Tejas Cargo India Ltd. IPO: Key Details

Tejas Cargo India

• Tejas Cargo India is coming out with an initial public offering (IPO) of 63,00,000 equity shares in a price band Rs 160-168 per equity share.
• The issue will open on February 14, 2025 and will close on February 18, 2025.
• The shares will be listed on SME Platform of NSE.
• The face value of the share is Rs 10 and is priced 16.00 times of its face value on the lower side and 16.80 times on the higher side.
• Book running lead manager to the issue is New Berry Capitals.
• Compliance Officer for the issue is Neelam. 

Profile of the company

Tejas Cargo India is a logistics company based in Faridabad, Haryana, providing long haul supply chain transportation services by road across India. It offers express supply chain transportation services by road under Full Truck Load (FTL), to a diverse range of companies who are inter alia engaged in the logistics, steel and cement, e-commerce, industrial & chemicals, FMCG and white goods sectors. As of September 30, 2024, it had carried out more than 61% of the trips through owned fleets and the remaining is undertaken through fleets hired from the open market on an ad-hoc basis. 

It offers technology enabled logistics services to its clients to optimize its operations and minimize contingencies. It completed over 98,913 trips during Fiscal 2024 and 58,943 trips for the six months period ended September 30, 2024 on a pan India basis. It derives more than 98% of its revenue by providing long haul supply chain transportation services. Its services include shipment planning, route optimisation, fleet selection, documentation, tracking, communication and coordination and performance evaluation.

It specializes in supply chain transportation services by road under FTL wherein it offers its fleet to fulfil its long-term contract obligations as well as address its adhoc demands to achieve network optimization and efficient freight management. It also provides its vehicles in the open market through its strategic network to optimise its fleet utilization. It has also, through its strategic network with multiple logistics service providers, expanded its reach and enhanced its service offerings by providing integrated logistics solutions to its clients. 

Proceed is being used for:

• Purchasing additional trailers for the company
• Meeting working capital requirements
• Repayment and/or pre-payment, in full or part, of certain borrowings availed by the company
• General corporate purposes

Industry Overview 

Third-Party Logistics (3PL) market involves outsourcing logistics and supply chain management tasks-such as transportation, warehousing, inventory management, and order fulfillment to specialized external firms. This approach helps businesses focus on their core operations, improving efficiency, reducing costs, and enhancing customer service. 3PL providers use their expertise, technology, and resources to optimize logistics, ensure smooth coordination among manufacturers, suppliers, and retailers, and act as intermediaries to facilitate product flow, ultimately boosting overall efficiency and customer satisfaction. India handles 4.6 billion tonnes of goods each year, amounting to a total annual cost of Rs 9,50,000 crore. These goods represent a variety of domestic industries and products - 22% are agricultural goods, 39% are mining products and 39% are manufacturing-related commodities. Trucks and other vehicles handle most of the movement of these goods. Railways, coastal and inland waterways, pipelines, and airways account for the rest. Major domestic freight is still transported by road which accounts for 71% (25% globally) followed by rail - 24% (60% globally), waterways - 5% and balance through pipelines.

During the period CY19-23, market size of the industry grew by a CAGR of 19.5%, from Rs 763.9 billion in CY19 to Rs 1,557.3 billion in CY23. This growth in demand for third-party logistics (3PL) services in India can be attributed to various factors such as growth in manufacturing sector, rise in healthcare logistics on account of increasing health awareness and rising global sales of prescription drugs, rising rural demand, and economic expansion in Tier 2 and Tier 3 cities leading to a thriving market environment. A key driver is the country's fast-expanding e-commerce sector, which has significantly increased the need for effective and scalable logistics solutions. Notably, India's supportive regulatory framework and varied geographical features create a need for specialized expertise in addressing logistical challenges, driving the demand for outsourced logistics services. Furthermore, strategic initiatives implemented by industry players are further driving this market growth.

The industry market size is expected to grow at a CAGR of 13.2% from CY23-29. The market size is expected to grow from Rs. 1,557.3 billion in CY23 to Rs. 3,278.2 billion by CY29. One of the major drivers of this projected growth is the increasing use of advanced technologies like artificial intelligence, big data analytics, and the Internet of Things (IoT) by 3PL providers which improves operational efficiency, reduces errors, and elevates the overall visibility of supply chain, attracting a wide range of industries. This trend is expected to drive the growth of the 3PL market in India over the forecast period, creating a favorable environment for both domestic and international logistics companies to seize new opportunities. Additionally, expanding manufacturing sector, rise in healthcare logistics along with rise in cold chain solutions market on account of increasing trade of perishable goods are other drivers that will propel future growth in this industry. Moreover, the boom in e-commerce segment and demand for last-mile delivery services is further expected to provide impetus to this growth.

Pros and strengths

Heavy asset ownership model: As on October 31, 2024, the company owns a fleet of 1,131 vehicles which consists of 218 trailers and 913 container trucks. This enables it to have direct control over its operations and maintenance. It further hires additional vehicles from the open market on an ad-hoc basis to adapt and meet fluctuating client demands. Its current business model ensures a high vehicle availability rate, high indent fulfilment and lower non placements. By owning and operating its fleet, it achieves the reduction in operating and maintenance costs compared to market rates. This enables it to offer competitive pricing while maintaining reliable services.

