TVS Supply Chain – Over the past few months, the logistic sector in India has been a topic of discussion due to the golden opportunity it presents. With global multinational companies (MNCs) looking to reduce their dependency on China and create alternate supply chains, India has emerged as a favorable destination for manufacturing. The Indian government has recognized this potential and is focused on building a strong logistic network that includes road, rail, airway, and shipping.
The Growth Drivers
In addition to the government’s efforts, another major driver for the logistic sector is the exponential rise of the e-commerce industry. This has led to key reforms by the Indian government, including the PM GTI Shakti initiative worth ₹100 lakh crore, the National Logistic Policy, and the launch of GST and E-way Bill. These reforms are expected to significantly boost the logistic sector in India.
One of the videos covered the top stocks in the Indian logistic sector, which included Container Corporation of India, AIS Logistics Gateway, Indry Park, All Cargo Logistics, VRL Logistics, Mahindra TCI Express, Gati, Snowman Logistics, Delivery, and TV Supply Chain. The subsequent video focused on the fundamental analysis of TV Supply Chain, which recently had its IPO in August 2023.
TVS Supply Chain saw its share price reach a high of ₹258 but has since corrected by 37% to trade at around ₹154. This has raised questions about why the share price has been falling and what investors should do with it.
Key Reforms in the Logistic Sector
The Indian government has implemented several key reforms to boost the logistics sector. These reforms include:
PM GTI Shakti: A program worth 100 lakh CR rupees aimed at improving the efficiency of the logistics sector.
National Logistic Policy: A policy focused on streamlining logistics operations and reducing costs.
GST and E-way Bill: The introduction of the Goods and Services Tax (GST) and the Electronic Way Bill (E-way Bill) have simplified the tax system and improved logistics efficiency.
Top Stocks in the Indian Logistic Sector
In a previous video, we covered the top stocks in the Indian logistics sector. These stocks included:
- Container Corporation of India
- AIS Logistics Gateway
- Indry Park
- All Cargo Logistics
- VRL Logistics
- Mahindra TCI Express
- Giti Snowman Logistics
- Delivery
- TVS Supply Chain
We specifically focused on the fundamental analysis of TVS Supply Chain, which recently had its IPO in August 23 at rupees 197. Since then, it reached a high of 258 but has corrected by 37% and is currently trading around 154. With the share price still down 28% from its previous levels, the question arises: why has the TVS Supply Chain share price been falling?
Reasons for TVS Share Price Correction
The primary reason for the correction in TVS Supply Chain’s share price is weaker quarter results. In the latest Q3 figures, the company’s sales fell by 6.4% year-on-year, from ₹2,373 crore to ₹2,222 crore. However, its adjusted EBITDA was up by 3% year-on-year, though down 1.2% quarter-on-quarter. Adjusted EBITDA is the EBITDA adjusted for employee stock option costs and losses in foreign exchange, which are not operational in nature.
To understand the reasons behind this decline, it is essential to delve into TV Supply Chain’s business model. The company operates through two key verticals: Integrated Supply Chain Solutions (ISCS) and Network Solutions.
The Integrated Supply Chain segment includes sourcing and procurement, integrated transportation logistic operation centers, in-plant logistic operations, finished goods aftermarket fulfillment, and supply chain consulting. On the other hand, the Network Solutions segment involves managing end-to-end freight forwarding and distribution across ocean, air, and land, as well as warehousing, port storage, value-added services, and time-critical final mile solutions.
While the ISCS vertical saw a revenue growth of 14.7% year-on-year, the Network Solutions vertical experienced a decline of 25% year-on-year. The underperformance in Q3 can be attributed to the struggling Network Solutions vertical, primarily due to the decline in freight rates. Freight rates have fallen by 28% year-on-year, impacting TV Supply Chain’s growth. However, it is important to note that freight rates have increased by 5% quarter-on-quarter, indicating potential stabilization.
Additionally, geopolitical challenges in the Red Sea have slightly dented ocean freight volume in December 2023, further impacting TV Supply Chain’s Q3 performance.
The Company’s Fundamentals and Growth Prospects
Before making any investment decisions, it is crucial to evaluate the fundamentals of the company, assess its growth prospects, and consider its valuation.
TV Supply Chain is a fundamentally strong company, holding a leadership position in India’s B2B supply chain. With 72 out of Fortune 500 companies as clients, the company has made significant investments in technology, which sets it apart from competitors. It is part of the reputable TVS group and boasts a strong board of directors and leadership team.
In terms of future growth, TV Supply Chain is a global logistic solution provider, with nearly 70% of its business coming from outside India. The company is well-positioned to benefit from the global trend of reducing dependence on China and the Indian government’s focus on the manufacturing sector. TV Supply Chain aims to achieve $2.5 billion in revenue by FY27 and ₹100 million in profits by FY23.
Currently, the company commands a market cap of around ₹6,800 crore, with a price-to-sales ratio of 0.74. With a trailing 12-month sale of approximately ₹9,150 crore, TV Supply Chain offers an attractive valuation. The company’s AV to is 10.8, further supporting its attractiveness as an investment.
Investment Strategy: Buy, Hold, or Sell?
Given the correction in TV Supply Chain’s share price, it is important not to panic. If you have invested with a long-term mindset, it is crucial to maintain strong conviction in your investment. The current attractive valuation of the company makes selling an unfavorable option.
As an investor, you have the choice to either hold or accumulate more shares in the company. This decision should be based on your exposure to the company and your assessment of its performance in subsequent quarters. Monitoring the quarter-on-quarter performance will help you make informed decisions regarding your allocation to TV Supply Chain.
It is worth noting that the company’s net profit has been relatively low. However, this is primarily due to the interest and depreciation components. TV Supply Chain has significantly reduced its debt and has a strong balance sheet, with a cash balance of nearly ₹1,000 crore. As the company’s revenue increases and interest rates and depreciation fall, it is expected that the net profit will improve.
Understanding the Net Profit Situation
One concern for investors is the consistently low net profit of TVS Supply Chain. However, looking at the company’s beta (operating profit), it has been consistently generating high operating profits. The low net profit is mainly due to interest and depreciation.
On the debt side, TVS Supply Chain has significantly reduced its debt. The company utilized IPO proceeds to repay debt, resulting in a much lower interest component going forward. Additionally, depreciation includes leases that are capitalized on the balance sheet. As the company’s revenue grows, the leverage from existing depreciation will kick in and result in lower depreciation expenses in the coming years, ultimately increasing net profit.
Furthermore, TVS Supply Chain has a strong cash flow, consistently generating 600 to 700 CR from operations. With a strong balance sheet and cash reserves, the company is well-positioned for future growth.
In conclusion, the correction in TVS Supply Chain’s share price is primarily due to weaker quarter results. However, the company’s fundamentals are strong, and its long-term growth prospects are promising. With an attractive valuation, investors have an opportunity to invest in or accumulate shares of the company. It’s important to track the company’s performance and make informed investment decisions based on individual research and analysis.
Disclaimer: The information is only for information purpose only. It is always recommended to consult with certified financial experts before making any investment decisions. Follow busymoneyfreak.com .
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