Tejas Cargo NSE SME IPO review (Avoid)

•    The company is engaged in providing 3PL logistics as well as FTL Services.
•    It is operating in a highly competitive and fragmented segment.
•    The company marked growth in its top lines for the reported periods.
•    The boost in bottom lines from FY23 onwards raises eyebrows.
•    Based on recent financial performance, the issue appears aggressively priced. 
•    There is no harm in skipping this pricey bet that can be termed as “High Risk/Low Return" offer.

ABOUT COMPANY:
Tejas Cargo India Ltd. (TCIL) is a logistics company based in Faridabad, Haryana, providing long haul supply chain transportation services by road across India. It offers express supply chain transportation services by road under Full Truck Load (“FTL”), to a diverse range of companies who are inter alia engaged in the logistics, steel and cement, e-commerce, industrial & chemicals, FMCG and white goods sectors. As of September 30, 2024, it has carried out more than 61% of the trips through owned fleets and the remaining is undertaken through fleets hired from the open market on an ad-hoc basis. The company offers technology enabled logistics services to clients to optimize operations and minimize contingencies. The company completed over 98,913 trips during Fiscal 2024 and 58,943 trips for the six months’ period ended September 30, 2024 on a pan India basis. 

The company derives more than 98% of revenue by providing long haul supply chain transportation services. Its services include shipment planning, route optimisation, fleet selection, documentation, tracking, communication and coordination and performance evaluation. As on October 31, 2024, its fleet size is 1,131 vehicles which consists of 218 trailers and 913 container trucks, with dimensions ranging from 32 feet to 40 feet and tonnage capacity of up to 42 tonnes. Out of the total fleet, 292 vehicles are debt free consisting of 34 trailers and 258 container trucks. 

As on the date of filing of the Red Herring Prospectus, 4 number of vehicles are yet to be transferred in the name of the Company from Trans Cargo India, a sole proprietorship firm of one Promoter. Its fleets are equipped with Internet of Things (“IoT”)-based solutions such as Geo Fencing, Centralised Digital Locking, GPS and SIM based tracking, Advance Driver Assistance System (“ADAS”)/Driver State Monitoring (“DSM”) as well as AI-powered rear camera technology. The average age of fleet is 2.88 years, ensuring a modern and reliable fleet. During Fiscal 2024, it transported approximately 11,94,199.50 tonnage (billed) throughout India. It maintains an on-time delivery rate of 78.30% for the six months’ period ended September 30, 2024, and 78.13% for Fiscal 2024, 72.38% for Fiscal 2023, 63.84% for Fiscal 2022, for providing the transportation services.

The company specializes in supply chain transportation services by road under FTL wherein it offers fleet to fulfil long-term contract obligations as well as address adhoc demands to achieve network optimization and efficient freight management. TCIL also provides vehicles in the open market through strategic network to optimise fleet utilization. It has also, through strategic network with multiple logistics service providers, expanded reach and enhanced service offerings by providing integrated logistics solutions to clients. 

The Indian third-party logistics (3PL) market is expanding due to the rise in e-commerce and changing consumer expectations for faster, flexible delivery. 3PL providers benefit from economies of scale, which reduce costs in transportation, warehousing, and labour. Outsourcing logistics also avoids capital expenditure for companies, making operations more cost-effective. Additionally, initiatives by both central and state government such as introduction of Goods and Services (GST) Tax, relaxed FDI regulations, granting of infrastructure status, and the National Logistics Policy are supporting 3PL operations and market growth. Moreover, small and medium enterprises (SMEs), lacking resources for internal logistics, rely on 3PL services to compete with larger firms without significant investment in logistics infrastructure. [Source: CareEdge Report]

As of October 30, 2024, our fleet composition comprises of 913 container trucks and 218 trailers, with an average age of 3.4 years and 0.7 year, respectively. As of September 30, 2024, it had 284 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 6300000 equity shares to mobilize Rs. 105.84 cr. (at the upper cap). The company has announced a price band of Rs. 160 – Rs. 168 per share of Rs. 10 each. The issue opens for subscription on February 14, 2025, and will close on February 18, 2025. The minimum number of shares to be applied is for 800 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.37% of the post-IPO paid-up capital of the company. From the net proceeds of the fresh equity issue, the company will utilize Rs. 31.76 cr. for purchase of additional trailers, Rs. 30.00 cr. for working capital, Rs. 15.00 cr. for repayment/prepayment of certain borrowings, and the rest for general corporate purposes. 

The company has reserved 63200 shares for its eligible employees, 315200 shares for market maker and from the rest it has allocated not more than 50% for QIBs, not less than 15% for HNIs and not less than 35% for Retail investors.

The IPO is solely lead managed by New Berry Capitals Pvt. Ltd., Bigshare Services Pvt. Ltd., is the registrar to the issue. New Berry Capitals Pvt. Ltd. is also the Market Makers for the company, and a syndicate member.

Having issued initial equity shares at par value, the company issued additional equity shares at a fixed price of Rs. 8443.98 per share in March 2024.  It has also issued bonus shares in the ratio of 39 for 1 in May 2024, and 8 for 10 in June 2024. The average cost of acquisition of shares by the promoters is Rs. 0.12 and Rs. 33.09 per share. 

Post-IPO, company’s current paid-up equity capital of Rs. 17.59 cr. will stand enhanced to Rs. 23.89 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 401.40 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 209.67 cr. / Rs. 3.16 cr. (FY22- standalone), Rs. 384.38 cr. / Rs. 9.86 cr. (FY23 - standalone), and Rs. 422.59 cr. / Rs. 13.22 cr. (FY24 - consolidated). For H1 of FY25 (consolidated) ended on September 30, 2024, it earned a net profit of Rs. 8.75 cr. on a total income of Rs. 255.09 cr. The quantum jump in top and bottom lines from FY23 onwards raises eyebrows and concern over its sustainability. There appears to be some window dressing to fetch fancy valuations for the IPO.

For the last three fiscals, the company has reported an average EPS of Rs. 5.92 and an average RoNW of 55.02 %. The issue is priced at a P/BV of 4.68 based on its NAV of Rs. 35.90 as of September 30, 2024, and at a P/BV of 2.38 based on its post-IPO NAV of Rs. 70.73 per share (at the upper cap). 

If we attribute FY25 annualized super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 22.95. Based on FY24 earnings, the P/E stands at 30.38. Based on its recent earnings, prima facie, the issue relatively appears aggressively priced. 

For the reported periods, the company has posted PAT margins of 1.50% (FY22), 2.56% (FY23), 3.13% (FY24), 3.43% (H1-FY25), and RoCE margins of 24.80%, 44.50%, 28.30%, 13.52%, for the referred periods, respectively.

DIVIDEND POLICY:
The company has not declared any dividends since incorporation. It has already adopted a dividend policy in October 2024, based on its financial performance and future prospects. 

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown AVG Logi., and Ritco Logi., as their listed peers. They are trading at a P/E of 15.6, and 24.2 (as of February 11, 2025). However, they are not truly comparable on an apple-to-apple basis. This compare appears to be an eyewash.

MERCHANT BANKER’S TRACK RECORD:
This is the 1st mandate from New Berry Capitals in the ongoing fiscal.  Hence it has no track records.