Future Supply Chain Solutions Limited IPO Review: Good Prospects

Future Supply Chain Solutions Limited
Future Supply Chain Solutions Limited IPO consists of offer of up to 9,784,570 equity shares of face value of Rs. 10 each (“equity shares”) comprising an offer for sale of up to 7,827,656 equity shares by Griffin Partners Limited and up to 1,956,914 equity shares by the promoter and holding company, Future Enterprises Limited . The offer would constitute up to 24.43% of its post-offer paid-up equity share capital.

Future Supply Chain Solutions Limited IPO Details:
Issue Period  Wednesday, Dec 6, 2017 –  Friday, Dec 8, 2017
Price Band Rs.660 – 664
Bid Lot 22 Equity Shares and multiple thereof
Issue Size ( in Rs.) Rs.  649.70 Cr
Issue size (in Shares) Offer For Sale of upto 97,84,570 Equity Shares
Issue Structure :  
QIB 50% of Offer- 48,92,284 Equity Shares-Rs. 324.85 Cr)
NII 15% of Offer-14,67,686 Equity Shares ) (Rs. 97.45Cr)
Retail 35% of Offer-34,24,600 Equity Shares- 227.39 Cr)
Lead Manager Edelweiss Financial, CLSA India, Nomura Financial, IDFC Bank, IIFL Holdings, Yes Securities
Registrar Link Intime Pvt. Ltd.
About Future Supply Chain Solutions Limited
  • Incorporated on March 8, 2006, Future Supply Chain Solutions Limited (FSCSL) is promoted by Future Enterprises Limited, which in turn is promoted by Mr. Kishore Biyani. Future Enterprises Limited (“FEL”) is the holding company of FSCSL
  • Future Supply Chain Solutions Limited claims to be  one of India’s largest organised third-party logistics service operators that provides  automated and IT-enabled warehousing, distribution and other logistics solutions to a wide range of customers.The company’s service offerings include warehousing infrastructure, pan-India distribution network, “hub-and-spoke” transportation model and automated technology systems to support its competitive market position.
  • Future Supply Chain Solutions operates  in various sectors including retail, fashion and apparel, automotive and engineering, food and beverage, fast moving consumer goods (“FMCG”), e-commerce, healthcare, electronics and technology, home and furniture and ATMs.
  • Future Supply Chain Solutions Limited offers  its customers services in three key areas:
  • Contract Logistics: warehousing, distribution and other value-added services
  • Express Logistics: point-to-point, less-than truck-load, time-definite transportation services; and
  • Temperature-Controlled Logistics: cold-chain warehousing, transportation solutions and distribution of perishable products.
  • Its revenue earned from  services related to contract logistics, express logistics and temperature-controlled logistics represented 69.8%, 21.7% and 6.2% of our revenue from operations in Fiscal 2017  respectively and 70.7%, 19.8% and 4.0% of  its revenue from operations for the six months ended September 30, 2017.
  • Company’s distribution centres and delivery network form a supply chain system across India. As of September 30, 2017, it ran its  contract logistics operations through 42 distribution centres across India, covering approximately 3.84 million square feet of warehouse space and also operate 2 distribution centres of its customers, covering approximately 0.37 million square feet of warehouse space. 
  • Company utilizes a “hub-and-spoke” distribution model comprising 14 hubs and 106 branches across India (including franchisees ) covering 11,235 pin codes across 29 states and 5 union territories as of September 30, 2017. During During September 2017, it  operated approximately 687 containerised vehicles, including 257 GPS-enabled vehicles of which 144 are refrigerated (reefer) trucks that are owned by the compnay.
  • While the company’s business was originally established to provide supply chain and logistics solutions for our Promoter and certain of our Group Companies, we have diversified our customer base across various sectors. Our customers except our Promoter and Group Companies accounted for 30.3%, 37.5%, 50.5% and 53.5% of our revenue from operations for the six months ended September 30, 2017 and Fiscals 2017, 2016 and 2015, respectively.
  • Future Supply Chain Solutions Ltd will be the 6th Future Group firm to be listed, the other Group Companies which are already listed are as follows.

