Future Supply Chain IPO opens today: Here's what brokerages recommend

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The Rs 650-crore initial public offer (IPO) of Future Supply Chain Solutions opens for subscription today with a price band of Rs 660-664 per share. Promoters and PE investor, Griffin, will together sell 24.43% stake through the IPO, which closes on December 8. Of this, Future Enterprises will dilute up to 4.43% of equity, while Griffin Partners that held 40% in the company, will offload 20% of this stake.

In the run-up to the IPO, SSG Capital - the parent of Griffin Partners - had on November 20 sold 19.63 lakh shares aggregating to 4.9% stake to two Edelweiss Group managed entities at Rs 636.60 a share, according to an earlier exchange filing by the company.

Here's is what brokerages recommend on the issue:

CENTRUM WEALTH RESEARCH

At the higher end of the price band of Rs 664, the issue is priced at P/E of 58.1x (post dilution) on FY17 and 39.9x on H1FY18 (annualised) basis, which appears to be fairly valued. The proceeds from the issue will not come into the company as it is 100% offer for sale (OFS).

In case of closely listed peers like Mahindra Logistics, which recently came out with an IPO that was at an expensive valuation, is currently trading at Rs441, ~3% above its issue price of Rs 429 and P/E of 68.8x on FY17 basis. However, given that the current GST environment has good growth opportunities for organised 3PL players, the stock’s performance post listing could depend on its ability to capture the same. We recommend subscribing to the issue.

ANGEL BROKING

In terms of valuations, the pre-issue P/E works out to 39.9x its 1HFY2018 annualised earnings (at the upper end of the issue price band), which is lower compared to its peers like Mahindra Logistics.

Despite the above favourable factors and lower valuations compared to Mahindra Logistics, the brokerage however, believes that all the positives are fully factored in the company’s current valuations, which does not provide any further upside for investors. Hence, the brokerage recommends neutral rating on the issue.

GEOJIT FINANCIAL SERVICES

Going ahead, the management intends to capitalise on opportunities arising from recent GST roll out, growth in third party logistics industry, technology and process enhancements and market share expansion through customised and new service offerings. At an upper price band of Rs 664, FSCL is available at a reasonable valuation of 41x on annualised HIFY18 EPS. The brokerage recommends subscribing to the issue, with a medium-to-long term perspective.

RELIANCE SECURITIES

FSCL offers attractive growth opportunities in medium to long-term with the commensurate growth in 3PL logistics. The Company is one of the key players especially in the context of expected pick-up in relevance of 3PL logistics in GST regime. Our back of the envelope calculations suggest that the stock is valued at 26.9x FY20E EPS, and hence we believe the IPO is fairly priced vs. versus peers. We recommend subscribing to the Issue, as it provides a healthy investment opportunity for the long-term investors.

KEY RISKS BASED ON IPO NOTE

1.      Major dependence on the Promoter group companies.

2.      Competition from international/domestic 3PL logistics companies and other unorganised players.

3.      Slowdown in consumer spending.

4.      Inability to pass through increased prices from business partners to the customers.


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