Future Supply Chain IPO – Should you Invest?
Mumbai based, Future Supply Chain IPO would open for subscription on 6th December, 2017. Future Supply Chain Solutions Limited one of the leading 3rd Party logistic service provider in India. Its revenues grew at 18% CAGR in the last 3 years. It posted profits of 7.9% for FY2017. What are the positive factors in Future Supply Chain Solutions Limited IPO? What are the hidden factors in Future Supply Chain IPO? Is Future Supply Chain IPO Price is over priced? In this article, let me review Future Supply Chain Solutions Limited IPO.
About Future Supply Chain Solutions Limited
They are one of India’s largest organised third-party logistics service operators. They offer automated and IT-enabled warehousing, distribution and other logistics solutions to a wide range of customers. Its service offerings, warehousing infrastructure, pan-India distribution network, “hub-and-spoke” transportation model and automated technology systems support company competitive market position. Company customers operate in various sectors across India, including retail, fashion and apparel, automotive and engineering, food and beverage, fastmoving consumer goods, e-commerce, healthcare, electronics and technology, home and furniture and ATMs.
Future Supply Chain IPO Issue details
- IPO open date: 6-Dec-2017
- IPO close date: 8-Dec-2017
- Face Value: Rs 10 per share
- Issue price band: Rs 660 to Rs 664 per share
- Issue size: Approx Rs 650 Crores on higher price band
- Future Supply Chain IPO Lot size: 22 shares and 22 shares there-off
- Minimum investment: Rs 14,520
- Leading Managers: Edelweiss Financial Services, CLSA Services, Nomura Financial Services, Yes Securities, IDFC Bank and IIFL Holdings
- Listing: BSE / NSE
- Download Future Supply Chain IPO RHP Prospectus at this link.
Objects of the Future Supply Chain Ltd IPO issue
The objects of the Offer are:
1) Achieve the benefit of listing the Equity Shares on the Stock Exchanges;
2) Sale of Equity Shares by the Selling Shareholders.
3) Enhance its stability and brand image and provide liquidity to its existing shareholders.
Who are the Company Promoters of Future Supply Chain Solutions Limited?
Future Enterprises Limited (FEL) (also called as “Future group”) is the promoter of the Company.
Company Financials (reinstated)
1) The company generated revenue of Rs 410.7 Crores for the year ended Mar-15 and Rs 576.9 Crores for the year ended Mar-17.
2) The company posted a profit of Rs 24.6 Crores for the year ended Mar-15 and profit of Rs 45.7 Crores for the year ended Mar-17.
3) Its FY17 EPS is Rs 11.69 and 3 years average EPS is Rs 9.41.
What are the key strengths of Future Supply Chain Solutions Limited?
Here are the key strengths of the company.
1) One of the largest service providers with an extensive network of facilities in a fast-growing third-party logistics market.
2) Comprehensive solution for supply chain requirements.
3) Diverse customer base across many sectors.
4) At the forefront in introducing new standards of technology and automation in the logistics industry in India.
5) Longstanding relationship with Future Entities
6) Experienced management team with logistics and retail sector-specific knowledge.
What are the Strategies of Future Supply Chain Ltd?
Here are the key strategies of Future Supply Chain which it want to focus.
1) Capitalise on the growth of the third-party logistics industry in India.
2) Target growth by identifying new customers, increasing our share of existing customers’ third-party logistics spending and leveraging existing relationships.
3) Expand addressable market through customised and new service offerings.
4) Invest further in infrastructure and expand our network.
5) Explore inorganic growth opportunities.
6) Continue to improve operating efficiencies and implement technological and process enhancements.
Reasons to invest in Future Supply Chain IPO
1) It posted strong revenue growth of 18% CAGR in the last 3 years.
2) Its profits are in increasing mode. Its profits were at 6% in FY15 Vs 7.9% in FY17. Profits grew at 36% CAGR in the last 3 years.
3) It is one of its kind in India which offers automated and IT-enabled warehousing, distribution and other logistics solutions to a wide range of customers.
Risk Factors / Reasons not to invest in a Future Supply Chain Solutions Limited IPO
1) The Future Entities are company key customers and company Promoter and certain of company Group Companies account for a significant portion of the revenue. Any failure to maintain company relationship with these customers will have a material adverse effect on company financial performance and results of operations.
2) Company business is affected by prevailing economic conditions in India and indirectly affected by changes in consumer spending capacity in the sectors they serve within India.
3) They may face competition from a number of international and domestic third-party logistics companies, which may adversely affect company market position and business.
4) Delays or defaults in payment by customers could affect company cash flows and may adversely affect company financial condition and operations.
5) An inability to pass on any increase in operating expenses to company customers may adversely affect company business and results of operations.
6) They are heavily dependent on machinery and equipment for company operations. Any breakdown of company machinery or equipment will have a significant adverse effect on company business, reputation, financial results and growth prospects.
7) Company business is highly dependent on technology and automation and any disruptions of or failure to update such technology or automation could have an adverse effect on company results and operations.
8) Changing regulations in India could lead to new compliance requirements that are uncertain.
9) The trend toward outscompanycing of supply chain management activities, throughout India or within specific sectors, may change, thereby reducing demand for company services.
10) Conditions and restrictions imposed on it by the agreements entered into with some of company customers could adversely affect company business and results of operations.
11) The performance of company express logistics and temperature-controlled businesses may continue to decline.
12) A large portion of company contract logistics operations is conducted through company distribution centres in Nagpur and any damage or disruption of these distribution centres could have an effect on company business and results of operations.
13) Company, Promoter, Group Companies and Directors are involved in certain legal proceedings and potential litigation. Any adverse decision in such proceedings may render us/them liable to liabilities/penalties and may adversely affect company business and results of operations
14) They have experienced negative cash flows in the prior years.
15) Some of company Group Companies have incurred losses, which may have an adverse effect on company reputation and business.
16) Other risk factors (Internal and external) can be viewed in the prospectus.
Recommendation / Investment strategy – Future Supply Chain IPO
1) On the upper price band of Rs 664 and on restated FY17 EPS of Rs 11.69, P/E ratio works out to be 56x. Even based on last 3 years restated EPS of Rs 9.41, P/E ratio works out to 70x. Means, company is asking higher price band of Rs 664 in the P/E ratio of 56x to 70x. Its only listed peers Mahindra Logistics Ltd is trading at P/E ratio of 68x. However Mahindra Logistics shares are trading at just 5% above issue price now, as it was over priced (refer our IPO analysis article). Hence, if we compare this way, Future Supply Chain is over priced.
2) Company revenues grew at 18% CAGR in the last 3 years. Its profits are in increasing mode. However the issue price seems to be overpriced. I would personaly like to invest if it is available at discounted price after listing. High Risk Investors can invest with medium to long term perspective, however one may or may not get listing gains.
Disclaimer: I do NOT have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy or not to buy. Please consult your investment advisor before you invest in such high risk investment options.
Readers, What is your view on this IPO? Would you like to invest in such high priced IPO?
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Future Supply Chain IPO – Should you Invest