BlackBuck Shares Slide After Morgan Stanley Tags Stock ‘Underperform’
Shares of BlackBuck’s parent company, Zinka Logistics Solutions Ltd, dropped by 5%, hitting the lower price band of INR 506.85 on the BSE on December 30, 2024. The decline follows Morgan Stanley’s initiation of coverage on the stock with an ‘underperform’ rating and a target price of INR 450 per share, signaling a potential 16% downside from the previous session’s closing price.
Morgan Stanley’s Assessment
Morgan Stanley highlighted several concerns and opportunities in its coverage:
Key Observations:
- Valuation Concerns:
- The firm pointed out the 105% surge in BlackBuck’s share price since its listing on November 24, 2024, making the current valuation less appealing.
- “We find the risk-reward unattractive,” the brokerage stated.
- Growth Projections:
- Core businesses such as tolling and telematics are expected to achieve a mid-20% growth rate between FY25 and FY27.
- Adjacent services, including freight matching, vehicle financing, and fuelling solutions, are forecasted to grow at a mid-40% rate during the same period.
- Profitability Outlook:
- Morgan Stanley predicts adjusted EBITDA margins to improve to 38% by FY27.
- It also anticipates a free cash flow (FCF) conversion rate of 90-100%, with return ratios in the low-20% range by FY27.
- Valuation Metrics:
- The brokerage set its price target based on 28x FY27 EV/adjusted EBITDA, aligning with the average of similar B2B digital peers.
Recent Financial Performance
BlackBuck’s financial results for the September quarter of FY25 (Q2 FY25) reflected both challenges and potential:
- Net Loss:
- Reported a net loss of INR 308.38 crore, a 7.8x increase from the INR 39.67 crore loss in the same period last year.
- Share-Based Payment Impact:
- The loss was primarily driven by a share-based payment expense of INR 320.74 crore.
- Excluding this expense, the company would have achieved a net profit of INR 38.92 crore for the quarter.
- Stock Performance:
- Over the last month, the stock delivered a 90% gain, despite a 1.5% decline in the last five trading days.
BlackBuck’s Market Position
Founded in 2015 by Rajesh Yabaji, Chanakya Hridaya, and Rama Subramaniam, BlackBuck began as a truck aggregator and has since expanded into a B2B marketplace specializing in intercity full truckload transportation.
Key Offerings:
- Load Management
- Telematics Solutions
- Fuel and Toll Payments (FASTag)
- Truck Financing
At the time of its listing, BlackBuck claimed to host 27.5% of India’s truck operators on its platform. Post-earnings, CEO Rajesh Yabaji noted that the company is adding 0.4-0.5% market share monthly.
Industry and Competitive Landscape
While Morgan Stanley’s assessment led to a bearish outlook, it acknowledged BlackBuck’s strong competitive positioning in a fragmented market. The company’s comprehensive service stack and focus on digital transformation place it among leading B2B players in India’s logistics sector.
The recent dip in BlackBuck’s stock reflects market sentiment following Morgan Stanley’s cautious outlook. However, with its diversified offerings, growth in adjacent services, and improving financial metrics, BlackBuck holds significant potential for long-term value creation. Investors are advised to weigh the stock’s high valuation against its robust growth trajectory and market leadership in India’s logistics ecosystem.
