Western Carriers (India) coming with an IPO to raise Rs 515 crore

Western Carriers (India)

• Western Carriers (India) is coming out with a 100% book building; initial public offering (IPO) of 2,99,39,877 shares of Rs 5 each in a price band Rs 163-172 per equity share.
• Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
• The issue will open for subscription on September 13, 2024 and will close on September 18, 2024.
• The shares will be listed on BSE as well as NSE.
• The face value of the share is Rs 5 and is priced 32.60 times of its face value on the lower side and 34.40 times on the higher side.
• Book running lead managers to the issue are JM Financial and Kotak Mahindra Capital Company.
• Compliance Officer for the issue is Sapna Kochar.

Profile of the company

Western Carriers (India) is the largest private, multi-modal, rail focused, 4PL asset-light logistics company in India in terms of container volumes handled/operated by private players in Fiscal 2023. The company’s domestic and EXIM market share, based upon container volumes handled, was 6% and 2%, respectively, in Fiscal 2023. It has several years of experience in road, rail and sea / river multi-modal movement for domestic as well as EXIM cargo in and out of India. The metrics set out below reflect the scale and growth of its operations. The company operates on a scalable, asset-light business model which enables it to provide differentiated 3PL and 4PL solutions. 

The company endeavours to address complexities (in terms of scale of operations and logistics requirements) by creating customised, one-stop/single-window, end-to-end and integrated logistics solutions for its customers, which involve a variety of value-added services across the supply chain. The company’s Promoter, Rajendra Sethia, established his logistics business as a rail-focused logistics business in 1972, which was later acquired by the company in 2013. Over the last 50 years, the business has continued to evolve to provide end-to-end, customised, multi-modal logistics solutions across the supply chain integrating road, railway, water and air logistics along with a customised suite of value-added services.

The company has long-standing relationships with customers across varied sectors such as metals, fast moving consumer goods (FMCG), pharmaceuticals, chemicals, engineering, oil and gas and retail. These long-standing relationships have also contributed to the growth of its revenues from its existing customers and the expansion of its customer base. The company continues to evolve its business with progressing needs of its customers, some of whom are industry leaders in their respective sectors. This enables the company to grow its business organically alongside its customers. The several years of experience of the company and its Promoters, along with its commitment to customer centric service, its efficiency and on-time delivery has resulted in many of its customers considering it as their partner of choice. 

Proceed is being used for:

• Prepayment or scheduled re-payment of a portion of certain outstanding borrowings availed by the company
• Funding of capital expenditure requirements of the company towards purchase of: (i) commercial vehicles; (ii) 40 feet specialised containers and 20 feet normal shipping containers; and (iii) reach stackers
• General corporate purposes

Industry overview

The logistics sector has been recognised as a core enabler for the development of India to reach the government’s vision of achieving a $5 trillion1economy by the year 2025. In accordance with the Economic Survey Fiscal 2018, the logistics industry in India stood at Rs 10.4 trillion in Fiscal 2017. The industry has grown at approximately 11% CAGR to Rs 21.6 trillion ($235.5 billion)2 over Fiscals 2017 to 2024. The logistics industry is forecasted to reach approximately ?35.3 trillion ($424.1 billion) by Fiscal 2029, growing at a CAGR of 10.3%. With strong macro-economic fundamentals along with increasing government expenditure in infrastructure, the logistics market has received total institutional investment of approximately $6.0 billion over 2019 to 2023. India stood at 38th rank in 2023 in the logistics performance index report released by the World Bank, India has jumped nine places since 2018. The logistics performance index ranks countries on several dimensions, including the efficiency of the clearance process, quality of infrastructure. India has performed the best in the South Asia region and the sixth best among lower-middle-income group countries.

The logistics cost has been high in India at about 13% of GDP against an average of 7% to 8% for the developed economies in 2020. The indirect logistics costs are large and estimated to be four times the average in the developed countries. Certain issues affecting the India's logistics sector are an unbalanced and skewed logistics modal mix, poor mileage of heavy trucks, poor road infrastructure, limited penetration by the organised players, fragmented networks, lack of technology adoption, and poor forecasting. The Indian logistics sector has a significant potential to reduce inefficiencies, which could result in savings of up to Rs 10 trillion. The transportation inefficiencies account for approximately 2% of the total logistics expenditure in India. The transportation inefficiencies can be reduced by an improved modal share, trucking efficiency, and reduced fuel costs. The PM Gati Shakti National Master Plan aims to create logistical synergies between the States and the Centre to reduce logistics costs to 7% to 8% of GDP. The DFC projects and other government initiatives will strengthen India's rail infrastructure, leading to a reduction in the cost of transportation. India has a highly skewed modal mix compared to other economies with 63% (in terms of volume) as road transport.

