GConnect Logitech BSE SME IPO review (Avoid)

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Review By Dilip Davda on March 21, 2024

•    The company provides logistics services with third party vehicles.
•    It posted minuscule financial performance for the reported periods of the offer document.
•    Based on FY24 annualized earnings, the issue appears exorbitantly priced. 
•    It operates in a highly competitive and fragmented segment. 
•    There is no harm in skipping this pricey bet. 

ABOUT COMPANY:
GConnect Logitech and Supply Chain Ltd. (GLSCL) is engaged in the business of providing surface logistics services viz. goods transport services. The Company offers its services to other logistic companies, including surface logistic companies and to direct customers. The range of services offered by it includes bulk load, Full Truck Load (FTL) service and dedicated load. Under bulk load, the Company offers bulk transportation service to large sized Companies through their transport contractors, Full Truck Load (FTL) service to retailers and traders, wherein GLSCL provides point to point services to the customers in which the goods are loaded from the premises of the customer and are delivered to the delivery point as specified by them (i.e. factory/warehouse). 

The Company also provides dedicated load service, which includes multiple pick-ups and a broad range of industries such as metals, fabrics, Fast Moving Consumer Goods (FMCG), auto components, chemicals and pharmaceuticals. 

It does not enter into any contract with customers. The Company operates under an asset light model, thus engaging with third parties for providing the Company with the assets necessary for its operations such as vehicles (customized and containerized). As on October 30, 2023 the Company has arrangement with truck owners having over 20 vehicles of different sizes and carrying capacity, as per the requirement of customers. As of the date of the offer document, it had 6 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 1401000 equity shares of Rs. 10 each at a fixed price of Rs. 40 per share to mobilize Rs. 5.60 cr. The issue opens for subscription on March 26, 2024, and will close on March 28, 2024. The minimum application to be made is for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 37.67% of the post-IPO paid-up capital of the company. The company is spending Rs. 0.56 cr. for this IPO process, and from the net proceeds of the IPO, it will utilize Rs. 4.09 cr. for purchase of vehicles and body building, Rs. 0.49 cr. for development of website, and Rs. 0.46 cr. for general corporate purposes.

The issue is solely lead managed by Fedex Securities Pvt. Ltd., and KFin Technologies Ltd. is the registrar of the issue. Aftertrade Broking Pvt. Ltd. is the market maker for the company. 

The company has issued initial equity capital at par value and has issued/converted further equity shares at a fixed price of Rs. 40 per share between March 2023 and June 2023. It has also given bonus shares in the ratio of 21 for 10 in June 2023.The average cost of acquisition of shares by the promoters is Rs. 12.65, Rs. 12.78 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 2.32 cr. will stand enhanced to Rs. 3.72 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 14.88 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last fiscal, the company has posted a total income/net profit of Rs. 1.01 cr. / Rs. 0.11 cr. (FY23). For H1 of FY24 ended on September 30, 2023, it earned a net profit of Rs. 0.23 cr. on a total income of Rs. 2.13 cr.  

Prior to the business take-over (i.e. till February 28, 2023) the company posted a total income/net profits of Rs. 3.02 cr. / Rs. 0.06 cr. (FY20), Rs. 2.92 cr. / Rs. 0.06 cr. (FY21), and Rs. 2.96 cr. / Rs. 0.07 cr. (FY22). For 11M of FY23 ended on February 28, 2023, it earned a net profit of Rs. 0.13 cr. on a total income of Rs. 3.37 cr. Thus the financial data is at a minuscule level and non-impressive. 

The company has reported an EPS of Rs. 26.64 (FY23), and an average RONW of 11.61%.  The issue is priced at a P/BV of 0.90 based on its NAV of Rs. 44.52 as of March 31, 2023, and at a P/BV of 1.55 based on its post-IPO NAV of Rs. 25.77 per share. The company has not given its NAV as of September 30, 2023, and average RoNW is shown on the basis of its pre-takeover status. This amounts to misleading the investors. 

If we attribute annualized FY24 earnings to its post-IPO fully diluted paid-p capital, then the asking price is at a P/E of 32.52. Based on FY23 earnings, the P/E stands at 137.93. Thus the IPO is exorbitantly priced. 

For the reported periods, the company has posted PAT margins of 2.10% (FY20), 2.00% (FY21), 2.26% (FY22), 3.94% (11M-FY23), 10.75% (July 2022 - March 2023), 11.22% (H1-FY24) and RoCE margins of 7.99%, 8.47%, 12.51%, 32.97%, 18.70%, 7.67%, respectively for the referred periods. 

DIVIDEND POLICY:
The company has not declared any dividends since incorporation. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Ritco Logistics, VRL Logistics, and Shreeji Translogi as their listed peers. They are trading at a P/E of 17.4, 39.4, and 12.0 (as of March 21, 2024). However, they are not comparable on an apple-to-apple basis. Comparison with Ritco and VRL appears to be an eyewash. 

MERCHANT BANKER'S TRACK RECORD:
This is the 30th mandate from Fedex Securities in the last four fiscals, out of the last 11 listings, 1 opened at discount, and the rest opened with premiums ranging from 1.67% to 140.82% on the day of listing.

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