Zinka Logistics Under Bearish Clouds: BlackBuck Shares Drop As Morgan Stanley Initiates Underweight

Morgan Stanley initiated coverage on Zinka Logistics Solutions Ltd. with 'underweight' rating, citing growth moderation in its core tolling business and risks tied to regulatory and technological transitions. The brokerage has set a price target of Rs 450 per share, implying a 16% downside.

While the company has built a strong foothold in India's fragmented trucking sector, Morgan Stanley suggests its current valuation and risk-reward profile are unappealing after IPO gains.

Zinka's positives include nearly 40% of India's tolling market, leveraging its vast on-the-ground network and strategic partnerships, the brokerage said. With a low capital-intensive model, Zinka turned profitable on an adjusted Ebitda basis in fiscal ended March 2024, showing operational leverage and healthy free cash flow conversion rates.

One of Morgan Stanley's concerns regarding the business include changes to the merchant discount rate for FASTag transactions or a transition to Global Navigation Satellite System-based tolling, which could impact margins and disrupt the business model.

While Zinka is investing in high-potential areas like vehicle financing and a freight marketplace, these businesses are in early monetisation phases with uncertain scalability, the brokerage said.

Morgan Stanley believes the BlackBuck parent's current valuation at 34 times enterprise value by Ebitda ratio for the fiscal 2027 is steep compared to peers.

The Zinka Logistics scrip fell as much as 4.45% to Rs 510.20 apiece, the lowest level since Dec. 24, 2024. It pared losses to trade 3.27% lower at Rs 516.50 apiece, as of 09:39 a.m. This compares to a 0.33% decline in the NSE Nifty 50 Index.

It has risen 97.10% since listing in late November. Total traded volume so far in the day stood at 0.2 times its 30-day average. The relative strength index was at 78.34, indicating that the stock is overbought.

Morgan Stanley is the first brokerage to initiate coverage on the stock, according to Bloomberg data. The average 12-month consensus price target implies a downside of 12.1%.