What you must know about Premier Roadlines IPO?

About Premier Roadlines Ltd

Premier Roadlines Ltd was incorporated in 2008 to offer logistics related solutions for corporates. These logistics services are primarily targeted at companies transporting goods between 1 MT (metric tonne) and 250 MT by land. Premier Roadlines Ltd offers a full suite of logistics services, which include general transportation, project logistics, and oversized cargo movement across India. Its main B2B customers for its logistics solutions are companies looking at bulk transportation of goods within India as well as to neighbouring countries like Bhutan and Nepal.

In terms of the industry mix of its customers; they are spread across infrastructure, energy, electricity, oil and gas, construction, metallurgy, and renewable energies. Some of the marquee clients of Premier Roadlines Ltd include KEC International, ThyssenKrupp Industrial Solutions, Tata Projects, GR Infraprojects, Tata Power Solar, Sterlite Power Transmission etc. The transport services are typically syndicated to fleet owners and agents with assured bookings. Premier Roadlines Ltd is headquartered in Delhi and has 28 branches pan India, including in most of the metros, semi-metros, and major transportation hubs.

Highlights of the Premier Roadlines IPO

Here are some of the highlights of the Premier Roadlines IPO on the SME segment of the National Stock Exchange (NSE).

• The issue opens for subscription on 10th May 2024 and closes for subscription on 14th May 2024; both days inclusive.
   
• The stock of the company has a face value of ₹10 per share and it is a book built issue. The price for the book building issue is set in the price band of ₹63 to ₹67 per share. Being a book built issue, the final price will be discovered within this band.
   
• The IPO of Premier Roadlines Ltd has only a fresh issue component and no offer for sale (OFS) portion. It must be remembered that the fresh issue portion is EPS dilutive and equity dilutive, but OFS is just a transfer of ownership and  hence it is not EPS or equity dilutive.
   
• As part of the fresh issue portion of the IPO, Premier Roadlines Ltd will issue a total of 60,24,000 shares (60.24 lakh shares), which at the upper band IPO price of ₹67 per share aggregates to fresh fund raising of ₹40.36 crore.
   
• Since there is no offer for sale (OFS) portion, the fresh issue size will also double up as the overall IPO size. Therefore, the overall IPO size will also comprise of the issue of 60,24,000 shares (60.24 lakh shares) which at the upper band IPO price of ₹67 per share will aggregate to overall IPO size of ₹40.36 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker inventory allocation of 3,04,000 shares. Hem Finlease Private Ltd will be the market maker to the issue. The market maker provides two-way quotes to ensure liquidity on the counter and low basis costs, post listing.
   
• The company has been promoted by Virender Gupta, Rakhi Gupta, and Samin Gupta. The promoter holding in the company currently stands at 100.00%. However, post the fresh issue of shares in the IPO, the promoter equity holding share will get diluted to 79.15%.
   
• The fresh issue funds will be used by the company towards prepayment and repayment of loans taken by the company as well as for purchase of vehicles for commercial purposes. Part of the funds will also be allocated towards bridging working capital gaps.
   
• Hem Securities Ltd will be the lead manager to the issue, and Maashitla Securities Private Ltd will be the registrar to the issue. The market maker for the issue is Hem Finlease Private Ltd.

The IPO of Premier Roadlines Ltd will be listed on the SME IPO segment of the NSE.

Premier Roadlines IPO – Key Dates

The SME IPO of Premier Roadlines Ltd IPO opens on Friday, 10th May 2024 and closes on Tuesday, 14th May 2024. The Premier Roadlines Ltd IPO bid date is from 10th May 2024 at 10.00 AM to 14th May 2024 at 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is 14th May 2024.

It must be noted that in ASBA applications, there is no refund concept. The total application amount is blocked under the ASBA (applications supported by blocked amounts) system. Once the allotment is finalized, only the amount is debited to the extent of the allotment made and the lien on the balance amount is automatically released in the bank account. The credit of shares to the demat account on May 16th 2024, will be visible to investors under the ISIN Code – (INE0CFG01012). This allocation to the demat account is only applicable to the extent of the allocation of shares and if no allocations are made in the IPO, then no credit would be visible in the demat account.

IPO allocation and minimum investment lot size

Premier Roadlines Ltd has already announced the market maker allocation at 3,04,000 shares as inventory for market making. Hem Finlease Private Ltd will be the market maker for the IPO. The net offer (net of market maker allocation) will be divided between the QIB investors, retail investors and the HNI / NII investors. The breakdown of the overall IPO of Premier Roadlines Ltd in terms of allocation to various categories are captured below.

The minimum lot size for the IPO investment will be 2,000 shares. Thus, retail investors can invest a minimum of ₹134,000 (2,000 x ₹67 per share) in the IPO. That is also the maximum that the retail investors can invest in the IPO. HNI / NII investors can invest a minimum of 2 lots comprising of 4,000 shares and having a minimum lot value of ₹268,000. There is no upper limit on what the QIBs as well as what the HNI / NII investors can apply for. The table below captures the break-up of lot sizes for different categories.

Financial highlights: Premier Roadlines Ltd

The table below captures the key financials of Premier Roadlines Ltd for the last 3 completed financial years.

Data Source: Company DRHP filed with SEBI

Here are some of the key takeaways from the financials of the company for the last 3 years.

• The revenues have grown at a robust pace in the last 2 years and in the latest year, the total sales has more than doubled over FY21. That is robust growth in top line over the last two years. More importantly, this has been accompanied by sharp growth in the net profit levels although the net profit margins (PAT margins) are subdued.
   
• While net margins of the company have been subdued, that is the nature of the logistics business since these costs also need to fit into the IRR of the client company. PAT margins have still grown in the last two years to 3.74%. The return on equity (ROE) has grown sharply to over 26.58% in the latest year, while FY23 ROA is robust at 9.70%.
   
• The asset turnover ratio or the sweating ratio has been above 2.50X and that is a good sign that sales have picked up to cover the asset outlays. That is not surprising considering the low asset intensity of the business. However, this sweating ratio also gets magnified by the robust levels of return on assets (ROA).

The company has latest year EPS of ₹4.27 and we have not included the weighted  average EPS, since the previous year data is not exactly comparable. The latest year earnings are being discounted by the IPO price of ₹67 per share at 15-16 times P/E ratio. One has to look at the P/E ratio from two perspectives.

Firstly, the 6-months EPS for FY24 is higher at ₹2.62, which translates into full year extrapolated EPS of ₹5.24 per share, which now makes the valuation relatively compelling at around 12-13 times P/E ratio. This makes the valuations look a lot more reasonable. The other story one must understand here is that Premier Roadlines Ltd provides outsourced logistics services, which is the model that most companies are moving towards. The growth could be rapid if they can scale up quickly; especially with the kind of brand and client spread that Premier Roadlines Ltd has. One must look at a time frame of around 1 year for this IPO to yield returns; and be willing to take on higher execution risk.