Meanwhile, the total container freight in India is either transported via private sidings or through freight terminals. In Fiscal 2024, the container traffic transported through private sidings is estimated to be only approximately 4% of the total traffic, leaving the majority of approximately 95% through freight terminals. Container rail-road multimodal market ($327 billion) in Fiscal 2024 is approximately 19.1% as share of rail-road multimodal logistics market ($1,714 billion), approximately 9.4% of multimodal logistics market ($3,463 billion) and approximately 1.5% of the overall Logistics market in Fiscal 2024. Multimodal transportation is emerging as a trend in logistics industry as customers are more willing to avail services from a player who can handle complexities with timeliness and accuracy with value-added services and provide them with customised solutions as per their needs. Hence, this current scenario of complex logistics, urges the need for the development of multimodal logistics. Such multimodal players handing complex logistics provides seamless integration of value-added services leading to increased customer dependence and stickiness, as a result such players garner more share of customer’s logistics needs and requirements.

Pros and strengths

Experience in delivering customised, end-to-end services: The company is one of the few players in the Indian logistics industry with the capability to deliver cost-efficient, time bound and customised services and solutions which include large container movement, logistics and long-haul deliveries, vendor-coordination across the supply chain along with value-added services such as product packaging, cargo handling, customs clearance, pre-shipment inspection, containerization, in-plant logistics, just in time inventory management and warehouse planning. The company’s expertise, together with the utilisation of latest technology, enables it to study, model, design and optimise supply chain solutions for its customers and to meet its customers’ requirements. This in-turn allows it to control any supply chain gaps, and plan and optimise routes, transportation networks and consignment loads, resulting in its adherence to committed transit times and cost optimization for its customers.

Comprehensive and integrated multi-modal, end-to-end logistics solutions: The company’s operations are B2B focused and provide integrated and seamless connectivity for movement of goods from one mode of transport to another thereby facilitating the last mile connectivity to its customers’ distribution centres and enabling regular and assured deliveries with reduced transit time and lower costs. The increasing scale and complexity of business operations of its customers, including higher inventory levels, wider range of supplier relationships and desire for faster lead times has driven the demand for tailored, cost-effective and customised logistics services. It often combines these offerings with an array of value-added services such as storage and warehousing, custom house agency, labelling, product packaging, cargo handling, customs clearance, stevedoring, palletizing, fumigation, pre-shipment inspection and containerization at various stages in the logistics value chain in order to design and implement ‘one-stop/single-window, end-to-end’ solutions which address its customers’ pain-points and logistics problems.

Strategically positioned to capitalise on a fast-growing logistics market in India: The company was the largest private, multi-modal, rail focused 4PL asset-light logistics company in India in terms of container volumes handled/operated by private players in Fiscal 2023. It provides integrated, customised, end-to-end services across the logistics value chain to its customers. Such customised services have inherent entry barriers. Given its execution capabilities and ability to provide one-stop/single-window, end-to-end and integrated customised logistics solutions in a market with inherent entry barriers, it is in an advantageous position to benefit from certain favourable trends and initiatives in the Indian logistics industry.

Scaled, asset-light business model with successful track record of delivering growth and profitability: The company is well positioned to take advantage of the growth opportunities given its scale of operations. Its domestic and EXIM market share, based upon container volume handled, was 6% and 2%, respectively, in Fiscal 2023 making it one of the largest private, multimodal, rail focused, 4PL asset-light logistics players in India in terms of container volumes handled/operated by private players in Fiscal 2023. Its asset-light model, deep understanding of its customers’ requirements, several years of experience of the company and its Promoters, execution capabilities and its relationships with its third-party service providers and vendors, has contributed to an increase at a CAGR of 6.00% in container volume handled by it through rail transportation, from 179,287 TEUs in Fiscal 2021 to 193,137 TEUs in Fiscal 2023. These factors have also contributed to its position as one of India’s largest and fastest growing logistics solutions providers with a fully scaled business.

Risks and concerns

Significant revenue comes from top 5 customers: The company is dependent on a limited number of customers for a majority of its topline, which exposes it to a high risk of customer concentration. The company derives majority of its revenue from operations from sales to its top five customers. The company generated 57.07%, 51.07% and 56.74% of topline in FY24, FY23 and FY22 respectively from top 5 customers. The company depends significantly on key customers in the metal and FMCG industries and are highly dependent on the performance of these industries. A loss of, or a significant decrease in business from key customers in the metals and FMCG industry could materially and adversely affect its business, results of operations, cash flows and financial condition.

