Cargotrans Maritime BSE SME IPO review (Apply)

•    CML is an international logistics solution provider including ocean freight forwarding.
•    It has posted impressive financial performance for the last three fiscals. 
•    Higher spending for IPO and small equity base post IPO raises concern.
•    Based on FY22 earnings, the issue is reasonably priced. 
•    Investors may consider an investment with medium to long-term perspectives.

ABOUT COMPANY:
Cargotrans Maritime Ltd. (CML) is an international logistics solutions provider with the core business of providing sea logistics services including ocean freight forwarding (FCL and LCL), transportation, customs clearance, warehousing, and other value-added services to clients. It started the business of freight forwarding in 2012 and has, since then, consistently grown its presence, enhanced the scope of services, and increased its capabilities and expertise.
In October 2019, the Company acquired a 100% stake in Cargotrans Maritime Agencies Private Limited (“CMAPL”) and Cargotrans Maritime Forwarding Private Limited (“CMFPL”) to enter into the segment of custom house agent service and coastal transportation (i.e. transport of goods through sea within India). It has a Multi-Modal Transport Operator’s License, which enables it to issue a single negotiable multimodal transport document covering multiple modes of transport and position itself as an independent player in this field thus strengthening its revenue model.
CML also undertakes work related to regulatory compliance services such as customs clearance, through CMAPL, which owns a valid Custom House Agent’s License. As of the date of Prospectus, the Company operates at 4 seaports in Gujarat i.e. Mundra, Hazira, Kandla, and Pipavav. Currently, CML operates a fleet of 9 owned commercial trailers for moving containers, and apart from this it also hires third-party transport operators to meet the shipping demand of customers. Its customers operate in various sectors, including food processing, agro-based, commodities, plastics, minerals, ceramics, trading, packaging, textiles, etc. As of August 31, 2022, CML has a strength of over 70 employees.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for working capital (Rs. 3.50 cr.), and general corporate purposes (Rs. 0.66 cr.), CML is coming out with a maiden IPO of 1080000 equity shares of Rs. 10 each at a fixed price of Rs. 45 per share to mobilize Rs. 4.86 cr. The issue opens for subscription on September 27, 2022, and will close on September 29, 2022. The minimum application is to be made for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.47% of the post-IPO paid-up equity capital of the company. CML is spending Rs. 0.70 cr. for this IPO process. This indicates the fully structured nature of the IPO.
The issue is solely lead managed by Hem Securities Ltd., and Bigshare Services Pvt. Ltd. is the registrar to the issue. Hem Securities Ltd. is also the market maker for the company.
Having issued initial equity shares at par, the company issued further equity shares at a fixed price of Rs. 18 per share in March 2018. It has also issued bonus shares in the ratio of 39 for 1 in January 2018 and 4 for 1 in September 2022. The average cost of acquisition of shares by the promoters is Rs. 0.05 and Rs. 4.00 per share.
Post this IPO, CML’s paid-up equity capital of Rs. 3.00 cr. will stand enhanced to Rs. 4.08 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 18.36 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, CML has (on a consolidated basis) reported a turnover/net profit of Rs. 20.58 cr. / Rs. 0.28 cr. (FY20), Rs. 49.41 cr. / Rs. 1.15 cr. (FY21), and Rs. 89.60 cr. / Rs. 2.36 cr. (FY22). Thus it has marked growth in its top and bottom lines.
For the last three fiscals, CML has posted an average EPS of Rs. 5.37 and an average RoNW of 37.68%. The issue is priced at a P/BV of 2.54 based on its NAV of Rs. 17.74 as of March 31, 2022, and at a P/BV of 1.80 based on its post-IPO NAV of Rs. 24.96 per share.
If we attribute FY22 earnings on post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 7.77. Thus the issue is reasonably priced.

COMPARISON WITH LISTED PEERS:
As per the offer documents, CML has shown Accuracy Shipping, Tiger Logi., Allcargo, and Total Transport as their listed peers. They are currently quoting at a P/E of 24.46, 7.28, 57.88, and 20.45 (as of September 23, 2022).  However, they are not truly comparable on an apple-to-apple basis.

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

MERCHANT BANKER’S TRACK RECORD:
This is the 12th mandate from Hem Securities in the last three fiscals (including the ongoing one). Out of the last 10 listings, 1 opened at discount and the rest with premiums ranging from 1.47% to 104.87% on the day of listing.

Conclusion / Investment Strategy
CML is operating in a highly competitive segment but has created a niche place. It has posted growth in its top and bottom lines despite all odds. Based on FY22 earnings, the issue appears reasonably priced. A small equity base post IPO indicates longer gestation for migration and higher spending for IPO raises concern. Investors may consider an investment with a medium to long-term perspective.

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