Rajesh Kumar Naidu Yabaji, the Promoter, Chairman, Managing Director, and CEO, holds a bachelor's in metallurgical and materials engineering and an MBA from IIT Kharagpur. With 14 years of experience, he previously served as a manager in ITC Limited's foods division. Chanakya Hridaya, the Promoter, Executive Director, and COO, holds a B.Tech in mechanical engineering and an M.Tech in manufacturing science from IIT Kharagpur. With 11 years of experience, he previously worked in ITC Limited's supply chain division and was featured in the Forbes India 30 Under 30 list in 2017. Ramasubramanian Balasubramaniam, the Promoter, Executive Director, and Head of New Initiatives, holds a PG diploma in business management from the Institute of Integrated Learning in Management. With 27 years of experience, he is also associated with Miebach Consulting India Private Limited.

No listed peer.

Review and Recommendation of Zinka Logistics Solution IPO is 3/10

A) Business Overview- The company under consideration operates as a marketplace connecting truck owners with businesses needing transportation services. Its business model includes:

1. Subscription-Based Revenue: Truck owners pay a subscription fee to register on the platform. 2. Commission Model: The company charges a commission to businesses using the platform to transport goods. 3. NBFC Services: To support its ecosystem, the company offers loans to truck owners for purchasing trucks through its NBFC arm. On paper, this appears to be a robust, asset-light business model with significant revenue-generating potential. However, a deeper analysis of the financials and IPO details raises some red flags.

B) Strengths of the Business Model

1. Asset-Light Approach: The marketplace model ensures scalability without heavy capital expenditure on physical assets. 2. Ecosystem Integration: The addition of an NBFC enhances the value proposition for truck owners, creating a sticky customer base. 3. Revenue Growth: The company achieved a revenue of ₹297 crore in FY24, which demonstrates its ability to scale operations.

C) Concerning Financial Metrics 1. High Expenses Eating into Revenues:

   - Employee benefit expenses stood at ₹286 crore, of which ₹150 crore was attributed to ESOPs.    - Other expenses amounted to ₹165 crore.    - Even after adjusting for the ESOP expenses, the Adjusted EBITDA for FY24 is -₹7 crore, indicating the company is still not profitable on an EBITDA basis. 2. Debt Levels:    - The company has a short-term debt of ₹178 crore, which raises concerns about its liquidity position, especially in the absence of consistent profitability. 3. Positive Cash Flow:    - The company reported a CFO of ₹44 crore, which is a positive indicator. However, this alone does not outweigh the profitability concerns.

D) IPO Utilization The IPO aims to raise ₹589 crore through an Offer for Sale (OFS) and ₹415 crore through fresh issuance, with the following allocation:

- ₹200 crore for sales and marketing. - ₹140 crore to enhance the NBFC’s capital base. - ₹75 crore for product development. The OFS includes ₹121 crore from the promoter and the remaining from investors. Notably: - Some existing investors, like GSAM Holdings LLC and Accel Growth Fund V L.P., are exiting at a loss (with their cost of acquisition being ₹428/share). This signals a potential lack of confidence in the company's growth prospects.

E) Valuation Concerns

At an IPO valuation of ₹4,300 crore, the company’s Mcap/Sales ratio is 14x, which appears significantly overvalued, especially for a loss-making entity at the EBITDA level. For comparison: - Established profitable companies in the logistics and marketplace space typically trade at far lower multiples.

F) Key Takeaways

1. Red Flags:    - High operating costs (even after ESOP adjustment).    - Profitability challenges.    - Significant promoter and investor exits in the OFS. 2. Valuation Stretch:    - The current valuation appears aggressive given the company's financial position. 3. Positive Notes:    - Strong CFO generation in FY24.    - Asset-light business model with potential scalability.

G) Conclusion

While the business model is unique and promising, the financial metrics and valuation raise serious concerns. Investors should carefully evaluate the risk-return tradeoff, especially considering: - The lack of profitability. - The high valuation multiples. - The confidence level of existing investors exiting the company. This IPO seems more suited for long-term investors with a high-risk appetite who believe in the company’s ability to turn profitable and scale in the future.

Zinka Logistics Solution Limited Vaswani Presidio, no. 84/2, II Floor, Panathur Main Road, Kadubeesanahalli, Off Outer Ring-Road, Bengaluru 560103, Phone: +91 8046481828 Email: cs@blackbuck.com Website: https://www.blackbuck.com/