Shree OSFM E-Mobility comes up with IPO to raise Rs 24.60 crore

Shree OSFM E-Mobility 

• Shree OSFM E-Mobility has come out with an initial public offering (IPO) of 37,84,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 65 per equity share.
• The issue has opened for subscription on December 14, 2023 and will close on December 18, 2023.
• The shares will be listed on NSE Emerge Platform.
• The share is priced 6.50 times higher to its face value of Rs 10.
• Book running lead manager to the issue is First Overseas Capital.
• Compliance Officer for the issue is Vikash Jain. 

Profile of the company

The company is engaged in providing employee transportation services to large MNCs with a presence across major cities in India. It has over 16 years of experience in catering to the employee transportation needs of companies in IT/ITES, Aviation and other sectors. It operates a largely ‘asset light’ engagement model. Typical operating parameters are on monthly lease, per kilometer, per passenger trip and package model.

Presently, it operates with more than 1475 fleet with a variety of vehicles such as Small cars, Sedans, SUVs, Luxury Cars and Buses of which 217 vehicles are owned by the company and rest is leased by the company from various vendors. The company currently has operations in 42 sites spread across Mumbai, Navi Mumbai, Pune, Bengaluru, and Kolkata. Its clients include major BPM players such as JP Morgan, Morgan Stanley, Cape Gemini, Accenture etc.

Proceed is being used for:

• Funding additional working capital requirements
• Purchase of passenger vehicles
• General corporate purposes

Industry overview

Fleet Management Industry in India part of the larger logistics industry could be classified into two verticals such as Freight Transportation and Passenger/Employee Transportation. While, Logistics Industry with Freight Transportation has been getting formalized and increasingly getting importance in a growing economy like India. The Employee transportation a very important part of the fleet management industry is showing nascent signs of evolving into an important part of the support function for lot of companies/industries located in major cities across India. Fleet Management typically comprises of Small Cars, Sedans, Luxury Cars and Buses. Apart from the other services such as On Call taxi services and Holiday Rental Services.

The Fleet Management Industry could also be called as People Logistics Industry. About 0.7 crore employees of various industries are provided with transportation by their Companies. Employee transportation forms the third biggest cost for companies. An estimated $2 billion is spent per year by companies on employee transportation. Employee Transportation is a challenging task for any company. It becomes an even more of a challenge in countries like India because of issues like - Safety & Security, Underdeveloped infrastructure and Regulatory framework. Due to the complexities involved in people logistics companies have outsourced this function which has given rise to the Employee Transportation Industry. The criticality of Employee Transportation increases for certain sectors because of odd shift timings and importance of on time arrivals of their employees.

Pros and strengths

Asset light business model: It is a people logistics services provider to the corporates. It follows an asset light business model wherein it has vendors who makes available to it vehicles and drivers. Presently, it operates with a 1475 fleet with a variety of vehicles such as Small cars, Sedans, SUVs, Luxury Cars and Buses of which 217 vehicles are owned by the company and rest is leased by the company from various vendors. As per its arrangements all costs including driver salaries, repairs & maintenance, fuel charges etc. are borne by the vendors and vehicles are either owned by the company or the vendors or drivers. In case of vehicles that are provided by vendors and drivers are also provided by vendors, it has to manage their working capital by giving some money to vehicle drivers, which is ultimately billed to client after month end. 

Existing well-established goodwill: It has well established goodwill and client relationships with range of corporates in IT/ITES, Aviation, BFSI and other sectors it’s more than two-decade long experience and client relationships help it to get repeat business from its customers. Its client relationships also help it to cross sells its other products and services to them. Further it has been mutually value creating, stable and long-term association with its customers through products offered by the company. This has helped the company maintain a long-term relationship with its customers and improve its customer retention strategy. Its satisfactory services have helped the company in keeping its client with the company till date.

