Afcom Holdings coming with IPO to raise Rs 73.83 crore

Afcom Holdings

• Afcom Holdings is coming out with initial public offering (IPO) of 68,36,400 shares in a price band Rs 102-108 per equity share.
• The issue will open on August 2, 2024 and will close on August 6, 2024.
• The shares will be listed on BSE SME Platform.
• The face value of the share is Rs 10 and is priced 10.20 times of its face value on the lower side and 10.80 times on the higher side.
• Book running lead manager to the issue is GYR Capital Advisors.
• Compliance Officer for the issue is Sneka S Seshadri.

Profile of the company

The company has been operating Cargo Flights to the ASEAN countries like Singapore, Indonesia and Brunei, particularly to Singapore. The company is engaged in carriage of cargo on airport-to-airport basis. Its Business is guided by three operating principles i.e People- centricity, Growth through partnership and Efficiency, always. It provided supply chain solutions to a diverse base of customers. Active Customers such as e-commerce marketplaces, direct-to-consumer e-tailers and enterprises and SMEs across several verticals such as FMCG, consumer durables, consumer electronics, lifestyle, retail, automotive and manufacturing, through various Freight Forwarders for the period ended February 29, 2024.

It is led by a management team that has extensive industry experience. Its promoters, Capt. Deepak Parasuraman, Wg. Cdr. Jaganmohan Mathena (Retd), Kannan Ramakrishnan and Manjula Annamalai have been instrumental in the growth of the business. Capt. Deepak Parasuraman and Wg. Cdr. Jaganmohan Mathena (Retd) both have over three decades of experience in the aviation industry. Their experience in the aviation industry has helped it grow its business operations. Kannan Ramakrishnan has extensive experience in the Automobile retail industry. It has a committed senior management team that has extensive experience in the Cargo logistics and forwarding business, which positions its well to capitalize on future growth opportunities. Its Board of Directors includes a combination of management executives and independent members who bring in significant business expertise including in the areas of marketing, finance, and corporate governance.

Proceed is being used for:

• Funding capital expenditure towards taking of two new aircraft on lease basis
• Prepayment or repayment of all or a portion of certain outstanding borrowings availed by the company
• Funding of working capital requirement
• General corporate purposes
• Meeting out the Issue Expenses

Industry Overview

The Indian logistics sector is one of the largest in the world and presents a large addressable opportunity, with a direct spend of $216 billion in Fiscal 2020. The Indian logistics industry is growing, due to a flourishing e-commerce market and technological advancement. The logistics sector in India is predicted to account for 14.4% of the GDP. The industry has progressed from a transportation and storage-focused activity to a specialised function that now encompasses end-to-end product planning and management, value-added services for last-mile delivery, predictive planning, and analytics, among other things. 

One of the key drivers of this expansion is projected to be the rise of India's logistics industry, which employs 22 million people and serves as the backbone for various businesses. The logistics sector in India was valued at US$ 250 billion in 2021, with the market predicted to increase to an astounding US$ 380 billion by 2025, at a healthy 10%-12% year-on-year growth rate. Moreover, the government is planning to reduce the logistics and supply chain cost in India from 13-14% to 10% of the GDP as per industry standards.

The Indian logistics sector is valued at $150 billion, contributing 14.4 % of the country’s GDP. With the easing of FDI norms, the proposed implementation of GST, increasing globalization, growth of e-commerce, positive changes in the regulatory policies, and government initiatives such as ‘Sagarmala’, ‘Make in India’, the  sector is expected to touch $200 billion by 2020. In the World Bank’s Logistics performance ranking 2016, India’s ranks have improved from 54 in 2014 to 35 in 2016, jumping 19 places. Out of this $150 billion logistics cost, almost 99% is accounted for by the unorganized sector (such as owners of less than 5 trucks, affiliated to a broker or a transport company, small warehouse operators, customs brokers, freight forwarders, etc.), and slightly more than 1%, i.e. around $1.5 billion, is contributed by the organized sector.

Pros and strengths

Well equipped to handle hazardous cargo: It is well equipped to handle hazardous cargo, which is highly specialized and regulated and requires approvals from the Directorate General of Civil Aviation (DGCA) and requires strict adherence to international safety standards. It has specially trained supervisory and monitoring staff and well laid out a procedure which ensures successful handling of hazardous cargo.

