Kaushalya Logistics NSE SME IPO review (Apply)

• KLL is engaged in diverse businesses with asset light model.
• The sudden boost in top lines from FY23 it attributed to its e-commerce activities.
• It is operating in a highly competitive and fragmented segment.
• Based on annualized FY24 earnings, the issue appears fully priced.
• Investors may park funds for the medium to long term rewards.

ABOUT COMPANY:
Kaushalya Logistics Ltd. (KLL) was started with incorporation of Kaushalya Buildcon Private Limited in the year 2007 to carry on the business of construction of commercial buildings, residential buildings, factory sheds etc. With the experience gained in this area of operations the company diversified in providing logistic support to cement industry. In 2010 the business of providing logistic support started with 4 warehouses and was expanded year on year and currently the company is maintaining 70 warehouses belonging to Dalmia Cement Bharat Limited in the state of Bihar, Tamil Nadu and Kerala among other operating states in India.

The warehouses which the Company is maintaining on behalf of Dalmia Cement, are all leased by Dalmia Cement (Bharat) Limited in their own name unless specifically leased (on reimbursement basis) by the company for short periods of time based on their specific request. Dalmia cements is paying a consolidated consideration for clearing and forwarding services which are inclusive of maintenance (normal wear and tear but exclusive of rentals and any capex expenses) of warehouses. The Company primarily provides Clearing and Forwarding (C&F) Services to dealers and customers of Dalmia Cement Bharat Limited.

The Company has operations in Tamil Nadu, Kerala, Karnataka, Bihar and Rajasthan and operates with Head office in New Delhi and Regional Office in Chennai. KLL is developed as an integrated Logistics and Clearing and Forwarding (C&F) services provider. At present the Company operates in three major verticals, one of which vertical is providing logistic support for handling and dealing in the cement for dealers and customers of Dalmia Cement Bharat Limited. The other vertical is of retail /e-commerce business wherein it is the sellers of Electronics and White Good items such as Televisions, Refrigerator, Washing Machines etc. on a major online e-commerce platform, covering locations all across India with registration under Goods and Services Tax (GST) in 17 Locations.

The company has also ventured out in commercial real estate sector by owning and renting out commercial shops in Udaipur, which constitutes the third vertical of its business operations. The Company is operating as Clearing and Forwarding agents for major cement Companies like Dalmia Cement Bharat Limited. Business model includes end to end support including clearing rail rake from railways, getting material transported to warehouse, loading / unloading, dispatches to distributors, invoicing, warehouse management including upkeep of stock, handling insurance matters and depot audit, related statutory compliances etc. Practically all operations on behalf of customers after dispatch from production facility are handled by KLL.

This comes with huge saving of manpower resources, saving on material wastage and other operational cost to customers through KLL’s efficient working which is based on vast rich experience in the logistics and warehousing field. This helps customers in having better reach over their customers in more transparent way, gaining more market share and customer confidence. The Company works on asset light model, wherein company uses warehouses owned / rented by customers only. All transport fleet is hired based on broad parameters fixed by customer.

KLL got engaged with a major online e-commerce platform as sellers of white good and electronics since January 2022. In online business, company sells products purchased from the leading brands only. Online business is performed with the help of various companies associated with the major online e-commerce platform. The company has entered agreements with Authorized distributors on B2B basis and purchases the products on best pricing on bulk purchases with best of discounts based on identification through automated Intelligence support provided to it. The Company has also invested into pre-rental properties. This was to encase a good opportunity with the objective to having some regular cash inflows. Currently 18 retail shops are owned by the company in commercial project in Udaipur which give steady rental income.

The Company is looking to further extend its business into other verticals within Logistics like Warehousing, Transportation, etc. & also looking to expand its other verticals. As Company has established strong name in the cement industry and is in discussions with other cement companies and because of their strong relationship with their existing customer Dalmia Cement, it is actively exploring many more potential business opportunities in warehousing and transportation for them in addition to the new customers. As of the date of filing this offer document, it had 142 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden book building route combo IPO of 4880000 equity shares of Rs. 10 each consisting 3380000 fresh equity shares (worth Rs. 25.35 cr. at the upper cap), and an Offer for Sale (OFS) of 1500000 shares (worth Rs. 11.25 cr. at the upper cap). It has announced a price band of Rs. 71 – Rs. 75 per share and mulls mobilizing Rs. 36.60 cr. at the upper cap. The issue opens for subscription on December 29, 2023, and will close on January 03, 2024. The minimum application to be made is for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.34% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO funds, the company will utilize Rs. 1.71 cr. for repayment of unsecured loans, Rs. 17.26 cr. for working capital and the rest for general corporate purposes.

The issue is solely lead managed by Khandwala Securities Ltd., and Skyline Financial Services Pvt. Ltd. is the registrar of the issue. Nikunj Stock Brokers Ltd. is the market maker for the company.

The company has issued entire equity capital at par value so far. It has also issued bonus shares in the ratio of 100 for 1 in July 2023. The average cost of acquisition of shares by the promoters is Rs. NIL, and Rs. 0.10 per share.

Post-IPO, company’s current paid-up equity capital of Rs. 15.15 cr. will stand enhanced to Rs. 18.53 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 138.98 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit of Rs. 33.28 cr. / Rs. 3.00 cr. (FY21), Rs. 63.59 cr. / Rs. 3.76 cr. (FY22), and Rs. 632.16 cr. / Rs. 7.06 cr. (FY23). For Q1 of FY24 ended on June 30, 2023, it earned a net profit of Rs. 2.14 cr. on a total income of Rs. 570.53 cr. The sudden boost in top lines and declined margins from FY23 onward are the major concerns. The company also has higher debt of around Rs. 60 cr. as of September 30, 2023. The IPO proceeds has minuscule provision of debt clearance.

For the last three fiscals, the company has reported an average EPS of Rs. 352.21, and an average RoNW of 34.36%. The issue is priced at a P/BV of 0.05 based on its NAV of Rs. 1432.19 (on pre bonus capital basis). The IPO price band ad is missing its post-IPO NAV data at the lower and upper cap.

If we attribute FY24 annualized earnings to post-IPO fully diluted paid-up equity capital of the company, then the asking price is at a P/E of 16.20. Thus the IPO appears fully priced.

For the reported periods, the company has posted PAT margins of 9.04% (FY21), 5.93% (FY22), 1.12% (FY23), 0.38% (Q1-FY24), and RoCE margins of 60.07%, 65.28%, 70.48%, 78.06% respectively.

DIVIDEND POLICY:
The company has not declared any dividends since incorporation. It will adopt a prudent dividend policy based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has no listed peers to compare with.

MERCHANT BANKER’S TRACK RECORD:
This is the 2nd mandate from Khandwala Securities in the last two fiscals. Out of the last 1 listing, it opened at a premium of 7.35% on the listing date.

Conclusion / Investment Strategy
The company is engaged in logistics services, e-commerce platform, realty business. All these segments are highly competitive and fragmented one. Based on FY24 annualized earnings, the issue appears fully priced. Its higher indebtedness raises concern. Considering bright prospects for infra push and higher consumption of cement, this specialized service providing company is heading for good time ahead. With the new awards in the pipeline, the management is confident for improving its performance. Investors may park funds for the medium to long term rewards.

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