TVS Supply Chain IPO opens today: Should you subscribe to the issue?

The initial public offering (IPO) of TVS Supply Chain Solutions kicks off for subscription on Friday, August 10. The company is selling its shares in the range of Rs 187-197 apiece, with a lot size of 76 equity shares and its multiples. The issue can be subscribed till Monday, August 14.

TVS Supply Chain Solutions provides supply chain management services for international organizations, government departments, and large and medium-sized businesses. It offers its services in two segments namely- integrated supply chain solutions (ISCS) and network solutions (NS).

The Chennai-based company intends to raise Rs 880 crore from its primary stake sale, which includes a fresh equity share sale of Rs 600 crore. Also, select selling shareholders will offload 14,213,198 equity shares from their stake via offer-for-sale (OFS) route, amounting up to Rs 280 crore.

Investors including TVS Motor Company, Omega TC Holdings, Tata Capital Financial Services, Kotak Special Situations Fund, Sargunaraj Ravichandran, Andrew Jones, Ethirajan Balaji, Dinesh Narayan, PD Krishna Prasad, Venugopal Murali and Nagesh Nagarajan will participate in the OFS.

Ahead of its IPO, TVS Supply Chain Solutions raised Rs 396 crore from 18 anchor investors by allocating 2.01 crore equity shares at an issue price of Rs 197 apiece, said a BSE circular.  The marquee anchor investors included  Authum Investment, Winro Commercial, Societe Generale, BNP Paribas Arbitrage, Copthall Mauritius, Aurigin Master Fund and various mutual funds.

Net proceeds from the fresh issue will be utilized towards prepayment or repayment of all or a portion of certain outstanding borrowings availed by the company and subsidiaries, TVS LI UK and TVS SCS Singapore; and general corporate purposes. Proceeds from the OFS will go to the selling shareholders of the company.

For the year ended on March 31, 2023, the company reported a total revenue of Rs 10,311.01 crore, while its net profit stood at Rs 41.76 crore. In the previous financial year, its revenue stood at Rs 9,299.94 crore and clocked a net loss of Rs 45.80 crore.

The company has reserved 75 per cent of shares for the qualified institutional bidders, while non-institutional investors will get 15 per cent of the allocations. Remaining 10 per cent shares will go to the retail investors. The stock is likely to list on August 23, Wednesday.

JM Financial, Axis Capital, JP Morgan India, BNP Paribas, Equirus Capital and Nuvama Wealth Management are the book-running lead managers to the issue, while Link Intime India has been appointed as the registrar to the issue. Shares of the company will be listed on both BSE and NSE.

Brokerage firms have a mixed view on the issue. Select analysts have suggested a 'buy' for the issue citing its asset-light business model, strong parentage, and growth prospects. However, a few have suggested to clearly 'avoid' the issue citing its highly rich valuations, which look more expensive compared to peers. Here's what they said about the IPO of TVS Supply Chain Solutions:

Reliance Industries
Rating: Subscribe
TVS Supply Chain operates an asset light business model and operates through leases with its network partners and clients. It has a long and consistent track record of successful integration of 20 acquisitions supplementing their operations to support capabilities and customer acquisition, said Reliance Securities with a 'subscribe' rating.

The margin trend is improving YoY and expected to smoothen further as the company is focusing on the C3 framework – Customer, Capability and Country with outsourcing trend and presence in high growth sectors. The issue is priced at 10.5 times based on its NAV of Rs 18.89 as of 31 Mar 2023 and with good legacy parentage, tech enabled and process driven solution company.

Swastika Investmart
Rating: Avoid
TVS Supply Chain Solutions is a leading multinational supply chain solutions provider with a strong track record in India. It has a strong domain expertise and knowledge base, as well as robust in-house technology differentiation. It has also been consistently successful in integrating and acquiring new businesses.

However, there are some concerns with the company. It has a large exposure to the international market, which could be a risk if there is a slowdown in global trade. The company is also operating in a highly competitive industry, and it has reported losses in the past two years. The valuation of the IPO is very high, significantly above the industry average, it added with a 'avoid' tag.

Geojit Financial Services
Rating: Subscribe
At the upper price band, the issue is available at a P/E of 209 times (FY23), which appears aggressively priced compared to peers. However, favourable factors include the fragmented Indian logistics market, growth potential, post-GST logistics focus, and outsourcing trends, said Geojit with a subscribe tag citing its asset-light approach, diverse global services and long-term contracts.

Stoxbox
Rating: Avoid
The issue is richly valued, as it is higher than other industry players such as TCI Express, Delhivery, and Mahindra Logistics. Hence, we recommend an “Avoid” rating on the issue and would reconsider the company following sustained improvement in financial metrics (especially margin expansion) and reasonable valuation, said Stoxbox (formerly BP Equities).

Hensex Securities
Rating: Subscribe with caution
The company’s revenue from Operations showed steady growth, with a CAGR of 10.66 per cent in FY23 respectively. It has developed long term relationship with a number of clients; however it has served total of 8,788 customers during FY23, said Hensex Securities, suggesting that medium-to-high risk investors may apply for the issue.

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