. 75 cr.) in the month of July 2023. Thus its fresh equity issue quantum is reduced by this amount.

Having issued initial equity shares at par value, the company issued/converted further equity shares in the price range of Rs. 7.50 - Rs. 187.00 (based on FV of Re. 1) between March 2008 and July 2023. The average cost of acquisition of shares by the promoters/stakeholders is Rs. 2.84, Rs. 3.92, Rs. 9.39, Rs. 9.40, Rs. 9.41, Rs. 19.50, Rs. 26.74, Rs. 27.08, Rs. 39.61, Rs. 55.78, Rs. 57.86, Rs. 66.39, Rs. 74.63, Rs. 75.84, Rs. 95.00, and Rs. 121.963 per share. 

Post-IPO, TSCSL's current paid-up equity capital of Rs. 41.35 cr. will stand enhanced to Rs. 44.40 cr. At the upper cap of the IPO price band, the company is looking for a market cap of Rs. 8745.88 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last four fiscals, TSCSL has posted a turnover/net profit - (loss) of Rs. 6792.76 cr. / Rs. - (248.03) cr. (FY20), Rs. 6999.69 cr. / Rs. - (73.90) cr. (FY21), Rs. 9299.94 cr. / Rs. - (44.88) cr. (FY22), and Rs. 10311.01 cr. / Rs. 41.76 cr. (FY23). Thus it has posted growth in its top line and has turned the corner for FY23 after marking reducing losses for the reported periods.

For the last three fiscals, the company has reported an average EPS of Rs. - (0.35) and an average RoNW of - (2.07) %. The issue is priced at a P/BV of 10.43 based on its NAV of Rs. 18.89 as of March 31, 2023, and at a P/BV of 4.29 based on its post-IPO NAV of Rs. 45.95 per share (at the upper cap). Positive NAV is due to premiums collected on the issue of fresh equity shares till the FY23 end. 

If we attribute FY23 earnings to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 209.57 and discounts all near-term positive.  But it is still worth considering for the medium to long term considering the legacy of the TVS group.  As the company has already turned the corner before the IPO, it is set to continue the trends with a leading position in the segment. 

DIVIDEND POLICY:
The company has not paid any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer documents, the company has shown TCI Express, Mahindra Logistics, Blue Dart Express and Delhivery Ltd. as their listed peers. They are currently trading at a P/E of 41.55, 35.55, 49.54, and 00 (as of August 07, 2023 noon). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
The six BRLMs associated with the offer have handled 68 public issues in the past three years, out of which 23 issues closed below the offer price on the listing dates. 

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