CM RATING

50/100

Incorporated in 2006, and promoted by Future Enterprise (FE), Future Supply Chain Solutions (FSC) is one of the largest third-party logistics service providers in India. Incorporated in 1987, FE is currently engaged in the business of retail infrastructure, mainly providing the infrastructure assets and support to various retail formats of Future Retail. Individual promoter of FE is Kishore Biyani. Other entities promoted by Kishore Biyani include Future Retail, Future Consumer and Future Lifestyle Fashions (Future entities).

FSC services include automated and IT-enabled warehousing, distribution and other logistics solutions to a wide range of customers which includes retail, fashion and apparel, automotive and engineering, food and beverage, fast-moving consumer goods, e-commerce, healthcare, electronics and technology, home and furniture and ATMs.

The company offers customer services in areas of contract logistics such as warehousing and distribution services as well as other value-added services including kitting and bundling, unit cartonisation and packaging solutions, express logistics such as point-to-point, less-than truck-load and time-definite transportation services; and temperature-controlled logistics comprising cold-chain warehousing, transportation solutions, and long-haul distribution services for perishable products.

Companys service offerings, warehousing infrastructure, pan-India distribution network, hub-and-spoke transportation model and automated technology systems support its competitive market position. Its business model enables it to act as a service provider that can comprehensively cover customers supply chain needs.

As of September 30, 2017, FSC runs its contract logistics operations through 42 distribution centres across India, covering approximately 3.84 million square feet of warehouse space. The company also operate 2 distribution centres of its customers, covering approximately 0.37 million square feet of warehouse space. According to the A&M Report, the companys distribution centre at the Multi-modal International Hub Airport (MIHAN) at Nagpur is one of the largest and most highly automated distribution centres in India. It covers approximately 0.37 million square feet of warehousing space, housing a high-speed cross-belt sorter system, which is the first of its kind in India, with a sorting capacity of approximately 2,000 cases per hour.

FSC currently operates with 14 hubs, 106 branches and dedicated containerized fleet of 526 vehicles covering 11,235 pin codes across 29 states and 5 union territories as of September 30, 2017. Further, during September 2017, the company operated approximately 687 containerised vehicles, including 257 GPS-enabled vehicles of which 144 are refrigerated (reefer) trucks that are owned by the company. FSC also operate 9,616 pallets as a part of the temperature-controlled logistics services.

The Offer and the Objects

The offer comprises offer for sale of 97.85 lakh shares, which at lower price band of Rs 660 per share, works out to Rs 645.78 crore and at higher price band of Rs 664, the issue size works out to Rs 649.70 crore.

The selling shareholder comprises of the promoter FE (around 19.57 lakh shares) and Griffin Partners (around 78.28 lakh shares).

The minimum bid lot is 22 equity shares and in multiples of 22 equity shares. The issue is made through the book-building process and will open on 6 Dec and will close on 8 Dec, with anchor investor bidding date of 5 Dec 2017.

The objects of the issue is to gain the benefits of listing the equity shares on the BSE and the NSE and to enhance its visibility and brand image and provide liquidity to its existing shareholders.

Strengths

According to the A&M Report, the Indian third-party logistics market has grown at a CAGR of approximately 12% between Fiscal 2012 and Fiscal 2017. The growth of the third-party logistics industry in India is expected to continue in line with the historical growth trajectory due to strong demand and supply side drivers.

Increasing urbanisation, increased consumerism due to increasing per capita income, favourable demographics, increasing investments, favourable government policies etc provides strong visibility for growth for the third-party logistics sector.

Extensive pan India network provides customers with access to multiple destinations for booking and delivery of goods across India which helps the company in attracting higher volumes at lower costs.

Provide end-to-end customised logistics and supply chain solutions and covers the entire value chain of logistics services thereby offers a one stop solutions for all the third party logistics market.

Logistics offerings also present the company with cross-selling opportunities, which is a key driver behind companys ability to enhance the value proposition and strengthen the relationships with existing customers and also helps the company to leverage its assets thereby increasing the overall profitability.

The GST regime is expected to significantly change the Indian logistics industry and the manner in which it is conducted, as the focus will shift towards logistical efficiencies, technology, automation and safety rather than tax efficiencies. Further it is expected to favour growth in outsourced logistics, and in particular, large-scale logistics operations that will be capable of handling multi-industry customers.

