BlackBuck Shares Hit Lower Circuit After Morgan Stanley Coverage

SUMMARY

The brokerage firm initiated coverage on BlackBuck with an 'underperform' tag, giving a target price of INR 450 per share. This TP marks a downside of 16% from the previous session's closing price

Although the firm acknowledged Zinka's niche position and strong competitive advantages in a fragmented market, it seemed critical of the stock’s 105% rally since its November 2024 listing

The brokerage believes the company's core business (tolling, telematics) has the potential to deliver a mid-20% growth, between FY25 and FY27

Shares of BlackBuck’s parent Zinka Logistics Solutions Ltd dipped as much as 5% to hit its lower price band of INR 506.85 on the BSE today (December 30) after global brokerage firm Morgan Stanley started its pessimistic coverage on the stock.

The brokerage firm initiated coverage on BlackBuck with an ‘underperform’ tag, giving a target price of INR 450 per share. This TP marks a downside of 16% from the previous session’s closing price.

At 11:40 AM, the company’s market capitalisation was at INR 8,944.82 Cr and its trade volume was at 2.4 Lakh.

Although the firm acknowledged Zinka’s niche position and strong competitive advantages in a fragmented market, it seemed critical of the stock’s 105% rally since its November 2024 listing.

“With the share price up 105% since November 24 listing, we find risk-reward unattractive,” the brokerage firm noted.

Alongside this, the brokerage believes the company’s core business (tolling, telematics) has the potential to deliver a mid-20% growth, between FY25 and FY27. It also added that the company’s additional services, such as loads (matching freight with trucks), vehicle financing, and fuelling services are expected to grow at an impressive mid-40s% rate during the same period.

While the stock performed badly in the last 5 days with a 1.5% negative return, it has given a stellar upward run of 90% in the last month.

Earlier this month on December 13, the company reported a net loss of INR 308.38 Cr in the September quarter of fiscal year 2024-25 (Q2 FY25). This INR 308.38 Cr loss was a 7.8X increase from the INR 39.67 Cr loss it registered in the year-ago quarter.

However, it must be noted that had the company not incurred a share-based payment expense of INR 320.74 Cr for the quarter, it would have yielded a net profit of INR 38.92 Cr during the quarter under review.

The brokerage firm expects BlackBuck’s adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) margins to improve to 38% by FY27.

“We also see FCF conversion in the 90-100% range, with return ratios in the low-20s% by F27. Our INR 450 probability-weighted PT implies 28x F27 EV/adjusted EBITDA, in line with the relevant B2B digital peer average.,” the brokerage firm noted.

Founded in 2015 by Rajesh Yabaji, Chanakya Hridaya and Rama Subramaniam, BlackBuck commenced operations as a truck aggregator. Since then, the company has diversified and now offers a full stack of solutions – from load management and telematics to payments for fuel, FASTag or toll charges, and truck financing.

The company operates a B2B marketplace specialising in intercity full truckload transportation.

At the time of listing, the company claimed to have around 27.5% of the country’s truck operators on its platform. Without giving a number, BlackBuck founder and CMD Rajesh Yabaji said in a post-earnings call that it is adding 0.4% to 0.5% market share every month.