Navkar Corporation Ltd (NCL) IPO - To Buy or to Sell

Navkar Corporation Ltd (NCL) is coming out with an initial public offering (IPO) of 3.87-4.08 crore equity shares with a face value of Rs10 each. Post-issue, the shareholding of the promoters in the company will fall to 71.7-72.9% from the current holding of 100%. The issue is priced at Rs147-155 per share and the company intends to raise Rs600 crore. The company plans to use the net proceeds for capacity enhancement of the Somatane container freight station (CFS; Rs114.5 crore), development of the non-notified areas of its CFSs (Rs54.3 crore) and for the establishment of a logistics park at Valsad (Rs314.6 crore).

NCL at the upper price band is likely to trade at P/E and EV/EBITDA of 23.2x and 6.2x respectively its FY2015 earnings. As compared with the large players like Container Corporation of India and Gateway Distriparks, the return ratios are lower as these players enjoy premium positioning due to economies of scale. We believe the company’s expansion plans which are likely to be materialised during FY2017 will significantly increase its capacity and lead to higher earnings. Further, the logistics sector has been in the limelight on account of proposed dedicated freight corridors, Goods and Services Tax (GST) policy and huge investments in the sector. Consequently, considering the company’s line of business and growth strategy we have a positive view on the company.

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