Leveraging modern technology to operate and monitor its fleet: The company’s technology platform is a key differentiator, enabling it to deliver quality services. It provides assurance of security to its clients for cargo by IoT-based solutions such as Geo Fencing, Centralised Digital Locking, GPS and SIM based tracking, ADAS/DSM (only for trailers), as well as AI-powered rear camera technology (only for trailers) in its fleet assisting in on-time delivery and improving safety standards. Moreover, its route alerts reduce transit times ensures faster delivery and increased client satisfaction. The integration of ADAS+DSM with AI Rear Anti-Theft Camera minimizes theft and damage risks, further solidifying its commitment to safety and security. It has currently outsourced the technical support which has developed ERP software for it to run and monitor its operations effectively. Its ERP system automates key processes such as indent matching, fleet allocation, and route optimization, while enabling real-time fleet monitoring.

In-House maintenance and direct procurement: The company’s vehicles are primarily serviced at authorized manufacturer workshops. However, it also utilizes its in-house maintenance facility located in Gurugram, Haryana for servicing vehicles including out of warranty vehicles. Its aforementioned maintenance facility is equipped with a team of expert technicians and can accommodate up to 40 trucks which ensures prompt and efficient maintenance, reducing breakdowns due to technical and mechanical faults and improving vehicle uptime. Its maintenance facility includes 12 repair bays, advanced diagnostic equipment, and on-site dedicated representatives from leading manufacturers providing personalized support to achieve low breakdown. 

Risks and concerns

Debt-to-equity ratio is significantly high at 3.27: The company is into capital intensive business and its debt to equity ratio is at 3.27 as on September 30, 2024 which is higher than its peers. As on September 30, 2024, it has an outstanding borrowing amounted to Rs 20,498.63 lakh. Out of the total debt, Rs 13,639.03 lakh is towards purchase of commercial vehicles to increase its fleet size. Its high indebtedness levels, and other financial obligations and contractual commitments, could lead to a downgrade of its credit rating by domestic rating agencies, thereby adversely impacting its ability to raise additional financing, as well as the interest rates and commercial terms on which such additional financing is availed of.

Operates in a highly fragmented and competitive industry: The company operates in a highly competitive industry, dominated by a large number of unorganized players. Many segments within the logistics industry are highly commoditized and have low barriers to entry or exit, leading to a market with a very high degree of fragmentation. Increased competition from other organized and unorganized third-party logistics (including its business partners) may lead to a reduction in its revenues, reduced profit margins or a loss of market share. Its success depends on its ability to anticipate, understand and address the preferences of its existing and prospective customers as well as to understand evolving industry trends and its failure to adequately do so could adversely affect its business.

Significant working capital requirement: The company’s business is working capital intensive. A significant portion of its working capital is utilized towards trade receivables. It intends to continue growing by expanding its business operations. This may result in increase in the quantum of current assets particularly trade receivables. Its inability to maintain sufficient cash flow, credit facility and other sources of fund, in a timely manner, or at all, to meet the requirement of working capital could adversely affect its financial condition and result of its operations. 

Outlook

Tejas Cargo India is a logistics company located in Faridabad, Haryana, that provides supply chain transportation services by road throughout India. The company provides express road transportation services under Full Truck Load (FTL) to various sectors, including logistics, steel, e-commerce, FMCG, and white goods. The company has diversified client base and revenue sources. It has a track record of growth and robust financial position. On the concern side, the company requires significant amounts of working capital for continued growth. Its inability to meet its working capital requirements may have an adverse effect on its results of operations. Moreover, the company operates in a highly fragmented and competitive industry and increased competition may lead to a reduction in its revenues, reduced profit margins or a loss of market share.

The company is coming out with a maiden IPO of 63,00,000 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 160-168 per equity share. The aggregate size of the offer is around Rs 100.80 crore to Rs 105.84 crore based on lower and upper price band respectively. On performance front, the revenue from operations increased by 9.83% to Rs 41,932.61 lakh for the year ended March 31, 2024 from Rs 38,178.52 lakh for the year ended March 31, 2023, primarily due to increased number of placements, wherein it completed 98,913 placements in FY2024 as compared to 93,239 placements in FY2023. Moreover, the company has reported 34.12% rise in net profit at Rs 1,322.22 lakh in FY24 as compared to Rs 985.85 lakh in FY23.

The company has recently submitted an application to Container Corporation of India to lease a train, marking its expansion into rail logistics. This agreement will allow it to hire/lease a train for transportation of cargo by rail, complementing its inland road operations while optimizing both operational costs and transportation efficiency. Rail transportation offers the ability to move larger volumes of cargo, thereby increasing its capacity and enabling it to enter new markets. Additionally, rail logistics will enable it to offer its clients a more sustainable transportation option, reducing carbon emissions and environmental impact. This expansion will also create new job opportunities and stimulate economic growth in the regions it serves.