Western Carriers IPO opens tomorrow: 10 key points you need to be aware of before you subscribe to ₹493 crore issue

The initial public offering (IPO) of Western Carriers (India) is scheduled to open for bidding on Friday, September 13, and will remain open until Wednesday, September 18. 

The company aims to raise ₹492.88 crore through this offering, which includes the issuance of 2.87 crore shares. This comprises a fresh issue of up to 2.33 crore shares, aggregating to ₹400 crore, and an offer for sale of 0.54 crore shares, amounting to ₹92.88 crore.

The IPO price band is set between ₹163 and ₹172 per share, with a lot size of 87 shares for retail investors. At the upper end of the price band, the cost for one lot is ₹14,964. Retail investors can apply for a maximum of 13 lots.

The net offer is allocated as follows: 50 percent reserved for qualified institutional buyers, 15 percent for non-institutional investors, and 35 percent for retail investors.

JM Financial Limited and Kotak Mahindra Capital Company Limited are the book-running lead managers for the IPO, while Link Intime India Private Ltd is the registrar for the issue.

The article breaks down key highlights from the draft red herring prospectus (DRHP), offering crucial details to help make an informed decision about this IPO.

About Western Carriers

The company is one of India's largest private, multimodal, rail-focused, 4PL asset-light logistics firms, in terms of container volumes handled or operated by private players in Fiscal 2023.

In its DRHP report, citing 1Lattice Report, the company said its domestic and EXIM market share, based on container volumes handled, was 6 percent and 2 percent, respectively, in Fiscal 2023.

It operates on a scalable, asset-light business model, which enables it to provide differentiated 3PL and 4PL solutions.

Objectives of the issue

The net proceeds from the fresh issue, after deducting offer expenses allocated to the company, are intended to be utilised towards the prepayment or scheduled repayment of a portion of the company's outstanding borrowings.

Additionally, a portion of the funds will be allocated for capital expenditure requirements, specifically for the purchase of commercial vehicles, specialised 40-foot containers, standard 20-foot shipping containers, and reach stackers.

Container volume growth: A positive trend in fiscal 2024

The company's container volumes increased to 212,500 TEU in Fiscal 2024, up from 193,137 TEU in Fiscal 2023, driven by the acquisition of a new multimodal transportation business. 

However, container volumes had previously decreased to 193,137 TEU in Fiscal 2023 from 216,710 TEU in Fiscal 2022, primarily due to a shift in the transportation of certain commodities to road transport, which became unviable during the COVID-19 pandemic and subsequent lockdowns and restrictions.

The company's financial performance during these periods reflected these volume trends.

Moving forward, the company aims to increase the volume of containers handled by exploring new growth opportunities. Additionally, the company expects favourable government initiatives, such as GSNMP, the National Logistics Policy (NLP), the National Rail Plan (2024), and Dedicated Freight Corridors (DFCs), to support its expansion efforts.

Client base

The company established strong relationships with several key customers across various industries. As of March 31, 2024, it serves a diverse base of 1,647 customers, primarily operating in sectors such as metals, FMCG, pharmaceuticals and chemicals, oil and gas, and utilities.

It generates most of its revenue from metals customers, contributing 53.26 percent in FY24, followed by FMCG at 19.46 percent, pharmaceuticals and chemicals at 7.04 percent, and oil and gas at 4.76 percent. The number of customers grew by 29.48 percent in Fiscal 2024 and 19.55 percent in Fiscal 2023, largely due to an increase in retail customers.

While the company has a broad customer base across multiple industries, it remains significantly dependent on key customers, with the top 10 customers accounting for 72 percent of its revenue in FY24, as per the DRHP report. 

Competitive dynamics

With an asset-light business model, Western Carriers maintains a competitive edge while expanding its network and service offerings. However, the Indian logistics industry is highly fragmented, dominated by small local players and unorganised competitors.

These competitors, often with fewer resources, may attract customers by matching or exceeding Western Carriers’ terms. Larger players with economies of scale and broader networks also pose competition through pricing and promotional strategies.

Financials

Western Carriers' revenue from operations increased from ₹14,708.75 million in FY 2022 to ₹16,857.69 million in FY 2024, reflecting a CAGR of 4.65 percent. EBITDA rose from ₹1,088.87 million in FY 2022 to ₹1,518.24 million in FY 2024, representing a CAGR of 11.72 percent.

Meanwhile, its profit for the year grew from ₹611.29 million in FY 2022 to ₹803.47 million in FY 2024, a CAGR of 9.54 percent. The company's EBITDA margin improved from 7.40 percent in FY 2022 to 9.01 percent in FY 2024.

Both return on equity (RoE) and return on capital employed (RoCE) remained consistent during this period, with RoE at 22.41 percent in FY 2024, compared to 26.92 percent in FY 2022, and RoCE at 29.23 percent in FY 2024, down slightly from 33.40 percent in FY 2022.

Notably, according to the company's DRHP report, in FY 2024, the company's RoCE was among the highest in the speciality logistics industry.

Operational Efficiency: Key to maintaining profitability in a price-sensitive market

Western Carriers saw significant growth in recent years, but optimising cash operating expenses remains crucial for maintaining competitiveness in a fragmented and price-sensitive market. The company has strategies in place to offset rising costs, including diesel price variability clauses and adjustments to rail transport fees.

However, any cost increases that the company cannot pass to customers may impact profitability. Western Carriers focuses on optimising operational efficiency through reorganisation, technology improvements, and process standardisation to address these challenges.

Freight and handling charges remain a significant operational cost, and employee expenses continue to rise due to business expansion and workforce growth.

Rising finance costs

Finance costs for Western Carriers increased by 46.72 percent in FY 2024, rising to ₹221.78 million from ₹151.16 million in FY 2023. This growth was primarily driven by a 44.44 percent rise in interest expenses on short-term borrowings, which amounted to ₹161.95 million, up from ₹112.12 million the previous year.

Additionally, borrowing costs increased by 127.80 percent due to higher total borrowings from banks, contributing to ₹14.83 million in FY 2024 compared to ₹6.51 million in FY 2023.

As a result, finance costs represented 1.31 percent of total income and 1.40 percent of total expenses in FY 2024, reflecting a higher share than the previous year.

Key risks

Customer Concentration Risks: The company depends on a limited number of key customers for a majority of its revenues, particularly in the metals and FMCG industries. This high customer concentration exposes the company to significant risks; a decrease in revenue from these key sectors could adversely impact its business, results of operations, cash flows, and financial condition.

Industry Risks: Operating within the Indian logistics industry, the company is vulnerable to factors affecting the industry's growth. Its business relies heavily on the continuous and efficient use of logistics infrastructure. Disruptions or deficiencies in this infrastructure, including those impacting freight and container traffic, could impair operations and adversely affect business performance.

Logistics Infrastructure Vulnerabilities: The company’s operations are dependent on the uninterrupted use of logistics infrastructure. Any disruptions or deficiencies in this infrastructure could negatively impact operations and results.

Listing and allotment details

The allotment for the Western Carriers (India) IPO is expected to be finalised on Thursday, September 19, 2024. The shares are scheduled to be listed on both the NSE and BSE, with a tentative listing date of September 23, 2024.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.