TVS Supply Chain IPO: Act now or after listing

TVS Supply Chain Solutions Limited is tapping the capital markets with its IPO which includes a fresh issue of Rs600 crore and an offer for sale of 1,42,13,498 equity shares at a price band of Rs187 to 197. The issue would open today, August 10 and close on Monday, August 14. The issue would have a reservation of 75 per cent for QIB’s, 15 per cent for HNIs and 10 per cent for Retail. The anchor book would be finalised on Wednesday the 9th of August.

The company as the name suggests is a global integrated supply chain solutions provider. It is India’s largest and among the fastest growing companies having a global presence. It can be best described as an India based multinational company which pioneered the development of the supply chain solutions market in India. The company is promoted by the TVS group having its origin in Tamil Nadu and is a large conglomerate from Southern India. A public issue from this group had last come about 28 years ago.

The company is an Indian supply chain logistics solutions provider that has global capabilities and network across the value chain with cross deployment abilities. The company with the help of technology coupled with deep domain expertise and global expertise enables it to develop and offer customized solutions to customers thereby empowering an agile and efficient supply chain at a large scale.

One of the customers they serve is an ATM company in Europe. When the ATM is down, it needs to be restored and put back in service at the earliest. The technician visits the location and after checking the machine, orders the defective part replacement on the system. The logistics provider ensures that the required part is delivered to the boot of the technician’s car in the night so that the ATM can be serviced next morning. The same facility has been similarly replicated in India where instead of a car the part may also be delivered to the bike of the technician. Such customised solutions ensure customer stickiness and also results in larger and longer engagements. This was given as an example from the activities that the company does.

The client list includes 72 of the global Fortune 500 companies as of calendar year 2022. This makes the company formidable in clients and potential to do business. It’s now a matter of time where size and scale sets into the business. In what is a key metric for the company, they have been able to reduce employee costs considerably as the business is growing. This would be a major factor in earning better returns as the business grows.

The company has customers from different sectors and the largest is from industrials which account for roughly 1/3rd of revenues. This is followed by tech and tech infra and consumer which have a share of 12 per cent and 11.74 per cent respectively. The company has done a large number of acquisitions up to 2018-2019 to acquire capabilities and have the geographical presence to serve its customers. It’s now turn to sweat these assets and the capabilities that they have acquired. The company is able to generate asset turns of over 7. The business is an asset lite model. What is interesting is the fact that even though TVS is a large conglomerate, the share of revenue of the company from the group is just about 3 per cent.

In terms of financial performance, the company reported revenues of Rs10,235 crore for FY23 which was higher by 10.66 per cent when compared with FY22 at Rs9,249 crore. In terms of EBITDA, the number was 152 crore in FY23 versus Rs121 crore in FY22. The company reported an EPS of Rs1.02 on a fully diluted basis for the year ended March 2023. On this EPS, the PE multiple is a staggering 183.33 to 193.14 times. Very clearly a valuation does not inspire to invest. Such companies are valued at EV/EBITDA and here the company scores favourably when compared to its peers with the value being 15.16-15.75 times.

Going forward one would expect this ratio to improve for the company as revenues and profitability is concerned. If one were to hazard a guess on how revenues could scale up for this company, I believe we could see a rising trend with the current 10.6 per cent growth moving up by a percentage point or better each year to reach around 16-17 per cent in about 4 years time. This would correspond to a revenue number of Rs18,000 crore approximately. EBITDA would improve significantly from the present 6.5-6.6 per cent to around 9 per cent plus. This change would add to EBITDA and the PAT would make the difference as well.

At current levels to ask readers to subscribe with the present fundamentals and valuations makes things difficult. To expect retail investors to have a 3–4-year investment horizon at time of subscription is asking for too much. There are therefore two alternatives that investors can choose from. The retail portion is small at about Rs80 crore. Readers may look at the subscription level and make an application if convinced, late on the second day or third day morning so that their personal conviction increases.

Alternatively, they could allow the share to list and then take a call. Incidentally as investors are confused, so also the grey market is confused and hence there are no rates.

In conclusion, apply if convinced in the business and the group. This is a business that would take yet another two to three years for delivering fruit, but the path that the company is trending in is successful. Take a measured call by either investing now or waiting for the share to list and then investing.

(The author is the founder of Kejriwal Research and Investment Services,

an advisory firm)