Zinka Logistics Solutions IPO analysis

Zinka Logistics Solutions IPO (initial public offering) will open for subscription on November 13, 2024, and close on November 18, 2024. Here is a breakdown of the digital trucking services platform's strengths, weaknesses and growth prospects to help investors make an informed decision.

Zinka Logistics Solutions IPO in a nutshell

• Quality: Between FY22 and FY24, Zinka Logistics reported an average three-year ROE and ROCE of around -56 per cent and -35 per cent, respectively.
  
• Growth: During FY22-24, its revenue grew nearly 58 per cent. At the same time, Zinka Logistics reported a three-year average net profit margin of -156 per cent.
  
• Valuation: After the IPO, the company's stock will be valued at a P/B ratio of 5.4 times. The P/E cannot be ascertained as the company is loss-making.
  
• Overview: Zinka Logistics, which operates a digital platform for truck logistics services BlackBuck, is expected to benefit from the steady demand for freight services, especially for transit through trucks. With around 12.5 million trucks and 3.5 million truck operators, the total freight value through trucks has grown 8-9 per cent annually during FY20-24 and is expected to remain firm. BlackBuck primarily caters to truck operators.

About Zinka Logistics Solutions

Incorporated in 2015, Zinka Logistics-owned BlackBuck is India's largest digital platform for truck operators by number of users. The platform primarily enables customers to digitally manage tolling and fueling payments through fuel cards, FASTag services, among others. It is also a marketplace where truck operators can connect with businesses to meet their transit needs. Additional services include vehicle financing options for customers. In FY24, almost 10 lakh truck operators transacted on the platform, nearly 27 per cent of the country's truck operators. The platform earns around 85 per cent of revenue from customer subscriptions, and commissions from fuel retailers and road toll operators.

Strengths of Zinka Logistics Solutions

• Omnichannel distribution network: Zinka Logistics has the most extensive physical network among new-age digital platforms in the trucking sector. As of June 30, 2024, it provided services across 80 per cent of India's districts, including all major transportation hubs and 76 per cent of the toll plaza network. Further, it has a digitally enabled network of 9,374 touchpoints for onboarding and servicing activities.

Weaknesses of Zinka Logistics Solutions

• Poor financials: The company's numbers have mostly been in the red for the last three financial years. During FY22-24, it consistently delivered losses and reported a negative ROE and ROCE. In addition, it has a negative three-year average EBIT margin of around 135 per cent.
  
• Highly competitive industry: The company operates in a competitive environment where other tech-led platforms like Wheelseye, Vahak and FleetX Loconav also provide similar digital freight platforms for truck operators. Further, it derived nearly 17 per cent of its total revenue from vehicle financing offerings. Vehicle financing also remains highly competitive, given the presence of established players like Shriram Finance , ICICI Bank , HDFC Bank , SBI , Axis Bank , etc.
  
• Seasonality effect: During the monsoon season, there is decreased demand for logistics services owing to the likelihood of road damage and growing operational costs due to the constant rerouting of trucks. At such times, the financials of Zinka Logistics are negatively impacted, due to seasonality and reduced demand for customer service.

Risk report

Company and business

• Did Zinka Logistics report earnings before tax of Rs 50 crore or more in the last 12 months?
  No. The company reported negative earnings before tax of Rs 127 crore for the 12 months ending June 30, 2024.
  
• Will the company be able to scale up its business?
  Yes. The sector is still dominated by informal players with steady demand. This presents a significant opportunity for Zinka Logistics to capitalise on these tailwinds and scale up its business.
  
• Does the company have recognisable brands with client stickiness?
  Yes. The company operates through the mobile application BlackBuck, which is India's largest digital platform for truck operators and has nearly 10 lakh users. However, there is no data yet to comment on client stickiness.
  
• Does the company have a credible moat?
  No. It operates in an industry where many other platforms also provide digital freight services for truck operators.

Management

• Do any of the company's founders still hold at least a 5 per cent stake? Or do promoters hold over a 25 per cent stake in the company?
  Yes. After the IPO, the promoters' stake will be 28 per cent.
  
• Do the top three managers have over 15 years of combined leadership at Zinka Logistics?
  Yes. The company's MD & CEO, Rajesh Kumar, and Chief Operating Officer, Chanakya Hridaya, have been with the company since its incorporation in 2015.
  
• 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 Zinka Logistics free of promoter pledging of its shares?
  Yes. The promoters have not pledged any of their shares.

Financials

• Did the company generate a current and three-year average return on equity of more than 15 per cent and a return on capital employed of more than 18 per cent?
  No. Zinka Logistics reported a three-year average ROE and ROCE of -56 per cent and -35 per cent, respectively. In FY24, it had an ROE and ROCE of around -58 per cent and -36 per cent, respectively.
  
• Was the company's operating cash flow positive during the last three years?
  No. It reported a negative cash flow from operations in FY22 and FY23.
  
• Is the company's net debt-to-equity ratio less than one?
  Yes. As of Q1 FY25, the company's net debt-to-equity ratio was -0.5.
  
• Is the company free from reliance on huge working capital for day-to-day affairs?
  Yes. The company operates a tech-enabled platform that doesn't require huge working capital for its daily operations.
  
• Can the company run its business without relying on external funding in the next three years?
  No. Since Zinka Logistics has a negative cash flow from operations, it may need to rely on external funding, given it operates in a competitive space.
  
• Is the company free from meaningful contingent liabilities?
  Yes. The company had no contingent liabilities as of Q1 FY25.

Valuations

• Does the stock offer an operating earnings yield of more than 8 per cent on its enterprise value?
  No. Zinka Logistics's stock offers a negative operating earnings yield of 3.2 per cent on its enterprise value.
  
• Is the stock's price-to-earnings less than its peers' median level?
  There are no listed peers who operate in the same domain. Further, the stock P/E cannot be calculated due to negative earnings.
  
• Is the stock's price-to-book value less than its peers' average level?
  There are no listed peers who operate in the same domain. The stock is valued at a P/B of 5.5 times.

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

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