Depend on its network partners: As part of its business model, the company works with, and relies on, its network partners such as third-party service providers and vendors or suppliers who provide it with the assets or facilities necessary for its operations, i.e., vehicles, warehouses, railway rakes and wagons. It does not own any private freight terminals or railway flat, wagons or rakes. Other than certain assets which are owned by it, it is dependent on infrastructure and assets/equipment obtained on a leasehold or spot contract basis from its network partners, third-party service providers and vendors based on demand, or anticipated demand, from its customers. The company does not execute contracts with most of its third-party service providers and vendors/suppliers and its arrangements with them are based on spot basis and at applicable spot-market rates. While such arrangements are typically subject to renewal pursuant to mutual consent, it cannot assure that such arrangements will continue to be successful or be renewed after expiry of the stipulated period, on terms that are commercially favourable to it, or at all. The company cannot assure that such third-parties will continue to perform their obligations which could result in disruptions to its operations and a deterioration in its brand value. The company cannot assure that it will not face any loss in the future on account of the unavailability of third-party service providers and vendors.

Exposed to risks related to a sudden escalation in fuel prices: The company’s business is sensitive to a sudden spurt in fuel prices, and may not be able to manage the effects of such an increase on its margins. The cost of fuel has fluctuated significantly in recent periods and the Russia-Ukraine conflict has exacerbated the volatility of fuel prices. In addition, an escalation of the Israel-Gaza conflict may further contribute to the volatility of fuel prices. Most of its commercial vehicles and its equipment such as forklifts and reach stackers are diesel operated and any shortages in the availability of diesel could adversely affect its operations. While the contracts it has entered with its key customers typically provide for price adjustments pursuant to fluctuations/adjustments in cost of fuel, it cannot assure that it will always be able to pass on any adjustments in fuel costs completely to all its customers and, particularly, customers who engage it on a spot basis. Similarly, it cannot assure that it will be able to pass on the effect of a decrease in fuel prices, resulting in price adjustments pursuant to its agreements with customers, to its vendors/third-party service providers fully, or at all. If any of these risks occur, it could materially and adversely affect its profitability.

Stiff competition: The company operates in a highly competitive industry and certain segments in which it operates, such as transportation of goods through road, have low barriers to entry resulting in a highly fragmented market. The Indian road transportation industry is dominated by unorganised players with more than 1,000 active players. This is because of low barriers to entry and high degree of commoditisation. It is estimated that 75% of fleet owners own less than five trucks, 15% of fleet owners own between six and 20 trucks, and only about 10% of fleet owners own more than 20 trucks. Such fragmented market results in the company competing with small local players, other logistics providers and unorganised players. Increased competition from unorganised third-party logistics or transport providers could force it to lower its prices, thereby reducing its profit margins or market share.

Outlook

Western Carriers (India) is a Multi-modal, rail-focused, 4PL asset-light logistics company. The company offers fully customizable, multi-modal logistics solutions encompassing road, rail, water, and air transportation and a tailored range of value-added services. The company provides chartering services to overseas destinations, stevedoring services at Indian ports, and coastal movement of cargo within India. They specialize in combining rail with road movements through an asset-light business model. The company manages and handles the supply chain for increased imports, exports, and production levels for a leading metals and resource group company. On the concern side, the company depend on a limited number of key customers for a majority of its revenues, which exposes it to a high risk of customer concentration. Particularly, it depends significantly on customers in the metals and FMCG industries and are highly dependent on the performance of these industries. A decrease in the revenues it derives from them could materially and adversely affect its business, results of operations, cash flows and financial condition. Also, the company is exposed to risks related to a sudden escalation in fuel prices, which may adversely affect its profitability.

The company is coming out with a maiden IPO of 2,99,39,877 equity shares of Rs 5 each. The issue has been offered in a price band of Rs 163-172 per equity share. The aggregate size of the offer is around Rs 488.02 crore to Rs 514.97 crore based on lower and upper price band respectively. On performance front, the company’s revenue from operations increased by 3.23% to Rs 16,857.69 million in Fiscal 2024 from Rs 16,330.63 million in Fiscal 2023, primarily due to an increase in revenue from contracts with customers, which was primarily driven by an increase in revenue from its freight, handling, agency and other related activities, the increased use of its rail container logistics services by its customers and the addition of 395 new customers during Fiscal 2024. The company’s profit for the year increased by 12.27% to Rs 803.47 million in Fiscal 2024 from Rs 715.65 million in Fiscal 2023. The company intends to enhance its scope of engagement with existing customers by strengthening its existing service offerings, adding new offerings, servicing newer geographies, providing additional value added services and offering time and cost saving solutions to them. Furthermore, it aims to increase its operating margins by creating operational efficiencies and, to this end, it will focus on providing its customers with value-added services at various stages in the logistics value chain. Further, it plans to improve its overall asset utilisation through economies of scale and increasing the level of integration across its logistics networks, enabling it to cross-sell its other services and capabilities, while positioning its modularised solutions and services before its customers to reduce their dependencies on third-party service providers. This will further enhance its customers’ experience and allow it to expand more rapidly and cost-efficiently.