The initial public offering (IPO) of Future Supply Chain Solutions, the Future Group's logistics arm, opened today for public subscription. "In case of closely listed peers like Mahindra Logistics, which recently came out with an IPO that was at an expensive valuation, is now trading at Rs 441, 3% above its issue price of Rs 429 and PE of 68.8 times on FY17 basis".
The brokerage house said that at the higher price band of Rs 664, the share is available at P/E multiple of 58.2 (x) and 39.9 (x) based on FY17 and FY18E (annualised) EPS.
The offer from company is a mix of fresh issuance of shares by promoters Future Enterprises, which will lead to a dilution of 4.43 per cent of their stake, as well as an offer-for-sale by private equity investor Griffin Partners aggregating to 20 per cent of equity.
Earlier in August, the company had filed the draft red herring prospectus with SEBI for a public issue of up to about 97.84 lakh equity shares representing 25 per cent of the existing paid-up equity share capital of Future Supply Chain Solutions for cash. Reliance Capital Trustee Company, HDFC Trustee Company, IDFC Mutual Fund and L&T Mutual Fund are among 16 anchor investors who got the anchor allotment.
Bids can be made in multiples of 22 shares.
Future Supply Chain Solutions (FSC) is one of the largest third-party logistics service providers in India.
As of September 2017, the company ran contract logistics operations in 42 distribution centres, covering 3.84 million sq ft of warehouse space. Yesterday, the company announced that it has garnered Rs 195 crore ahead of its initial share offer. "Further, Mahindra Logistics had reported non-promoter revenue CAGR of 46% v/s.de-growth of FSCSL over FY15-17", the brokerage said in its report. Earnings before interest, tax, depreciation and amortization (EBITDA) margins contracted to 13.2% in FY17 from 15.7% in FY15. Over the last five fiscals, the firm has not declared any dividends.
The global co-ordinators & book running lead managers to the offer are Edelweiss Financial Services, CLSA India and Nomura Financial Advisory & Securities (India).
Despite the above favorable factors and lower valuations compared to Mahindra Logistics, the brokerage however, believes that all the positives are fully factored in the company's current valuations, which does not provide any further upside for investors. Also, as Angel Broking pointed out in its report, Mahindra Logistics has lower promoter group business (revenue coming from sister companies), which is 54% compared to 70% for FSCSL.