Moneycontrol Bureau
The Rs 600-crore public issue of Navkar Corporation, the Maharashtra-based container freight station (CFS) operator, has opened for subscription on Monday (August 24). The company is set to raise Rs 600 crore through the issue that is scheduled to be closed on August 26, 2015.
The offer comprises a fresh issue aggregating up to Rs 510 crore and an offer for sale aggregating up to Rs 90 crore by Siddhartha Corporation Private Limited, a member of the promoter group. The price band is fixed at Rs 147-155 per equity share.
Given the company's future growth potential through strong expansion plan with IPO proceeds, dedicated infrastructure, and strategically located CFSs in close proximity to Jawaharlal Nehru Port, majority of brokerages and analysts advise subscribing the issue.
"Considering the locational advantage, wide infrastructure facilities, strong and long term relationship with clients and operating efficiency with good margins; the company seems good on its working metrics," Hem Securities reasoned for recommending investor to subscribe the issue.
Sharekhan said though company's return ratios are lower compared to large players like Container Corporation of India and Gateway Distriparks (as these players enjoy premium positioning due to economies of scale), it believes company’s expansion plans which are likely to be materialised during FY2017 will significantly increase its capacity and lead to higher earnings.
Further, the logistics sector has been in the limelight on account of proposed dedicated freight corridors, Goods and Services Tax (GST) policy and huge investments in the sector, it added. Consequently, considering the company’s line of business and growth strategy, Sharekhan has a positive view on the company.
Brokerage KR Choksey and Manish Bhatt of Prabhudas Lilladher also advise applying for the issue. Bhatt feels the issue looks to be good and investors can get listing gains.
Navkar Corporation operates three CFS' in India - Ajivali CFS I and Ajivali CFS II at Ajivali and Somathane CFS at Somathane, which are strategically located in Panvel, Maharashtra, in close proximity to the JN Port, the largest container port in India.
The funds raised through the issue would be used for capacity enhancement of the Somathane container freight station (Rs 114.5 crore) from 2,20,000 TEUs to 4,72,889 TEUs, development of the non-notified areas of CFSs (Rs 54.3 crore) and establishment of a logistics park at Valsad in Gujarat (Rs 314.6 crore).
The company’s three CFSs (installed capacity of 310,000 TEUs per annum) and private freight terminal (PFT) operations are spread over an area of 3.59 million square feet, of which 1.63 million square feet has been notified as a customs area.
As of May 31, 2015, it also owns and operates 516 trailers, most of which are fitted with radio frequency identification device (RFID) and GPS tracking systems for the movement of cargo between its CFSs and the Jawaharlal Nehru Port. At its CFSs, the company has deployed 36 forklifts, 21 reach stackers and 6 heavy duty cranes to load and unload freight containers from trains and trailers.
As of now, the company is operating its existing CFS capacity at more than 85 percent utilisation level.
The company also offers services like cargo storage facilities at CFSs, packing, labeling/bar-coding, palletizing, fumigation and other related activities. It also provides warehousing facilities, for which, it occupies an aggregate area of 500,000 square feet.
Angel Broking said even the greenfield expansion plan of a logistics park (spread over 28 acres) and inland container depot (ICD) near Vapi (which is an industrial area) in Gujarat (developed by subsidiary Navkar Terminals - will have capacity of around 4.7 lakh TEUs) will boost company’s revenues.
Although the company’s return on equity is currently lower, Angel believes there is substantial potential for it to improve going forward due to company's overall expansion plan.
However, the brokerages said there are some risks that may impact performance of the company going forward.
High dependency on Jawaharlal Nehru Port volume, macroeconomic conditions & freight rates, failure or delay in proposed expansion plans, increasing competition, discontinuance of the sale of agro commodities business, currency risk (as it has a foreign currency debt of approximately Rs 200-250 crore as March 2015), likely increase in depreciation expenses, removal of tax exemption in future (currently it enjoys tax benefits for CFS operations).
Only ICICIdirect has recommended avoiding the issue, citing any early termination or non-renewal of PFT agreement with Central Railways, highly dependent on volumes from a single port and rich valuations. However, it believes Navkar’s CFS is strategically located and well equipped to differentiate itself from other small CFS’ located in the periphery. The shareholding of promoters in the company will reduce to little over 71 percent from the current holding of 100 percent.
The minimum bid lot for the issue is 95 equity shares and in multiples of 95 equity shares thereafter.
Equity shares of the company are proposed to be listed on BSE and NSE. Axis Capital Limited, Edelweiss Financial Services Limited, SBI Capital Markets Limited are the lead managers to the issue. However, Link Intime India Private Limited is registrar to the offer.
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