Weaknesses

The company provides all the logistic services to all the Future entities and has grown with the growth in Future entities. For FY 2017 and for six months ended September 2017, Future entities accounted for around 69.7% and 62.5%, respectively, of the total revenues of FSC. Any slowdown or issues with Future entities can affect FSC directly or indirectly.

Any change in government regulations on third party logistics or any additional regulations which can discourage third party logistics and bring new compliance requirements, or any regulation discouraging the trend towards outsourcing will have adverse effect on companys prospects.

The company has high fixed costs and requires higher volumes to break even and generate free cash flows. Investments in increasing capacities and higher receivables would mean higher funds requirement for the company. For the six months ended September 30, 2017 and FYs 2017, 2016 and 2015, the companys average outstanding receivable days were 128 days, 141 days, 155 days and 163 days, respectively, while the average outstanding payment days to its vendors for the six months ended September 30, 2017 and FYs 2017, 2016 and 2015 were comparatively shorter at 82 days, 95 days, 117 days and 114 days, respectively.

Valuation

For FY 2017, net sales were up 8% to Rs 561.18 crore. The OPM stood at 13.2% down by 30 bps thus restricting the OP growth to 6% to Rs 74.28 crore. Other income stood at Rs 15.81 crore up by 84%. Interest cost was down by 4% to Rs 12.76 crore while depreciation was also down by 7% to Rs 19.14 crore. Thus PBT growth was 31% to Rs 58.19 crore. After providing total tax of Rs 12.44 crore down by 18%, PAT stood at Rs 45.75 crore up by 55%.

For half year ended September 2017, net sales stood at Rs 357.42 crore with OPM of 15.7% resulting in an OP of Rs 56.18 crore. Other income stood at Rs 7.79 crore. Interest cost was at Rs 4.33 crore and depreciation stood at Rs 10.20 crore. After providing for total tax of Rs 16.11 crore PAT stood at Rs 33.33 crore. Due to seasonality of business, half-yearly earnings cannot be annualised.

The diluted equity share capital of the company stands at Rs 40.06 crore of face value of Rs 10. EPS for FY 2017 works out at Rs 11.4. At higher price band of Rs 664, The P/E on FY 2017 diluted EPS works out to 58.1.

Its nearest competitor is Mahindra Logistics (ML), which reported net sales and PAT of Rs 2666.59 crore and Rs 45.59 crore, respectively, for FY 2017 and whose FY 2017 EPS stood at Rs 6.4. MLs IPO ((closed on 2 November 2017) was priced at Rs 429 and offered at P/E of 66.9. At the current market price of Rs 452, ML is trading at 70.6 times its FY 2017 earnings.

Future supply chain solutions : Issue highlights
Offer for sale (in Rs crore)
- On lower price band	645.78
- On upper price band	649.70
Total Issue size for offer for sale ( in no of shares in lakh)	97.85
Price band (Rs)	660-664
Market lot size (in no of shares)	22
Post issue share capital (Rs crore)	40.06
Post-issue Promoter & Group shareholding (%)	51.2%
Issue open date	06-12-2017
Issue closed date	08-12-2017
Listing	BSE, NSE
Rating	50/100

Future supply chain solutions: Financials
	1503(12)	1603(12)	1703(12)	1709(06)
Revenue from operations	407.96	519.87	561.18	357.42
OPM (%)	15.7%	13.5%	13.2%	15.7%
OP	63.94	69.94	74.28	56.18
Other in.	2.76	8.60	15.81	7.79
PBDIT	66.70	78.54	90.09	63.97
Interest	10.33	13.26	12.76	4.33
PBDT	56.37	65.28	77.33	59.64
Dep.	19.52	20.69	19.14	10.20
PBT	36.85	44.59	58.19	49.44
EO	0.28	0.00	0.00	0.00
PBT after EO	36.57	44.59	58.19	49.44
Tax (including Deferred Tax)	11.91	15.17	12.44	16.11
PAT	24.66	29.43	45.75	33.33
EPS	6.2	7.3	11.4	#
*EPS is on post issue equity capital of Rs 40.06 crore of face value of Rs 10 each # EPS not annualised due to seasonality of business EO: Extraordiary items, EPS is calculated after excluding EO and relevant tax All the above financials and result are as per New Ind AS Figures in crore Source: Capitaline Database

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