Timescan Logistics India Limited

Incorporated in 2006, Timescan Logistics (India) Ltd does business of providing customs clearance & surface logistics services viz. goods transport service along with warehousing facilities. The company provides complete range of services like Freight Forwarding (Sea & Air freight), Custom Clearance, Warehousing, Multimodal Transportation, Project cargo, Third Party Logistics, Packaging, loading/ unloading and unpacking of items to facilitate our customers with end-to-end solutions and other related value-added services. They have asset light business model which allows for scalability of services as well as flexibility to develop and offer customized logistic solutions across diverse sectors.

In January 2022, company came up with an Initial Public issue of 9.44 Lac equity shares at a price of â‚ą51/- per equity share. Total equity capital of the is 3.49 crores. Promoters hold 73% of shares.

Financials:

The company is a micro cap company [M-cap of around 50 crores, Equity capital 3.49 crores and current market price Rs. 142]. Last 8 years financials are as follows- [From Screener.in],

The company is growing at a decent pace, whereas in the last 3 years the pace of growth has been accelerated. The company has put up very good performance in H1-2023,

Based on past growth, and H1 results, I expect the company to do a topline of 250 Crores, with net profit of 5 crores in the FY 2022-23.

Based on the above estimate, eps shall be Rs. 14. Market is being traded at 1/5th of expected sales of 2023. Further, the company gave maiden dividend of 5% in 2022, we can expect the dividend payment to go up going forward.

Business:

On the face of it, logistics looks like a commodity business. There is no reason for a customer to pay higher price. However, such companies have a benefit- from the customer’s point of view it is “salt in the kitchen”. Cost of logistics is miniscule as compared to the cost of goods. Thus, customer’s may not be very price conscious in this business, and an efficient player can gain an upper edge.

The sector is undergoing a transformation. With mandatory E-way Bills and electronic invoices, the business is shifting from unorganized to organized sector and probably listed players will benefit from that.

Asset light business model allows the company to generate decent RoE on thin margins. Promoter and management team seems to have reasonable amount of experience in logistics industry.

Investment Thesis:

  1. A logistics company is available at an attractive valuation- 1/5th of current year topline, 10 times current year eps. The company is also dividend paying.

  2. The sector is great tailwinds in terms of shifting of business from unorganized to organized sector.

Risk:

  1. Investing in Micro-cap is extremely risky, it can result in lost of 100% capital.

  2. The company is still reporting negative cash flow from operating activity.

Disclosure: Invested. Planning to add more.

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On the face of it, logistics looks like a commodity business. There is no reason for a customer to pay higher price. However, such companies have a benefit- from the customer’s point of view it is “salt in the kitchen”. Cost of logistics is miniscule as compared to the cost of goods. Thus, customer’s may not be very price conscious in this business, and an efficient player can gain an upper edge.

Vegetables are important too, yet you buy them from a vendor who offers a reasonable quality at the lowest price. Logistics is a plain fragmented commodity business where pricing power is never in the hands of the players except in squeeze scenarios. Most vendors are clearly not finicky about logistics or else we’d only have a few high-quality firms in the sector, not hordes of small players. Yes, there is a shift from unorganised to organised but its likely to be slow. We have no way of quantifying the shift. Even in a developed market like USA the top 10 logistics companies do not control more than 30-40% of the market - so good luck finding pricing power.

The scenario where your logic makes sense is perhaps a chip for a car that only a few players manufacture, and the car OEM doesn’t mind paying $10 more since the chip is critical and a small component of the car’s overall cost. Logistics is critical, but there are many players ready to offer decent services at good rates.

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What are the reasons for huge increase in sales in the current financial year? Is it sustainable?

In 2021-22, topline increased by 70%. In 2022-23, I expect it to grow by 50%. Such growth rate is certainly not sustainable once the company attain a decent size.
Introduction of GST, electronic invoices and e-way bills have brought a structural change in the economy. Businesses are preferring organized logistics service provider. Time of manually made GR is over. It is resulting in shifting of business from unorganized transporter to organized transporter. The change is likely to continue in foreseeable future.
We can see that listed logistics companies, with asset light models are doing very well. The market has also rewarded asset light models like Lancer, Tiger Logistics, VRL; whereas heavy asset players have not done that well.

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I invested too on the basis of value buy ( below 90) and intend to hold as long as company keep showing good result. Management seems transparent, one key reason they didnt price the listing high…In annual report management has given 2000 container addition by CAPEX / rental+

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Notification on expansion of warehouse, https://archives.nseindia.com/corporate/TIMESCAN_23012023160109_Covering_Letter.pdf
What is noteworthy is that they are transparent in communication. Extract from AGM speech of chairperson We have set up a timeline for ourselves up to the year 2026 to acquire 2000 containers and eventually to own a feeder vessel or to become a partner in the consortium. We intend to maintain the highest standards for corporate governance as we continue down our road of sustainable growth

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