Afcom Holdings BSE SME IPO review (Apply)

Review By Dilip Davda on July 30, 2024

•    The company is engaged in carriage of cargo on airport-to-airport basis.
•    It has created a niche place in ASEAN countries where has mastered in services.
•    The company has posted constant growth with turning the corner in FY22.
•    The trends posted from FY22 onwards indicates the future trends and prospects.
•    The company will fetch first mover fancy post listing.
•    Investors may park funds for the medium to long term.

ABOUT COMPANY:
Afcom Holdings Ltd. (AHL) is engaged in carriage of cargo on airport-to-airport basis. Its Business is guided by three operating principles: People- centricity: Its network, routes and the solution it offers for the last mile connectivity helps the industry to solve the supply chain problem that are faced by the customers. AHL’s Core Values are: – Customer first – Service Excellence – Act with Integrity – Build on trust – Innovation – Reliable. It has appointed General Sales and Service Agents (“GSSAs”) in India, Hong Kong, Singapore, Thailand, Japan, South Korea, China, Taiwan.

AHL has entered into agreements with the GSSAs, pursuant to which the GSSAs must provide a minimum of 50% of the volume of cargo to it. The company pay the GSSAs commission and incentive based on the cargo they provide to it. Apart from GSSA, the company also has business relations with freight forwarders and cargo sales agents (“CSA”), who blocks space on AHL’s aircraft and hand over the cargo. It has entered into an agreement dated 24th September, 2021 with the Air Logistics group (a part of World Freight Company), which is a global leader in the cargo sales and service business. The Air Logistics group represents the Company as its GSSA in far-eastern countries. It has also entered into an agreement dated 13th October, 2022 with Taylor Logistics Private Limited, which is a part of the TTK Group as its GSSA in India.

The General Sales & Service Agent – GSSAs represent the Airline and market its cargo space amongst various Freight Forwarders in the market. They are the channel partner function as the extended arm of the Airline in terms of booking the cargo from the Freight forwarders and coordinate with their Custom Clearing Agent to clear the customs and ensure a smooth handover of the custom cleared cargo to the Airline, along with the required documents for shipment.

AHL’s mission is to enable customers to operate flexible, reliable and resilient supply chains at a better value proposition. It provided supply chain solutions to a diverse base of customers. Active Customers such as e-commerce marketplaces, direct-to-consumer e-tailers and enterprises and SMEs across several verticals such as FMCG, consumer durables, consumer electronics, lifestyle, retail, automotive and manufacturing, through various Freight Forwarders for the period ended February 29, 2024.

Cargo handling equipment ensures the efficient flow of goods worldwide. These tools facilitate cargo movement within airports and aircraft. Efficient Air Cargo handling equipment is a building block of the global logistics network. Moreover, with the growth of e-commerce and international trade, the demand for advanced and automated handling equipment has surged. AHL’s total employee strength is 47 as on February 29, 2024 which consists of 21 crews comprising of 10 captains and 6 first officers and 3 Transition Captains and 2 Trainee First officers.

This is achieved through high-quality logistics infrastructure and network engineering, a vast network of domestic and global partners and together, these create intersecting flywheels that drive network synergies within and across its services and enhance value proposition to customers. Shipping by air is a fast and efficient means of transporting goods. Air Cargo handling equipment takes centre stage when it comes to swiftly moving goods across the globe. As the backbone of the Air Cargo Industry, these tools are used for loading, unloading, sorting, and transporting cargo. Let’s delve into Air Cargo handling equipment, exploring its types, functions, and significance in logistics.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 6836400 equity shares of Rs. 10 each to mobilize Rs. 73.83 cr. at the upper cap. It has announced a price band of Rs. 102 – Rs. 108 per share. The issue opens for subscription on August 02, 2024, and will close on August 06, 2024. The minimum application to be made is for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 27.50% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 42.80 cr. for capex on two new aircrafts on lease basis, Rs. 10.00 cr. for prepayment/repayment of certain borrowings, Rs. 8.00 cr. for working capital, and the rest for general corporate purposes

Having issued/converted initial equity shares at par value, the company issued/converted further equity shares in the price range of Rs. 107 – Rs.  540 between May 2018 and January 2024. It has also issued bonus shares in the ratio of 4 5 for 10 in March 2023. The average cost of acquisition of shares by the promoters is Rs. 4.68, Rs. 7.60, and Rs. 98.18 per share.

The issue is solely lead managed by GYR Capital Advisors Pvt. Ltd., and Link Intime India Pvt. Ltd. is the registrar to the issue. Giriraj Stock Broking Pvt. Ltd. is the market maker for the company.

Post-IPO, company’s current paid-up equity capital of Rs. 18.02 cr. will stand enhanced to Rs. 24.86 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 268.46cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total revenue/net profit/ – (loss) of Rs. 13.89 cr. / Rs. – (4.20) cr. (FY21), Rs. 48.67 cr. / Rs. 5.15 cr. (FY22), Rs. 84.90 cr. / Rs. 13.59 cr. (FY23). For 11M of FY24 ended on February 29, 2024, it earned a net profit of Rs. 23.10 cr. on a total revenue of Rs. 134.16 cr. The company posted growth in its top and bottom lines since FY22 onwards and the management is confident of maintaining this trends in future as well.

If we attribute FY24 earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 10.65, and based on FY23 earnings, the P/E stands at 19.74. The issue appears reasonably priced.

For the last three fiscals, it has reported an average EPS of Rs. 4.83, and an average RoNW of 37.91%. The issue is priced at a P/BV of 1.93 based on its NAV of Rs. 55.98 as of February 29, 2024, and at a P/BV of 1.54 based on its post-IPO NAV of Rs. 70.28 per share (at the upper cap).

For the reported periods, the company has posted PAT margins of – (30.27) % (FY21), 10.66% (FY22), 16.15% (FY23), 17.28% (11M-FY24), and RoCE margins of – (103.67) %, 59.44%, 39.94%, 34.63% respectively for the referred periods.

DIVIDEND POLICY:
The company has not declared any dividends for any financial year. It will adopt a prudent dividend policy based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has no listed peers to compare with.

MERCHANT BANKER’S TRACK RECORD:
This is the 30th mandate from GYR Capital in the last four fiscals (including the ongoing one), out of the last 10 listings, all listed with premiums ranging from 36.36% to 366.67% on the date of listing.