Western Carriers Limited is coming up with its IPO fresh issue of Rs 400.00 crores and offers for sale worth Rs 92.88 crore. The IPO will open on 13th September 2024 and close on 18th September 2024. The stock will be listed on the exchange on 23rd September 2024. In this article, we will look at the IPO of Western Carriers Limited. Thereby, reviewing and analyzing its strengths and weaknesses. Keep reading to learn about the company. 

Western Carriers India IPO – About the Company 

Western Carriers (India) Limited, incorporated in 1972, is India’s largest private, multi-modal, rail-focused, 4 Party Logistics asset-light logistics company in terms of container volumes as of Fiscal 2022. The company provides end-to-end, customized logistics solutions across India for both domestic and EXIM cargo, integrating road, rail, sea, river, and air transport modes.

The company is servicing some of the top clients from various segments. The clientele base includes big corporates like Tata Steel and JSW Steel from the metal sector. In the FMCG sector, the company shares a long-standing relationship with Hindustan Unilever, ITC, and Tata Consumer Products. Western Carriers have also catered to companies like Cipla and Haldia Petrochemicals in the past.

The company operates in two main verticals: domestic and EXIM logistics. In Fiscal 2022, Western Carriers held a 7% market share in domestic container volumes and a 3% market share in EXIM container volumes in India.

Western Carriers offer a wide range of services, including 3rd Party Logistics and 4th Party Logistics solutions, with a focus on providing value-added services across the sub-party logistics chain. The company’s asset-light business model allows for scalability and flexibility in addressing logistics requirements.

With five decades of combined experience through the company and its Promoter, Rajendra Sethia, Western Carriers (India) Limited has established a strong presence in the Indian logistics market. The company’s origins can be traced back to 1972 when Rajendra Sethia established a rail-focused logistics business, which was later acquired by Western Carriers in 2013.

Western Carriers differentiate itself by offering customized, one-stop/single-window logistics solutions that integrate various transport modes and value-added services. This approach enables the company to address the complexities of modern supply chains and meet diverse customer needs.

Western Carriers India IPO – About the Industry

The Indian logistics industry is experiencing rapid growth, with projections indicating an 11% CAGR to reach ₹30 trillion by Fiscal 2027. This expansion is being driven by robust economic growth, increased public infrastructure spending, and rising exports and imports. Furthermore, government initiatives like ‘Make in India’ and favorable regulatory policies are fostering a conducive environment for the sector’s development.

Currently, road transportation dominates the logistics market, contributing approximately 85% of its value. Road transportation holds the largest share, while rail transportation is showing the highest percentage growth. Meanwhile, the warehousing sector is expanding rapidly, particularly in major cities, driven by e-commerce and 3rd party logistics demand.

The supply chain services market, comprising 3 Party Logistics and 4 Party Logistics services, is growing faster than the overall logistics market. It’s expected to increase its market penetration from 4% to 6% by Fiscal 2027. This growth is being fueled by increasing demand for integrated logistics services and supply chain solutions.

India is actively working to reduce its high logistics costs, which currently stand at about 14% of GDP. The government is aiming to bring this down to 7-8%, aligning with global standards. Initiatives like the PM Gati Shakti National Master and DFC projects are being implemented to achieve this goal.

The country’s modal mix is currently skewed towards road transport, accounting for 63% of cargo movement. However, there’s a growing push for a modal shift towards rail transportation. This shift is being driven by rail’s cost-effectiveness, efficiency, and environmental benefits, especially for long-distance freight movement.

Western Carriers India IPO – Financial Highlights & Segments 

Disclaimer: The Auditors have not audited any financial statements of the company as of any date or any period after December 31st, 2022. Accordingly, the auditors don’t express any opinion on the financial position, results of operations, or cash flows of the company as of any date or period after December 31st, 2022.

Western Carriers has experienced consistent revenue growth over the past few years. The company’s revenue increased from ₹1,067.2 crore in March 2020 to ₹1,470.8 crore in March 2022. Furthermore, by December 2022, the revenue rose to ₹1,206.9 crore for the nine-month period, indicating a steady upward trend.

The operating profit has also shown significant improvement, growing from ₹75.83 crore in March 2020 to ₹97.29 crore in March 2022. By December 2022, the operating profit reached ₹84.86 crore for the nine-month period, reflecting the company’s strong operational performance.

Western Carriers’ net profit has seen remarkable growth, rising from ₹35.86 crore in March 2020 to ₹61 crore in March 2022. Additionally, by December 2022, the net profit had increased to ₹55 crore for the nine-month period, underscoring substantial improvement in profitability.

The company’s Earnings Per Share (EPS) have also reflected its enhanced performance, increasing from ₹4.56 in March 2020 to ₹7.77 in March 2022. By December 2022, the EPS rose impressively to ₹7 for the nine-month period, demonstrating a significant boost in shareholder value.

Western Carriers India IPO – Listed Key Party Logistic Sayers

Revenue

Western Carriers generated ₹1,206 crore in revenue, while Container Corporation reported ₹5,985 crore. Mahindra Logistics and TCI Express earned ₹3,855 crore and ₹915 crore, respectively. Despite Western Carriers’ consistent growth, Container Corporation leads the market, showcasing a larger operational scale.

Profit Margin

Western Carriers holds a 4.56% profit margin, significantly lower than Container Corporation’s 14.94%. Mahindra Logistics records 0.71%, while TCI Express posts 11.02%. Although Western Carriers show stability, Container Corporation demonstrates superior profitability, suggesting better cost management.

PAT

Western Carriers posts ₹55.09 crore in PAT. In comparison, Container Corporation recorded ₹894.07 crore, while Mahindra Logistics earned ₹27.22 crore and TCI Express ₹100.82 crore. The PAT comparison highlights Container Corporation’s substantial profitability, indicating its robust market position. Although Western Carriers (India) Limited has stayed ahead in the race as compared to Mahindra Logistics, going forward Western Carriers needs to enhance its operations to overtake TCI Express and Container Corporation of India.