Experienced promoter: The Promoter/Founder of the company, Nitin Shanbhag has significant industry experience and has been instrumental in the consistent growth of the Company’s performance. Nitin Shanbhag since 2004 under his leadership has been providing custom build employee transportation solutions to industries such as IT/ITES, Aviation, BFSI and Media. It’s other Promoter/ Founder of the company, Ramnath Chandar Patil is a first generation social entrepreneur and has prior working experience of 10 years with government body and almost 20 years in the Fleet Management Industry, Ramnath Chandar Patil has developed expertise in techniques for planning and execution of a large fleet for meeting customer requirements.

Risks and concerns

Working capital requirements: Its business requires significant amount of working capital and major portion of its working capital is utilized towards debtors and inventories. The results of operations of its business are dependent on its ability to effectively manage its inventory and trade receivables. To effectively manage its trade receivables, it must be able to accurately evaluate the credit worthiness of its customers and ensure that suitable terms and conditions are given to them in order to ensure its continued relationship with them. However, if its management fails to accurately evaluate the terms and conditions with its customers, it may lead to write-offs bad debts and/ or delay in recoveries which could lead to a liquidity crunch, thereby adversely affecting its business and results of operations. A liquidity crunch may also result in increased working capital borrowings and, consequently, higher finance cost which will adversely impact its profitability.

Dependent upon limited number of customers: Revenue from its top 5 customers constituted 64.04%, 77.40% and 71.07% of its revenue from operations for year ending March 31, 2023, March 31, 2022 and March 31, 2021 and 65.87% for the period ended September 30, 2023, respectively. It has entered into service agreements with most of its customers and loss of any significant customers would have a material effect on its financial results. While it is constantly striving to increase its customer base and reduce dependence on any particular customer, there is no assurance that it will be able to broaden its customer base in any future periods or that its business or results of operations will not be adversely affected by a reduction in demand or cessation of its relationship with any of its major customers.

Driver misconduct, errors or fraud: The industry in which it operates is labour intensive and its success depends in large part upon its ability to attract, hire, train and retain qualified and skilled drivers. Any driver/ employee misconduct, errors or frauds could expose it to business risks or losses, including penalties and serious harm to its reputation. Such driver/ employee misconduct includes breach in security requirements, misappropriation of funds, hiding unauthorized activities, failure to observe its stringent operational standards and processes, and improper use of confidential information. It is not always possible to detect or deter such misconduct and the precautions it takes to prevent and detect such misconduct may not be effective. In addition, losses caused on account of driver/ employee misconduct or misappropriation of petty cash expenses and advances may not be recoverable, which it may result in write-off of such amounts and thereby adversely affecting its results of operations.

Outlook

The company is engaged in providing employee transportation services to large MNCs with a presence across major cities in India. It has over 16 years of experience in catering to the employee transportation needs of companies in IT/ITES, Aviation and other sectors. It operates a largely ‘asset light’ engagement model. Typical operating parameters are on monthly lease, per kilometer, per passenger trip and package model. On the concern side, the industry in which it operates is labour intensive and its success depends in large part upon its ability to attract, hire, train and retain qualified and skilled drivers. Any driver/ employee misconduct, errors or frauds could expose the company to business risks or losses, including penalties and serious harm to its reputation.

The company has come out with an IPO of 37,84,000 equity shares of Rs 10 each at a fixed price of Rs 65 per share to mobilize Rs 24.60 crore. On performance front, the revenue from operations for the FY 2023 was Rs 82.11 crore as compared to Rs 30.30 crore during the FY 2022 showing an increase of 170.99%. Profit after tax before Extra-ordinary item increased from Rs 1.63 crore for the FY 2022 to Rs 3.09 crore in FY 2023.  Meanwhile, it intends to explore acquisition of businesses, entering into joint ventures (JV) in new geographies/verticals where considerable business opportunities would be available to grow its business. Strategic acquisitions/JV targeted to increase product portfolio and penetrate newer markets will be the focus of the company going forward.