Western Carriers (India) Ltd (Avoid)

Highlights

Western Carriers (India) Limited (WCIL) incorporated on 2011, is the largest private, multi-modal, rail focused, 4PL asset-light logistics company in India in terms of container volumes handled/operated by private players in FY23.

They operate on a scalable, asset-light business model which enables them to provide differentiated 3PL and 4PL solutions.  They address complexities (in terms of scale of operations and logistics requirements) by creating customised, one-stop/single-window, end-to-end and integrated logistics solutions for their customers, which involve a variety of value-added services across the supply chain

According to the 1Lattice Report, approximately 6 pct of the domestic railway TEUs and approximately 4 pct of the export-import market railway TEUs of this Indian rail container logistics provider business was handled by WCIL in FY24 making them the only associate partner of this Indian rail container logistics provider which provides substantial volume (4 pct in FY24) of EXIM business to them

Out of the total proceeds of Rs. 4,928 mn, Rs. 1,517 mn would go towards funding expenditure towards purchase of (i) commercial vehicles; (ii) 40 feet specialised containers and 20 feet normal shipping containers; and (iii) reach stackers. ~Rs. 1,635 mn would go towards repayment of outstanding borrowings of the company. ~Rs. 848 would use for general corporate purpose and Rs. 928 mn would go towards existing selling shareholders of the company.

Key Highlights

• Logistics sector is a core enabler for the development of India to reach the government’s vision of achieving a USD 5 trillion economy by the year 2025. Robust expansion led by an increase in public infrastructure spending through policies such as the NLP, the DFCs, Gati Shakti Master Plan (aims to reduce logistics costs to 7 pct to 8 pct of GDP).
• WCIL have long-standing relationships with customers across varied sectors such as metals, FMCG, pharmaceuticals, chemicals, engineering, oil and gas and retail. Some of their key customers include, Tata Steel, Hindalco, JSL, HUL, Tata consumer, Cipla, BPCL, Sleepwell etc. In FY24, 80 pct of their sales originated from customers who had been transacting with them for over 3 years and their customer retention rate for top 10 customers was 100 pct.
• Over the next few years, they intend to enhance scope of engagement with existing customers by strengthening existing service offerings, adding new offerings, servicing newer geographies, providing additional value-added services and offering time and cost saving solutions to them.
• Over the next few years, the company intend to enhance their scope of engagement with existing customers by strengthening their existing service offerings, adding new offerings, servicing newer geographies, providing additional value-added services and offering time and cost saving solutions to them.
• They plan to leverage their performance, customer referrals and their expertise in core segments to add affiliates and business partners of existing customers, or their new manufacturing facilities, locations and geographies, as well as to acquire new customers in sectors they do not currently service.
• WCIL aim to increase their operating margins by creating operational efficiencies and, to this end, they will focus on providing customers with value-added services at various stages in the logistics value chain. Further, they plan to improve their overall asset utilisation through economies of scale and increasing the level of integration across their logistics networks.
• Their key strategies include (i) To grow relationships with existing customers (ii) Acquire new customers and expand into new sectors and new geographies (iii) Continued focus on improving margins (iv) Pursue inorganic growth on an opportunistic basis (v) Continue to invest in infrastructure and (vi) Enhance technology capabilities.
• Sales of the company has grown by 7.1 pct CAGR during the period FY22-24 and EBITDA and Profit grew 18.07 pct CAGR and 14.64 pct CAGR over FY22-24. During FY24, company reported sales of Rs. 16,858 mn which grew by 3.23 pct YoY while EBITDA rose by 20.07 pct YoY to Rs. 1,518 mn as EBITDA margin expanded from 7.74 pct in FY23 to 9.01 pct in FY24. As of FY24 the company reported profit of Rs. 803 mn which was grew by 12.27 pct YoY.

Key Risk

• Receivables of the company is 1/3^rd of the total sales and receivable days gone up from 77 days to 114 days. They may experience delays in payments by their customers even beyond the credit period afforded to them. As a result, they have, and may continue to have, high levels of outstanding receivables.
• The company may able to pass on any increase in costs levied by third-party service providers to customers. Conversely, they may not be able to pass on any decline in prices they charge customers to their third-party service providers.

Financial Performance

Peer comparison based on FY24 Financials

Valuation

Western Carriers (India) limited, is one of the national logistics companies to hold custom house agency licenses in their own name with most major ports in India. They control and manage the entire logistics value chain of certain customers by reducing redundancies and replications in the supply chain and dependence on third-party intermediaries. At the upper end of the price band of Rs. 172 the issue is priced at a PE of ~21.83 its FY24 earnings. The issue looks fully priced. One can avoid this issue.

Also read: Why Is Financial Advisory Important?

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