Western Carriers Limited IPO: A Comprehensive Overview

Western Carriers Limited is set to make waves in the financial markets with its Initial Public Offering (IPO) comprising a fresh issue of ₹400 crores and an offer for sale worth ₹92.88 crores. The IPO is scheduled to open on September 13, 2024, and close on September 18, 2024, with shares expected to be listed on the exchange on September 23, 2024. In this article, we will delve into the details of the IPO, the company’s strengths and weaknesses, and the broader industry context.

About Western Carriers Limited

Founded in 1972, Western Carriers (India) Limited has emerged as India’s largest private, multi-modal, rail-focused logistics company, particularly in terms of container volumes as of Fiscal 2022. The company specializes in providing end-to-end, customized logistics solutions across India for both domestic and EXIM (Export-Import) cargo, integrating various transport modes such as road, rail, sea, river, and air.

Western Carriers boasts a diverse clientele, including major corporations like Tata Steel and JSW Steel in the metal sector, as well as FMCG giants like Hindustan Unilever, ITC, and Tata Consumer Products. The company has also served pharmaceutical companies like Cipla and Haldia Petrochemicals.

Operating in two primary verticals—domestic and EXIM logistics—Western Carriers held a 7% market share in domestic container volumes and a 3% market share in EXIM container volumes in India as of Fiscal 2022. The company’s asset-light business model allows for scalability and flexibility, enabling it to adapt to varying logistics requirements.

The Logistics Industry Landscape

The Indian logistics industry is on an upward trajectory, projected to grow at an 11% CAGR to reach ₹30 trillion by Fiscal 2027. This growth is fueled by robust economic expansion, increased public infrastructure spending, and rising trade volumes. Government initiatives like ‘Make in India’ and favorable regulatory policies are further bolstering the sector.

Currently, road transportation dominates the logistics market, accounting for approximately 85% of its value. However, rail transportation is witnessing the highest growth rate, while the warehousing sector is rapidly expanding, driven by e-commerce and third-party logistics demand.

The supply chain services market, which includes 3rd Party and 4th Party Logistics, is growing even faster than the overall logistics market, expected to increase its market penetration from 4% to 6% by Fiscal 2027. The Indian government is also working to reduce logistics costs, currently at about 14% of GDP, aiming to bring this down to 7-8% to align with global standards.

Financial Highlights

Revenue and Profitability

Western Carriers has shown consistent revenue growth, with revenue increasing from ₹1,067.2 crores in March 2020 to ₹1,470.8 crores in March 2022. By December 2022, revenue for the nine-month period reached ₹1,206.9 crores, indicating a steady upward trend.

The operating profit has also improved significantly, rising from ₹75.83 crores in March 2020 to ₹97.29 crores in March 2022. By December 2022, the operating profit was ₹84.86 crores for the nine-month period.

Net profit has seen remarkable growth, increasing from ₹35.86 crores in March 2020 to ₹61 crores in March 2022, with a net profit of ₹55 crores recorded by December 2022.

Comparison with Key Competitors

• Revenue: Western Carriers generated ₹1,206 crores, while competitors like Container Corporation, Mahindra Logistics, and TCI Express reported revenues of ₹5,985 crores, ₹3,855 crores, and ₹915 crores, respectively.
• Profit Margin: Western Carriers holds a profit margin of 4.56%, significantly lower than Container Corporation’s 14.94%.
• PAT: The company posted ₹55.09 crores in Profit After Tax (PAT), compared to Container Corporation’s ₹894.07 crores.
• EBITDA Margin: Western Carriers achieved an EBITDA margin of 7.94%, slightly above Mahindra Logistics’ 5.4%, but below Container Corporation’s 27.57%.

Strengths of Western Carriers

1. Comprehensive Logistics Solutions: The company offers customized, end-to-end logistics services that integrate multiple transport modes, allowing for efficient execution of complex projects.

2. Strong Market Position: With long-term relationships across diverse industries, Western Carriers is well-positioned to benefit from India’s growing logistics market.

3. Financial Growth and Efficiency: The company has demonstrated consistent growth in revenue and profitability, supported by over 50 years of combined experience from its management.

4. Expanding Capabilities: Western Carriers is venturing into 4th Party Logistics and reverse logistics, enhancing its service offerings.

5. Adaptability: The company is proactive in addressing industry challenges and adapting to regulatory changes, ensuring it meets evolving customer needs.

Weaknesses of Western Carriers

1. Dependence on Container Volumes: The company’s revenue is heavily reliant on container volumes, making it vulnerable to market fluctuations.

2. High Customer Concentration: A significant portion of revenue comes from a few key customers, posing risks if any major client reduces business.

3. Rising Operational Costs: High operational expenses, which account for over 86% of total revenue, can pressure profitability, especially in competitive markets.

4. Asset-Light Model Limitations: While this model provides flexibility, it limits control over logistics assets, exposing the company to risks from third-party providers.

5. Economic Vulnerability: Operating primarily in India, Western Carriers is susceptible to economic downturns and rising fuel costs, which can impact demand for its services.

6. Competition from Larger Players: The company faces ongoing threats from larger logistics providers with stronger financial resources and broader networks.

Grey Market Premium (GMP)

As of September 9, 2024, shares of Western Carriers (India) Ltd are trading at a 0% premium in the grey market, indicating a price of ₹0 per share over the IPO price of ₹172.

Key IPO Information

• Promoters: Rajendra Sethia; Kanishka Sethia
• Book Running Lead Manager: JM Financial Limited, Kotak Mahindra Capital Company Limited
• Registrar to the Offer: Link Intime India Private Limited

Objective of the Issue

The net proceeds from the fresh issue will be utilized for:

• Prepayment or scheduled repayment of outstanding borrowings.
• Funding capital expenditure for purchasing commercial vehicles, specialized containers, and reach stackers.
• General corporate purposes.

Conclusion

Western Carriers (India) Limited is strategically positioned to capitalize on the burgeoning logistics sector in India. With its innovative logistics solutions and extensive experience, the company aims to enhance its service delivery and operational capabilities through its upcoming IPO. As Western Carriers embarks on this new chapter, potential investors and industry observers must consider how the company will navigate the competitive landscape and mitigate inherent risks.

This IPO represents a pivotal moment for Western Carriers, and its success will depend on its ability to leverage its strengths while addressing the challenges ahead.