Aqua Logistics

Aqua Logistics has grown aggressively over the last few years, but it is saddled with poor operating cash flows

IPO details

Price Band: Rs 220-230 per share
Net issue size: up to Rs 150 crore
Date: January 25 - 28

AQUA Logistics, is a Mumbai-based logistics player with a presence in different segments of the logistics sector, including supply chain solutions and freight forwarding. The company proposes an initial public offer of around 6.9 million shares, at lower end of the price band, in a bid to raise up to Rs 150 crore. This issue is being offered in the price band of Rs 220 and Rs 230 per share, but retail investors would get a Rs 5 per share discount at the time of allotment. Aqua plans to use Rs 30.5 crore of the funds raised for purchase of logistics equipment. In addition, Rs 17.1 crore would be used for setting up additional offices, coupled with Rs 35 crore for a planned acquisition. This IPO represents nearly 33.9% of the post-issue equity capital of the company, at lower end of price band.

BUSINESS:

Logistics started in 1999 and initially offered lower-margin freight forwarding services and over the years it has moved up value chain. As part of this strategy, the company offers project logistics to diverse user industries, coupled with multi-modal transportation services, including movement of cargo within and outside the country. Also, Aqua Logistics, unlike other players in this sector, has over the past few years been following an asset light strategy and largely relied on third-party providers for equipment. The revenue mix for the company for FY 09, comprised 91.6% of its net sales from freight services and 5.5% from project logistics.

FINANCIALS:

Since FY05, the company's income from operations grew at a staggering compounded annual growth rate (CAGR) of 144.6% to reach Rs 213.4 crore at the end of FY '09. The company however, incurred a net loss during FY05 and FY06, but during the period March '06 and March '09, the company's net profit grew 87% on a CAGR basis to reach Rs 9.83 crore. Also, Aqua Logistics' operating profit margin varied between 3.2% for FY '05 and 10.5% for FY '09. Other logistics players like Arshiya International grew its standalone revenues by 354.7 % on a CAGR basis between FY 05 and FY '09.

CONCERNS:

A key concern is that Aqua Logistics' negative cash flows from operating activities amounted to Rs 23.83 crore at the end of March '09, compared to negative Rs 0.26 crore four years earlier. The offer document highlights a rise in debtors outstanding during this period due to rapid rise in its turnover.

VALUATIONS :

At the higher end of the price band (Rs 225, adjusting for the retail discount on allotment), the company demands post-listing P/E of nearly 29.6 times its FY09 net profit and 27.2 times, annualised H1FY10 earnings, adjusted for the expansion in the company's equity. However, Arshiya International trades at 22.6 times consolidated earnings on a trailing basis, while Transport Corporation is at 21.3 times. However, a new listing should come at a discount to established players and we recommend retail investors to avoid this issue.