Navkar offer’s a risky bet in spite of healthy business

Steep valuations make the public issue of Maharashtrabased logistics company Navkar Corporation a risky bet for investors. Despite sound balance sheet and brisk business, the issue price appears to be higher than established listed peers.

Business

Navkar Corporation operates three container freight stations (CFS) near Jawaharlal Nehru Port, Mumbai. A CFS is a facility near the port which is used to stuffing, de-stuffing, temporary storage and examination of export and import cargo. Navkar’s CFSes can also handle temperature controlled and hazardous cargo.

As of May 31, 2015, the company had an installed capacity of 310,000 twenty-foot equivalent units (TEUs) per annum. In FY15, Navkar’s CFSes had a healthy capacity utilisation of 87%. It also operates a freight terminal which links its Somathane CFS to the Somathane railway station in Panvel. This provides a rail connectivity from its CFS to the port.

Financials & Valuation

Over the last four fiscals, Navkar Corporation's net profit grew at a compounded growth rate of 16%. At the end of FY15, the company's debt-to-equity ratio remained healthy at 0.6. Based on the earnings of FY15, the issue is priced at 30 and 29 times its earnings at the upper and lower price band, respectively. On the other hand, its peers such has Allcargo Logistics and Gateway Distriparks are trading at a P/E of 17 and 20, respectively. In FY15, Navkar’s return on net worth (RoE) was 10%, while those of Allcargo and Gateway were 12.6% and 20%, respectively.

Objects of the issue The Rs 600-crore initial public offering consists of Rs 510 crore of fresh issue and an offer for sale by an existing promoter group company Sidhhartha Corporation. The company intends to utilise the issue proceeds to increase its CFS capacity and establish a logistics park at Valsad, Gujarat. In the logistics park, the company intends to provide warehousing and various value-added services.