Western Carriers (India) IPO analysis

Western Carriers (India) IPO will open for subscription on September 13, 2024 and close on September 18, 2024. We break down the logistic company's strengths, weaknesses, and growth prospects to help investors make an informed decision.

In a nutshell

• Quality: Its three-year average ROE and ROCE were 25 and 31 per cent, respectively, during FY22-FY24.
  
• Growth: Its revenue and net profit grew 7 and 15 per cent per annum, respectively, during FY22-24.
  
• Valuation: Post the IPO, the stock will be valued at a P/E and a P/B ratio of 21.8 and 2.2 times, respectively.
  
• Overview: The growth in e-commerce and government support for transportation infrastructure (including railways and roads) will help the company scale up its business. However, low entry barriers and the commoditised nature of the industry (no product differentiation) are some concerns.

About Western Carriers (India)

Western Carriers (India) is a railway-focused B2B logistics company that offers rail transport, road transport, warehousing and stock management for bulk goods. It has 1,600 customers, including marquee names like HUL and Tata Steel. The top five of them contributed 57 per cent to the company's FY24 revenue.

Strengths of Western Carriers (India)

• Strong customer loyalty : Western Carriers (India) has decades-long relationships with seven of its top 10 customers.

Weaknesses of Western Carriers (India)

• High revenue concentration: Its top five clients contributed 57 per cent to its total revenue in FY24.
  
• Dependence on cyclical industries: Nearly 53 per cent of the company's revenue comes from transporting metals. Such high dependence on the cyclical sector is highly risky.
  
• Low-entry barriers: The logistics market is filled with many unorganised players due to low-entry barriers. For instance, with more than 1,000 players, there is fierce competition in the road logistics segment. The same is true in case of railway logistics as well.

Risk report

Company and business

• Are Western Carriers (India)'s earnings before tax more than Rs 50 crore in the last 12 months?
  Yes. Its earnings before tax was Rs 108 crore as of FY24.
  
• Will Western Carriers (India) be able to scale up its business?
  Yes. Growth in e-commerce and government support for transportation infrastructure will help the company scale up its business. According to a report by 1Lattice, India's multi-modal (rail-road) market is expected to grow 22 per cent annually between FY24-29.
  
• Do Western Carriers (India) have recognisable brands with client stickiness?
  Yes. It has long-standing relationships with seven of its top 10 customers.
  
• Does the company have a credible moat?
  No. The industry is highly fragmented, with low-entry barriers.

Management

• Do any of the company's founders still hold at least a 5 per cent stake? Or do promoters have over 25 per cent stake in the company?
  Yes. Post the IPO, the promoters' stake will increase to 72 per cent.
  
• Do the top three managers have over 15 years of combined leadership at Western Carriers (India)?
  Yes. The company's Chairman and Managing Director Rajendra Sethia has been with the company since its incorporation in 1972.
  
• Is the management trustworthy? Is it transparent in its disclosures, which are consistent with SEBI guidelines?
  Yes. There is no information to suggest otherwise.
  
• Is the company's accounting policy stable?
  Yes. There is no information to suggest otherwise.
  
• Is Western Carriers (India) free of promoters pledging its shares?
  Yes. The company is free of promoters pledging its shares.

Financials

• Did the company generate a current and three-year average return on equity (ROE) of more than 15 per cent and a return on capital employed (ROCE) of more than 18 per cent?
  Yes. Its three-year average ROE and ROCE were 25 and 31 per cent, respectively. In FY24, its ROE and ROCE were 22 and 29 per cent, respectively.
  
• Was the company's operating cash flow positive during the last three years?
  Yes. The company reported positive cash flow from operations (CFO) in the last three years.
  
• Is the company's net debt-to-equity ratio less than one?
  Yes. Its net debt-to-equity ratio stood at 0.7 times as of FY24.
  
• Is Western Carriers (India) free from reliance on significant working capital for day-to-day affairs?
  No. The business is highly working capital intensive. In FY24, the company took 114 days on average to collect payment from customers.
  
• Can the company operate its business without relying on external funding in the next three years?
  Yes. Over the last three years, the company has generated positive cash flows. Moreover, it has a comfortable debt-to-equity ratio of 0.6 times as of FY24.
  
• Is Western Carriers (India) free from meaningful contingent liabilities?
  Yes. As of FY24, its contingent liabilities as a percentage of equity were around 0.7 per cent.

Valuations

• Does the stock offer an operating earnings yield of more than 8 per cent on its enterprise value?
  No. The stock offers an operating earnings yield of 6.3 per cent.
  
• Is the stock's price-to-earnings less than its peers' median level?
  Yes. The stock is valued at a price-to-earnings ratio of 21.8 times compared to its peers' median of 40.6 times.
  
• Is the stock's price-to-book value less than its peers' average level?
  Yes. The stock is valued at a price-to-book ratio of 2.2 times compared to its peers' average of 6 times.

Disclaimer: This is not a stock recommendation. Do your due diligence before investing.

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