EBITDA Margin

Western Carriers achieved a solid EBITDA margin of 7.94%, slightly above Mahindra Logistics’ 5.4%. Though it outperforms Mahindra Logistics it lies way beyond in comparison to Container Corporation of India Limited and TCI Express Limited whose EBITDA margin percentage stand at 27.57% and 15.94% respectively.

Strengths of the Company

Comprehensive Logistics Solutions  

Western Carriers provide customized, end-to-end logistics services across the supply chain, combining multi-modal solutions involving rail, road, air, and ocean freight. This integrated approach allows them to execute complex projects efficiently and cost-effectively.

Strong Market Position  

The company maintains strong, long-term relationships with a diverse customer base across industries and is strategically positioned to benefit from India’s fast-growing logistics market. Their asset-light, scalable business model ensures control over operations while optimizing costs.

Financial Growth and Efficiency  

Western Carriers have demonstrated consistent growth in revenue, EBITDA, and profits while achieving high returns on equity and capital employed. Their operational efficiency is further enhanced by over 50 years of combined experience from the promoters and management.

Expanding Capabilities  

Western Carriers is expanding into 4 Party Logistics services, complex supply chains, and reverse logistics, which positions them as a comprehensive logistics partner. Their customs broker licenses also enable them to manage the entire import-export cycle effectively.

Adapting to Industry Changes  

The company is proactive in foreseeing industry challenges and implementing mitigating steps. They are responding well to India’s evolving regulatory environment, continuously enhancing their capabilities and network to meet the changing needs of customers and capitalize on favorable industry trends.

Weaknesses of the Company

Dependence on Container Volumes    

The company relies heavily on the container volumes it handles, which can fluctuate depending on market conditions. Any significant decline in these volumes is directly impacting its revenue. This dependence also makes the company vulnerable to external factors like economic slowdowns or disruptions in logistics operations. Although it is working to explore growth opportunities, uncertainty in the global economy is continually posing risks.

High Customer Concentration    

The company is significantly dependent on a few key customers, with the largest customer accounting for a substantial portion of revenue. While its long-standing relationships are helping maintain stable business, any shift in customer preferences or supply chain strategies is jeopardizing its revenue streams. The loss of a top customer or a reduction in business from one could severely affect financial stability.

Rising Operational Costs   

Freight, handling, and other operational expenses are consistently high, representing over 86% of the total revenue from operations. Although the company is passing some cost increases to customers, it is still experiencing growing pressure from rising freight volumes. Unforeseen spikes in operational costs that cannot be transferred to customers are affecting profitability, especially in competitive markets where price sensitivity is crucial.

Asset-Light Model Limitations

While the asset-light business model allows flexibility, it is also limiting the company’s control over logistics assets. This dependence on third-party service providers and rail container logistics is exposing the company to risks of service disruptions or cost fluctuations, which are out of its control. Such dependencies are also hindering its ability to scale operations independently and capitalize on market opportunities.

Vulnerability to Economic Conditions   

The company is operating primarily in India, making it highly susceptible to the country’s economic health. Economic downturns, trade deficits, and rising fuel costs are significantly influencing demand for its logistics services. In particular, during economic slowdowns, the company is encountering increased pricing pressure from competitors, impacting revenue growth.

Competition from Larger Players

The company’s competitive advantage is under continuous threat from larger logistics providers who have stronger financial resources and broader networks. Competitors with greater economies of scale can match or exceed the company’s service offerings, often at lower prices. Despite the company’s attempts to differentiate through customized solutions, its market position is vulnerable to competitive pressure.

Dependence on Government Policies

The company’s growth is tied closely to government initiatives like the “Gati Shakti” and “National Rail Plan”. Any unfavorable changes in government policies or delays in these initiatives will negatively impact its growth trajectory. Furthermore, reliance on favorable regulatory environments makes it difficult to predict long-term outcomes, adding uncertainty to future growth plans.

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Western Carriers India IPO – GMP

The shares of Western Carriers (India) Ltd’s price in the grey market are trading at a 0% premium as of September 9th, 2024. The shares in Grey Market trades at Rs.0. This gives it a premium of Rs.0 per share over the IPO price of Rs. 172 .

Western Carriers India IPO – Key IPO Information 

Promoters: Rajendra Sethia; Kanishka Sethia

Book Running Lead Manager: JM Financial Limited, Kotak Mahindra Capital Company Limited

Registrar to the Offer: Link Intime India Private Limited

Objective of the issue

The Company proposes to utilize the Net Proceeds from the Fresh Issue towards funding the following objects:

• Prepayment or scheduled repayment of a portion of certain outstanding borrowings availed by the company; 

• Funding of capital expenditure requirements of the company towards the purchase of: 

(a) commercial vehicles; 

(b) 40 feet of specialized containers and 20 feet of normal shipping containers

(c) reach stackers; and 

• General corporate purposes.

Conclusion

In conclusion, Western Carriers (India) Limited, with its extensive experience and innovative logistics solutions, stands poised to capitalize on India’s booming logistics sector. By integrating multimodal transport systems and focusing on both domestic and EXIM logistics, the company plans to enhance its service delivery, ensuring robust growth and efficiency.

Importantly, its upcoming IPO reflects a strategic move to further solidify its financial foundation and expand its operational capabilities. As Western Carriers venture into this new phase, potential investors and industry watchers must consider: How will the company leverage its IPO to navigate the competitive logistics landscape? and, what steps will it take to mitigate the inherent risks associated with its business model? Comment below.

Written By Dipangshu Kundu

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