Large entry barriers into the industry: It operates in a highly regulated industry which requires considerable expertise and experience for qualifying to carry out business and in which there is considerable time involved for gaining an entry into the industry. Personnel are another important factor for success in this industry since the regulations and client requirements require minimum experience of the pilots. It has thus achieved an early-mover advantage, being a company operating in this area and having all the necessary clearances, infrastructure, and operational background. All these factors act as natural barriers for any potential competition.

Training: All its air crew undertake required training courses as per DGCA training guidelines. Administrative staff and operations staffs are being trained regularly by its internal training arrangements. A detailed training calendar is worked out as per the guidelines for crew and non-crew and the same is monitored and updated as per the guidelines.

Risks and concerns

Depend on top five customers: Its top five customers have contributed 98.71%, 75.99%, 84.32% and 100% of its revenues for the period ended February 29, 2024 and year ended March 31, 2023, March 31, 2022 and March 31, 2021 respectively based on Restated Financial Statements. However, its top customers may vary from period to period depending on the demand and thus the composition and revenue generated from these customers might change as it continues to add new customers in normal course of business. It cannot assure that it shall generate the same quantum of business, or any business at all, from these customers, and loss of business from one or more of them may adversely affect its revenues and profitability.

Delay in delivering the goods: It operates in the Air Cargo industry, where the success of its operations relies on the prompt and effective delivery of goods. Various factors, such as adverse weather conditions (like storms and heavy fog) and unforeseen operational disruptions (including strikes, technical issues, and compliance matters), can impact its ability to ensure timely deliveries. Any delays in delivering goods could potentially harm its business by eroding customer trust, leading to a decreased likelihood of securing future contracts, thereby impacting its financial standing.

Require certain approvals and licenses: It is governed by various laws and regulations for its business and operations. It is required, and will continue to be required, to obtain and hold relevant licenses, approvals and permits at state and central government levels for doing its business. The approvals, licenses, registrations and permits obtained by it may contain conditions, some of which could be onerous. While it has obtained a significant number of approvals, licenses, registrations and permits from the relevant authorities. There can be no assurance that the relevant authority will issue an approval or renew expired approvals within the applicable time period or at all. Any delay in receipt or non-receipt of such approvals, licenses, registrations and permits could result in cost and time overrun or which could affect its related operations.

Outlook

Afcom Holdings was incorporated in the year 2013 by Capt. Deepak Parasuraman, an aviation industry veteran with a vision to start cargo airline business. It applied for airline license to the Ministry of Civil Aviation, India and after due compliances in the year 2017, the company obtained the NOC from the Ministry of Civil Aviation, India to function and operate cargo airlines. It has been operating Cargo Flights to the ASEAN countries like Singapore, Indonesia and Brunei, particularly to Singapore. On the concern side, its business and future growth is substantially dependent on the continued services and performance of its key executives, senior management and skilled personnel, especially personnel with experience in its industry. It may be required to increase its levels of employee compensation more rapidly than in the past to remain competitive in attracting skilled employees that its business requires. If it does not succeed in attracting well-qualified employees or retaining or motivating existing employees, its business and prospects for growth could be adversely affected.

The company is coming out with a maiden IPO of 68,36,400 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 102-108 per equity share. The aggregate size of the offer is around Rs 69.73 crore to Rs 73.83 crore based on lower and upper price band respectively. On performance front, the revenue from operations of the company for fiscal year 2023 was Rs 8,414.42 lakh against Rs 4,827.40 lakh total income for Fiscal year 2022. An increase 74.31% in revenue from operations. Profit after tax for the Fiscal 2023 was at Rs 1358.62 lakh against profit after tax of Rs 514.80 lakh in fiscal 2022, a 163.91% increase.  Meanwhile, it proposes to grow its business through acquisition of aircrafts on dry lease basis, which will add to its current Boeing 737-800 aircraft. It is in the process to acquire additional aircrafts through the proceeds of the issue. It also intends to increase the number of aircrafts to cater to the growing demands of this sector and facilitate growth.