Zinka Logistics Solution Ltd. (Avoid)

Highlights

Zinka Logistics Solution Limited (BLACKBUCK) incorporate on 2015, is India’s largest digital platform for truck operators (in terms of number of users), with 963,345 truck operators in the country transacting on their platform in FY24, which comprises 27.52 pct of India’s truck operators.

The BlackBuck App serves as a platform providing (i) payments, (ii) telematics, (iii) loads marketplace and (iv) vehicle financing services. These solutions digitally empower truck operators and help them realize their objectives effectively and efficiently.

BLACKBUCK is on mission to digitally empower India’s truck operators, helping them manage their business and grow their income. Using their platform, customers (primarily comprising truck operators) digitally manage payments for tolling and fueling, monitor drivers and fleets using telematics, find loads on their marketplace and get access to financing for the purchase of used vehicles.

Among new-age digital platforms in the trucking sector, they have the largest physical network across India and as of Q1FY25, they have sold and serviced products across 628 districts constituting 80 pct of India’s districts, including in all of the major transportation hubs and across 76 pct of the toll plaza network in India. They have a digitally enabled network of 9,374 touchpoints to conduct onboarding and servicing activities.

Out of the total proceeds of Rs. 11,147 mn, Rs. 2,000 mn would go funding towards sales and marketing costs, Rs. 1,400 mn would go towards investment in Blackbuck Finserve Private Limited for financing the augmentation of its capital base to meet its future capital requirements, Rs. 750 mn would go towards funding capex in relation to product development, Rs. 1350 mn would go towards general corporate purpose And Rs. 5,647 mn would go towards existing selling shareholders of the company.

Key Highlights

• The Indian trucking sector is a USD 18-25 bn revenue pool as of FY24 and is expected to grow to USD 35 bn by FY28. Trucking is one of the fastest growing sectors in logistics. The trucking industry offers vast revenue potential for companies that solve challenges and inefficiencies and enhance value for truck operators.
• BLACKBUCK’s primary sources of revenue are generated through their payments (tolling and fueling), telematics, loads marketplace and vehicle financing offerings which include (a) commission margins from FASTag Bank Partners on the toll transaction flowthrough (b) commission margin from OMCs in fueling transaction flowthrough (c) subscription fees charged to truck operators (d) subscription fees charged to shippers and (e) interest income, loan service fees and other fees charged to borrowers in the process of loan disbursal and collections.
• Their asset-light business model is based on offering services to truck operators, and generates revenue through platform fees, subscription fees and commissions. They neither take any inventory risk nor own trucks on their balance sheet, and mainly distribute loans through their Financial Partners.
• The company intend to continue to focus on growing customer base by attracting new transacting truck operators to platform. They will do this by investing in deepening distribution base and increasing the density of distribution in key strategic pockets across India, where their proportionate market shares are lower, such as Gujarat, Karnataka and Tamil Nadu.
• They started vehicle finance business in June 2022 on a pilot basis, by serving a small segment of customers, with financing arrangements with Financial Partners and began fully fledged operations in FY24. Leveraging their strengths, the company believe they have been able to establish the product market fit for this business.
• BLACKBUCKS’s key strategies includes (i) Deepen distribution and continue strengthening the truck operator base (ii) Continue investing in core verticals of payments and telematics (iii) Focus on growing loads marketplace and vehicle finance verticals (iv) Continue to innovate, launch new offerings and solve problems for truck operators (v) Continue to scale and invest in technology infrastructure and data science capabilities.
• Sales of the company has grown by 24.18 pct CAGR over FY22-FY24. While Adjusted EBITDA of the company came into positive territory in FY24. During FY24, the company reported sales of Rs. 2,969 mn, which grew 69.01 pct YoY. As of FY24, the company posted loss of Rs. 1,939 mn narrowed down from loss of Rs.2,905 mn. During Q1FY25, the company’s sales came at Rs. 922 mn, up by 54.98 pct, and Adjusted EBITDA and profit (includes exceptional Item) stood at Rs. 183 mn and 287 mn.

Key Risk

• Fluctuations in the road transportation industry and fuel prices may impact freight volumes and truck capacity, which in turn could adversely affect BLACKBUCK’s business.
• They have limited experience in vehicle financing offering, which makes it difficult to accurately assess the risks and challenges in the industry which may negatively impact their business.
• Their business is subject to seasonality, which may contribute to fluctuations in their results of operations. As they see reduced demand of their services (particularly their payments and loads marketplace offerings) from customers during the monsoon season.

Financial Performance

Valuation

BlackBuck is a platform providing payments, telematics, loads marketplace and vehicle financing services. These solutions aim to digitally empower truck operators and help them operate their business effectively and efficiently. At the upper end of the price of Rs. 273, the issue quotes at EV/Sales of ~16x based on FY24 financials. The issue looks fully priced. One can avoid this issue.

Also read: Why Is Financial Advisory Important?

Disclaimer: The views shared in blogs are based on personal opinions and do not endorse the company’s views. Investment is a subject matter of solicitation and one should consult a Financial Adviser before making any investment using the app. Investing using the app is the sole decision of the investor and the company or any of its communications cannot be held responsible for it.