Zinka Logistics IPO: Zinka’s truck with logistics tech needs a longer profit run

Zinka Logistics Solutions, which provides BlackBuck digital platform to truck operators, plans to raise Rs 550 crore through a fresh issue of equity to cover selling and marketing costs, to fund product development and to augment the capital base of its financing division. It will also raise R 565 crore through an offer for sale. The promoter stake will fall to nearly 28% after the IPO from over 34%. Among the selling investors, Accel India, which purchased shares at an average price of Rs 62.7 will reduce its stake to around 0.4% from 3.2% while Peak XV Partners (formerly Sequoia Capital India) with an average purchase price of nearly Rs 309, will reduce stake to around 1.3% from 2.2%.

The company has reported traction to its services among truck operators. However, it is yet to show meaningful profitability. Investors therefore may wait for the company to show sustained profitable growth before making an investment decision.

Business

Incorporated in 2015, the company provides pan-India payment solutions for tolling and fuelling, telematics services to monitor drivers and fleets, and financing to purchase used vehicles. It had 3.9 lakh active telematics devices as of June 2024. It had 9.6 lakh transacting truck operators on its platform in FY24, comprising 27.5% of the total truck operators in the country. The number of active operators increased from 4.8 lakh in FY22. The year-on-year growth in active operators decelerated to 26.4% in FY24 from 57.9% in FY23. It also dropped in the case of monthly transacting operators to 30.5% from 75.3% by similar comparison implying a possible gradual saturation in terms of addressable market.

Financials

Gross transaction value (GTV) of payments increased by 47.4% annually to Rs 17,396.2 crore in FY24 from Rs 8,003.2 crore in FY22. Revenue from continuing operations (after hiving off contract freight operations) increased to Rs 296.9 crore from 119.3 crore during the period. After posting operating loss in two years to FY23, the company reported operating profit before depreciation and amortisation (EBITDA) of Rs 13.3 crore in FY24 while posting net loss of Rs 167 crore. In the June 2024 quarter, it reported net profit of Rs 32.4 crore, boosted by an exceptional gain of Rs 25.6 crore. Excluding this one-off gain, net profit would have been negligible.

Valuation

Based on annualised net profit for the June 2024 quarter, the company’s demanded price-earnings (P/E) works out to be 37.2. Excluding the exceptional gain in the quarter, the P/E multiple would be 177. The company does not have any listed peers on Indian bourses.