S J Logistics NSE SME IPO review (May apply)

• SLIL is engaged in providing logistics and supply chain solutions with global reach
• It has posted inconsistency it its operations for the reported periods.
• The boost in bottom lines from FY23 onwards raises eyebrows and concern over its sustainability.
• Based on FY24 annualized super earnings, the issue appears reasonably priced.
• Well-informed investors may park funds for the long-term rewards.

ABOUT COMPANY:

S J Logistics (India) Ltd. (SLIL) is engaged in the business of providing logistics and supply chain solutions to customers. Its key services include freight forwarding, custom clearance and transportation handling services. It is a Multimodal Transport Operator registered under the Multimodal transportation of Goods Act 1993 to carry on the business of multimodal transportation.

The company has grown its presence, expanded the scope of services, and increased capabilities in the business of freight forwarding. It has over the years developed and increased the ambit of its services covering multimodal transportation, regulatory compliance like custom clearance and other related services. The company is also engaged in handling of project cargo, which require detailed planning and technical experience. The project handling service includes providing solutions to meet specific customer requirements for the transport of oversized, over dimension’s cargo, critical or high value cargo’s such as power generating set, excavator, transmission tower etc. from one location to another using multiple modes of transport.

The transport of oversized, over dimension’s cargo, critical or high value cargo’s are generally handled on a turnkey contract basis. Its international logistics operations are supported by a network of partners and vendors that enables it to service client requirements across India and abroad as well. The company delivers international logistic services by using air, sea and surface, as modes of transportation. Its regulatory compliance services include customs clearance which is undertaken through mutual understanding with network and connection formed over years. Further, it can issue House bill of lading for the consignments moving from India to Brazil through its agency arrangements which provides an additional layer of security to customers for their goods moving from India to these countries.

During the fiscal 2023, the company has processed over 3100 bill of lading to countries/ areas including African countries, South American countries, Australia, Bangladesh, European countries, Gulf counties, south east Asian countries, Russia, United States of America etc. Apart from this, the company has entered into mutual cooperation or agency agreements with parties located in countries like Ecuador, Brazil, Chile, Peru, United States of America, Paraguay, Bolivia, Hong Kong, China, Taiwan, Vietnam and other countries for its logistics and freight forwarding business for inward and outward movement of the cargo and performing all required operations and documentation work for the cargo movement to and from India to the abovementioned countries. As of the date of filing this offer document, it had 20 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:

The company is coming out with a maiden book building route IPO of 3840000 equity shares of Rs. 10 each. It has announced a price band of Rs. 121 – Rs. 125 per share and mulls raising Rs. 48.00 cr. at the upper cap. The issue opens for subscription on December 12, 2023, and will close on December 14, 2023. The minimum application to be made is for 1000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.51% of the post-IPO paid-up equity capital of the company. From the net proceeds of the IPO funds, it will utilize Rs. 14.50 cr. for repayment/prepayment of certain borrowings, Rs. 16.80 cr. for working capital, and the rest for general corporate purposes.

The issue is solely lead managed by Hem Securities Ltd. and Maashitla Securities Pvt. Ltd. is the registrar of the issue. HEM Groups Hem Finlease Pvt. Ltd. is the market maker for the company.

Having issued/converted initial equity shares at par value, the company issued further equity shares in the price range of Rs. 90.00 – Rs. 92.30 between May 2022 and September 2023. It has also issued bonus shares in the ratio of 3 for 1 in January 2014, and 2 for 1 in May 2023. The average cost of acquisition of shares by the promoters is Rs. 7.80 per share.

Post-IPO, company’s current paid-up equity capital of Rs. 10.64 cr. will stand enhanced to Rs. 14.48 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 181.04 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. 124.03 cr. / Rs. 0.86 cr. (FY21), Rs. 105.31 cr. / Rs. 1.88 cr. (FY22), and Rs. 135.01 cr. / Rs. 7.62 cr. (FY23). For H1 of FY24 ended on September 30, 2023, it earned a net profit of Rs. 9.31 cr. on a total income of Rs. 103.39 cr. While its top line marked inconsistency, the sudden boost in bottom lines from FY23 onwards raise concern over its sustainability going forward.

For the last three fiscals, the company reported an average EPS of Rs. 5.58 and an average RoNW of 17.36%. The issue is priced at a P/BV of 2.14 based on its NAV of Rs. 58.30 as of September 30, 2023, and at a P/BV of 1.73 based on its post-IPO NAV of Rs. 72.09 per share at the upper cap.

If we attribute super annualized earnings of FY24 on post-IPO fully diluted paid-up equity capital of the company, then the asking price is at a P/E of 9.72. The issue appears reasonably priced based FY24 earnings.

For the reported periods, the company has posted PAT margins of 0.70% (FY21), 1.82% (FY22), 5.67% (FY23), 9.03% (H1-FY24), and RoCE margins of 7.54% 11.68%, 18.50% and 15.07% for the said periods respectively.

DIVIDEND POLICY:

The company has not declared any dividends for reported financial years. 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 shown Cargotrans Maritime, Patel Integrated, Tiger Logistics and Total Transport as their listed peers. They are trading at a P/E of 15.68, 22.07, 37.11, and 23.36 (as of December 07, 2023). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER’S TRACK RECORD:

This is the 34th mandate from Hem Securities in the last three fiscals (including the ongoing one). Out of the last 10 listings, all listed at premiums ranging from 10.57% to 125% on the day of listing.

Conclusion / Investment Strategy

The company is in providing services related to logistics and supply chain solutions. It marked inconsistency in its top lines for the reported periods, but marked sudden boost in its bottom lines from FY23 onwards. Based on super annualized FY24 earnings, the issue appears reasonably priced. Well-informed investors may park funds for long-term rewards.

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