TVS Supply Chain Solutions Ltd IPO (Subscribe)

• TVS Supply Chain Solutions Ltd (TVS SCSL) is India’s largest and one of the fastest growing integrated supply chain solutions providers among Indian listed supply chain solutions companies in terms of sales and sales growth in FY23. TVS SCSL is an India-based multinational corporation that pioneered the development of the supply chain solutions sector in India.

• The Company was promoted by the erstwhile TVS Group, one of the reputed business groups in India and is now part of the TVS Mobility Group. The Company has managed big and complicated supply chains across numerous industries in India and selected worldwide markets for over 16 years using bespoke tech-enabled solutions.

• The company’s operating segments consist of Integrated Supply Chain Solutions (ISCS) and Network Solutions (NS). The Integrated end-to-end supply chain solutions include sourcing and procurement, integrated transportation, logistics operation centres, in-plant logistics operations, finished goods and aftermarket fulfilment. In FY23, they provided services to 412 customers in the ISCS segment.

• In Network Solutions (NS) they offer customers Global Forwarding Solutions (GFS) and Time Critical Final Mile Solutions (TCFMS). In FY23, they provided services to 8,376 customers in the NS segment, while providing solutions to 902 customers in India. In FY23, they added a total of 177 new clients Furthermore, their global customers in FY23 included 72 ‘Fortune Global 500 2022’ businesses, while their Indian customers included 25 ‘Fortune Global 500 2022’ companies. In addition, in FY23, they added 16 ‘Fortune Global 500 2022’ businesses.

Key Highlights

• The Indian logistics industry is estimated to reach USD 385 bn by FY27, growing at a CAGR of 13 pct from FY22-FY27. The size of the outsourced supply chain solutions market (excluding e-commerce) in FY22 was USD 7.5 bn to USD 7.7 bn, with a CAGR of 20-22 pct estimated to reach roughly USD 20 bn to USD 21 bn by FY27. There is a huge opportunity for the company to grow in this Industry.

• Rs 5,250 mn of the proceeds from the IPO will be utilized for the Prepayment or repayment of certain borrowings of the company’s subsidiaries. The company will pay the first high-cost loan in India. Then unhedged loan in the UK. After this repayment, a certain part of the debt portion will remain in the company’s balance sheet but it is for the working capital requirement.

• In FY23, the top 5 customers contribute 17.91 pct of revenue with an average length of relationship of 14.6 years in the ISCS segment and 12.8 years in the NS segment. The top 10 customers contribute 27.69 pct of revenue with an average length of relationship of 10.9 years in the ISCS segment and 10.5 years in the NS segment. The top 20 customer contributes 38.88 pct of total revenue. The company gets its revenue from (i) Industrial Industry (ii) the Automotive industry (iii) Tech and Tech infra industry (iv) Consumer (v) Rail (vi) Defence (vii) Beverages (viii) Utilities which are defensive industry in the nature.

• TVS supply chain solutions ltd derived an average of 72.99 pct of its revenue from operations from their global operations. Unlike IT companies, TVS SCSL earn and spend money in the same currency. The currency is naturally hedged. It reduces some part of the currency risk for the company, but some part of the currency will have exposure to the risk of currency fluctuations.

• TSCSL operates an asset-light business wherein its warehouses (primarily comprising after-market warehouses, dedicated consumer product and retail warehouses, multi-client facilities and national distribution centres) and vehicles are operated through leases with its network partners. While it does not have ownership of these assets, it has control over the capacity and fleet, and the scheduling, routing, storing, and delivery of goods are managed by it. It also operates customer-owned/ leased warehouses. As of March 31, 2023, it had 17913 employees on its payroll.

Valuation

At the offer price bands, the issue is quoting at a PE of 209x its FY23 earnings. The Company has turned to profits in FY23 and is expected to continue its profitable trend going forward as it enjoys a leading position in this segment. The street is abuzz with the opportunity from the TVS Group after a span of 32 years. Though the issue looks aggressively priced, well-informed investors may Subscribe to the issue for a long-term perspective.

Also read: How to use the Fintoo Chatbot for managing your money?

Disclaimer: The views expressed in the blog are purely based on our research and personal opinion. Although we do not condone misinformation, we do not intend to be regarded as a source of advice or guarantee. Kindly consult an expert before making any decision based on the insights we have provided.