    • Future Retail Ltd
    • Future Consumer Ltd
    • Future Market Networks Ltd
    • Future Enterprises Ltd
    • Future Lifestyle Fashions Ltd
   (Rs. In Cr)      
Particulars HY17-18 2017 2016 2015
Revenue from Operations 357.42 561.18 519.87 407.96
Revenue Growth (%) 7.95% 27.43%
EBITDA 56.18 74.28 69.94 63.94
Profit Before Tax 49.44 58.19 44.59 36.57
Net Profit 33.33 45.75 29.43 24.66
Net Profit as % to Revenue 9.33% 8.15% 5.66% 6.04%
Face Value 10
Share Capital 39.14 39.14 39.14 39.14
Reserve 286.92 253.67 208.1 178.64
Net worth 326.05 292.81 247.24 217.78
NAV Per Equity share (Rs.) 83.31 74.81 63.17 55.64
RONW (%) 10.22% 15.63% 11.90% 11.32%
EPS (Rs.) 8.52 11.69 7.52 6.37
IPO Price 664
Price/ Earning (PE) FY17 56.80
PE -HY17-18 Annualized 38.97
Price/ Book Value (P/BV) 7.97
Cagr  Sales (Fy15-17) 17.28%
Cagr NP (Fy15-17) 36.21%
Market Cap 2599 crore
Rationale for Investment
  • Future Supply Chain Solutions Limited is one of the largest service providers with an extensive network of facilities in a fast-growing third-party
    logistics market .
  • The company offers Comprehensive solution for supply chain requirements and has a has a diverse customer base across many sectors.
  • Company has been at  the forefront in introducing new standards of technology and automation in the logistics industry i n
  • Companies derives considerable mileage from longstanding relationship with Future Entities. 
  • With a strong group backing, company can explore inorganic growth opportunities and is also expected to  continue to improve operating efficiencies and implement technological and process enhancements
  • It has  Experienced management team with logistics and retail sector-specific knowledge
  • The company is well poised to Capitalize on the growth of the third-party logistics industry in India.
  • Future Supply Chain Solutions Limited distribution centre at the Multi-modal International Hub Airport at Nagpur (“MIHAN”) is one of the largest and most highly automated distribution centres in India. Our distribution centre at MIHAN covers approximately 0.37 million square feet of warehousing space, housing a high-speed cross-belt sorter system, which is the first of its kind in India, with a sorting capacity of approximately 2,000 cases per hour
  • Future Supply Chain Solutions Limited caters to a diverse range of industries as shown below: 
  • Future Supply Chain Solutions: Segment wise Revenue Breakup 
    Segment % of Total Revenue
    Fashion & Apparel 23.6
    Automotive & Engineering 22.3
    Food & Beverage 15.3
    FMCG 7.3
    E-Commerce 6.7
    Healthcare 6.1
    Electronics & Technology 6
    Home & Furniture 5.6
    ATMs 4.3
    Others 2.7
    Total 100%
  • Future Supply Chain Solutions Limited is dependent on the Future Entities as its key customers and this accounted for 69% of its turnover in  HY 17-18.
  • Company’s revenue from express logistics services declined by 9.7% from ₹1,556.33 million in Fiscal 2015 to ₹1,405.00 million in Fiscal 2016, and further declined by 10.1% from ₹1,405.00 million in Fiscal 2016 to ₹1,263.00 million in
    Fiscal 2017.
  • Company’s temperature-controlled logistics operations had a negative ₹9.70 million of gross profit in Fiscal 2017.
    The business is in development stage. 
  • Regulatory changes by Government  could affect its growth.
  • The Indian logistics market has grown at approximately a 12% CAGR between Fiscals 2012 and growth is expected to continue in line with the historical growth trajectory because of strong demand and drivers like increasing urbanization, increasing consumerism due to higher per capita incomes, fashion changes, incentives from the government for infrastructure investment and higher levels of outsourcing activities.
  • Organized logistics service providers are expected to benefit substantially from key government initiatives like Make in India, GST Roll out etc.
  • In a bid to develop an integrated logistics framework within the country, the logistics sector was awarded the infrastructure status by the Indian government. This will enable companies operating cold chains, industrial parks and warehousing facilities to raise long-term credit from banks and other financial institutions at low rates, and attract foreign investment.
  • After the IPO, PE investor Griffin’s stake shall stand at 14.64%(34.18%). Two funds of Edelweiss hold a combined 4.90% (pre-IPO), & PE fund GTI Capital’s owns 2.29%. 
  • Future Supply Chain Solutions Limited growth rates have been impressive with revenue growing at 17.6% CAGR between FY15-FY17,  and Net Profit clocking 35.2% CAGR.in this period.
  • Future Supply Chain Solutions Limited has given a very impressive financial performance with  significant growth in Revenues and Profits in the HY 2017-18. This augurs well for the company and is indicative of its future growth potential.
  • Future group under Mr Kishore Biyani has managed to create a  good brand value and all the listed Group entities are commanding good valuations.
  • In my opinion, Future Supply Chain Solutions Limited as a Third party Logistics (3PL) service provider has reasonably good prospects due to strong credentials of promoters, good business outlook for logistics industry and good parentage. Despite a stiff price and certain  amount of uncertainties facing the equity market, I intend to subscribe to the IPO.
  • The investors response to Future Supply Chain Solutions  IPO may be tempered by  relatively poor listing of Mahindra Logistics. Hence the issue is not for those seeking good amount of safety but for those who are willing to bet on a bit risky company which has the possibility to continue its growth momentum in future as well.  
  • 08/12/17 12:20 PM : activity ( see my post https://wp.me/p7zwuc-U6 ), I have faith in Future Supply Chain Solutions Limited IPO & hope same should get reflected in its final subscription figures tomorrow. In any case I have applied fully in the IPO.
  • Watch this space for final comments a day or 2 before the IPO closing.
Standard disclaimer: I am not a SEBI registered analyst and above analysis is for educational purpose only. I may have vested interest in every stock I discuss and my views may be biased. Please do your own due diligence as stock market investments have high degree of inherent risk.

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