The Rs 650-crore initial public offer of Future Supply Chain Solutions is set to open for subscription on Wednesday, with a price band of Rs 660-664 per share.
Brokerage houses have highlighted valuation concerns and limited upside in the upcoming initial public offering (IPO) of Future Supply Chain.
The Rs 650-crore initial public offer of Future Supply Chain Solutions is set to open for subscription on December 6, with a price band of Rs 660-664 per share.
Bids can be made for a minimum lot of 22 equity shares and in multiples of 22 equity shares thereafter.
Equity shares are proposed to be listed on the BSE and the National Stock Exchange of India.
The global co-ordinators & book running lead managers to the offer are Edelweiss Financial Services, CLSA India and Nomura Financial Advisory & Securities (India). The book running lead managers are IDFC Bank, IIFL Holdings and YES Securities (India).
Choice Broking | Subscribe with Caution
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 company is demanding valuation compared to its peer Mahindra Logistics, which is trading at P/E multiple of 59.4(x) and 54(x) on the basis of FY17 and FY18E (annualized) EPS), looks cheap, however its one fifth of peer business size.
“Thus, considering the above observations, we are of the view that at P/E(x) of 58.2, the issue is aggressively priced leaving limited room for further upside. Thus, we assign ‘Subscribe with Caution’ rating to the issue,” it said in its report.
Angel Broking | Neutral
Angel Broking said that in terms of valuations, the pre-issue P/E works out to 39.9x its 1HFY2018 annualised earnings (at the upper end of the issue price band), which is lower compared to its peers like Mahindra Logistics.
“However, Mahindra Logistics has lower promoter group business (internal business), which is 54% v/s. 70% of FSCSL. 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.
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.
SMC Research | Expensive Valuation
SMC Research also highlighted that the firm is heavily dependent on machinery and equipment for its operations. “Any breakdown of its machinery or equipment will have a significant adverse effect on its business,” the brokerage said in its report, adding that the issue is offer for sale and no amount would go to the company.
Emkay said that given FSCSL’s strong network in a fast-growing 3PL market, a diverse client base and experienced management team with strong domain expertise, the company is well positioned to capitalise on the upcoming opportunities in the Logistics sector.“We believe that the valuation of 57x on its trailing 12-month EPS leaves a limited upside for investors. However, for investors with a long term time horizon (3-5 years), FSCSL would offer steady compounding returns due to India’s steadily improving fundamental macro underpinnings,” the brokerage added.