Zinka Logistics Solutions, popularly known by its platform name BlackBuck, operates India’s largest digital platform for truck operators with a user base of around 9.6 lakh truck operators, which represents 27.5 per cent of India’s total truck operators. Blackbuck has launched its IPO, which is a mix of fresh issue and offer-for-sale to the tune of ₹550 crore and ₹564.7 crore respectively, adding up to ₹1,114.7 crore.

The company proposes to use ₹200 crore for customer acquisition and retention, ₹75 crore on funding for product development and ₹140 crore for investment in its NBFC subsidiary, Blackbuck Finserve Private Ltd, for business expansion, while the remaining is tagged under general corporate purposes.

Blackbuck shares are valued at 12.4 times EV (Enterprise Value)/Revenue (trailing twelve months ending June 2024), which is quite expensive. While there are no direct competitors in this space to compare, the company competes with other trucking platforms, transport agencies, banks and fintechs across respective verticals.

The company hit adjusted EBITDA (adjusted for ESOP expenses, non-operating income, expenses, gains or losses and exceptional items) positivity in Q1 FY25. The company was also PAT positive in Q1 FY25, though nominal at ₹0.6 crore (adjusted for non-operating income and exceptional items).

Although the company operates in a niche space, we recommend that investors wait and watch for now as the shares are priced to perfection with no margin of safety at 12.4 times EV/Revenue.

Further we would also like to point out that two of the existing investors - Peak XV and VEF AB, who participated in the recent round of fundraises prior to the IPO, are making partial exits at a loss. Also, between October 9, 2024 and October 14, 2024, around 53,000 and 58 lakh equity shares were transferred to a founding director at a nominal value of ₹1 per share and via a gift deed from few invested shareholders (promoters and institutional investors) respectively which will result in a gain of around ₹160 crore at the upper end of the IPO price band for the founding director. The rationale behind the transfers is not clear.

Business segments

ZLS operates a multi-lingual mobile application (available on Android Playstore) by the name Blackbuck which helps truck operators (the target population) to efficiently manage their operations through various digital value-added offerings broadly under four verticals – Payments, Telematics, Loads Marketplace and Vehicle Financing.

Offering under Payments include tolling and fueling. BlackBuck, here, offers FASTags partnered with financial institutions and fuel cards recharging partnered with oil marketing companies. When truckers recharge through the Blackbuck App for the above services, the company earns commission income from its merchant partners, based on a fixed and agreed percentage on the gross transaction volume (GTV) in a period/ year, and thus, this is more of a volume play.

Telematics includes vehicle tracking solutions and fuel sensors using in-house developed telematic devices, aimed at fleet management, offered on a subscription basis.

Loads marketplace segment extends a listing marketplace for shippers and truckers, on subscription basis again, to post their requirements and offerings respectively and connect thereon. It also offers freight brokerage services where the company fulfils a shipping requirement of a shipper (from connecting and negotiating with a trucker to completing the delivery) and charges a commission thereon.

The company also offers used vehicle financing and financing based on vehicles owned by the truckers, through its banking partners. While in the past, the company also extended loans through its own NBFC subsidiary (though small), the management affirmed that future offerings will only be through its banking partners. The company earns services income and other fees from its banking partners, in this segment. The funds from IPO allocated towards this subsidiary is proposed to be channeled towards product development and new offerings.

While loads marketplace and vehicle financing are relatively new offerings, payments and telematics form the core of its total revenue, contributing to 92.8 per cent in Q1 FY25.

BlackBuck operates on an omnichannel strategy with sales and marketing personnel offering customer services from around 10,000 touchpoints covering 80 per cent of districts, and specifically located in around 75 per cent of toll plazas, to both onboard new truckers and support existing ones.

Operational metrics

BlackBuck has grown exponentially in the last 3 FYs, with the number of annual transacting users doubling between FY22 and FY24 to 943,345, which amounts to 27.5 per cent of India’s total truck operators. Average monthly transacting users has also more than doubled during the same period to 597,638 while for Q1 FY25, it further improved to 687,994.

The company boasts of generating 3.31x revenue in FY24 from its truckers onboarded in FY21 and 2.24x from its truckers onboarded in FY22, signaling its ability to cross-sell effectively. This could be correlated with steady increase in monthly transacting users using atleast 2 services and revenue per transacting truck operator increasing with every passing year of association, which underlines strong network effects and the company’s ability to repeat the playbook with new offerings. User retention is also respectable at 66 per cent of truckers onboarded in FY21 and 64 per cent of them onboarded in FY22, while the same jumps to 86 per cent for FY23, showcasing customer stickiness.

On the back of improved numbers on the operation front, BlackBuck’s revenue has grown 2.5x from FY22 levels to ₹296.9 crore in FY24, albeit on a low starting base.

The company’s mainstay expenses are in sales and marketing, as the offerings are service-based. This as a percentage of revenue has been on a declining trend since FY23, hinting at operating leverage playing out with increase in user base and GTV. However, it is to be noted that this number was greater than 100 per cent in FY22 and FY23, meaning the company had to spend more than its revenue earned to acquire customers. It came down to 79 per cent in FY24. This trend is a key factor that will have a say on future profitability.

Our take

While company operates in a niche space, it is a highly fragmented market – 75 per cent of truck operators own less than 5 trucks and 80 per cent of trucks registered across 80 per cent of sq. km. area of India. BlackBuck has been able to rapidly gain market share and successfully monetise its offerings by leveraging its technology complemented by its omnichannel presence. There is a strong opportunity for operating leverage to play out, provided BlackBuck is able to penetrate deeper. In-app advertising is also in pilot mode and the management is in the process of understanding the revenue potential, in this regard. If commercialised, it will turn out to be another revenue driver.

While the company’s historical retention ratios and its ability to cross-sell are promising, it may not be able to sustain the past growth rates, considering the sizeable base it operates from now than in FY22. Growth also hinges on launching new and relevant product offerings based on the huge amounts of data gathered.

Risks to business include merchant partners tying up with with other players or directly entering the payments business or OEMs offering vehicle tracking features in-built, which might hamper growth.

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