Cargosol Logistics BSE SME IPO review (May apply)

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Review By Dilip Davda on September 24, 2022

•    CLL is a third-party logistics service provider.
•    It has posted super earnings for FY22.
•    Based on the super earning FY22 data, the issue appears reasonably priced. 
•    This segment is heading for bright prospects ahead. 
•    Cash surplus investors may consider an investment with a long-term perspective. 

ABOUT COMPANY:
Cargosol Logistics Ltd. (CLL) is a complete 3 PL (third-party logistics) service provider, delivering end-to-end solutions in the logistics and supply chain domain involving multimodal transport operations (MTO), owning and operating container, sea and air freight, transportation, warehousing, custom clearance services and handling of project cargo. As of the date of this Prospectus, it operates a fleet of 12commercial vehicles which are owned, and apart from this, it also hires third-party transport operators in case of high demand and business feasibility. 

CLL also provides warehousing facilities to customers and warehouses are well connected to several manufacturing and consumption clusters located in Thane, Maharashtra. The company also handles NVOCC (Non-Vessel Owning Common Carrier) facility for the sectors like Indian Sub-continent, Middle East, Upper Gulf, South East Asia, and part of Europe through slot arrangements with feeder operators as well as with mainline operators.

We are also engaged in the handling of project cargo, which is a specialized activity requiring detailed planning and technical expertise. As of the date of filing this offer document, it had 84 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its funding needs for the purchase of vehicles for commercial purposes (Rs. 2.33 cr.), purchase of containers (Rs. 2.06 cr.), working capital (Rs. 2.00 cr.), and general corporate purposes (Rs. 0.30 cr.), CLL is coming out with a maiden IPO of 2700000 equity shares of Rs. 10 each at a fixed price of Rs. 28 per share to mobilize Rs. 7.56 cr. The issue opens for subscription on September 28, 2022, and will close on September 30, 2022. The minimum application is to be made for 4000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.47% of the post-IPO paid-up equity capital of the company. CLL is spending Rs. 0.87 cr. for this IPO process. This indicates the fully structured nature of the IPO. 

The issue is solely lead managed by Hem Securities Ltd., and Link Intime India Pvt. Ltd. is the registrar to the issue. Hem group's Hem Finlease Pvt. Ltd. is the market maker for the company. 

The company has issued entire initial equity shares at par and has also issued bonus shares in the ratio of 1 for 1 in May 2019, 1.5 for 1 in March 21, and 2 for 1 in February 2022. The average cost of acquisition of shares by the promoters is Rs. 0.67 per share. 

Post this IPO, CLL's paid-up equity capital of Rs. 7.50 cr. will stand enhanced to Rs. 10.20 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 28.56 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, CLL has reported a turnover/net profit of Rs. 64.13 cr. / Rs. 1.20 cr. (FY20), Rs. 103.60 cr. / Rs. 1.76 cr. (FY21), and Rs. 200.72 cr. / Rs. 5.54 cr. (FY22). Thus it has marked growth in its top and bottom lines. Margins reported for FY22 appears to be a window dressing in the pre-IPO year and raises concern about sustainability going forward.

For the last three fiscals, CLL has posted an average EPS of Rs. 5.29 and an average RoNW of 28.78%. The issue is priced at a P/BV of 1.31 based on its NAV of Rs. 21.33 as of March 31, 2022, and at a P/BV of 1.21 based on its post-IPO NAV of Rs. 23.10 per share. 

If we attribute FY22 super earnings on post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 5.15. Thus the issue appears reasonably priced. 

COMPARISON WITH LISTED PEERS:
As per the offer documents, CLL has shown Ritco Logi., Allcargo Logi., and Mahindra Logi., as their listed peers. They are currently trading at a P/E of 25.59, 57.88, and 117.74 (as of September 23, 2022). However, they are not truly comparable on an apple-to-apple basis. 

DIVIDEND POLICY:
The company has not declared/paid any dividend for the reported periods of the offer document. It will adopt a prudent dividend policy post IPO, based on its financial performance and future prospects. 

MERCHANT BANKER'S TRACK RECORD:
This is the 16th mandate from Hem Securities in the last three fiscals (including the ongoing one). Out of the last 10 listings, 1 opened at discount and the rest with premiums ranging from 1.47% to 104.87% on the day of listing.

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