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Company Report Industry: MidCaps
Nishna Biyani (nishnabiyani@plindia.com) +91-22-66322239
Keyur Pandya (keyurpandya@plindia.com) +91-22-+91-22-66322247
Allcargo Logistics
Building a Niche
October 07, 2015 2
Allcargo Logistics
Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision.
Please refer to important disclosures and disclaimers at the end of the report
Contents
Page No.
What can drive the re-rating? ...................................................................................... 4
Investment Rationale .................................................................................................... 6
Proxy play to global containerized trade with market leadership in LCL Consolidation ..................... 6
PES Segment to benefit from the cyclical recovery in economy ......................................................... 6
CFS business continue to remain a cash cow ...................................................................................... 7
Company Background ................................................................................................... 9
History of AGL ...................................................................................................................................... 9
Key Managerial Personnel ................................................................................................................... 9
Global M&A Stint begins with Ecu-Line, acquisitions value accretive ............................................... 10
New lines of business segments complementing core MTO operations .......................................... 10
Industry and Business Segments ................................................................................ 12
Multimodal transport operations ...................................................................................................... 12
Who uses LCL? ................................................................................................................................... 13
Revenues in MTO business irrelevant; focus is on EBIT/TEU ............................................................ 14
MTO continues to show robust volume growth backed by increased coverage .............................. 14
Ecu-Line is a self sustaining business model with just Rs684m invested from AGL balance sheet ... 16
MTO is an asset-light business with inherently high RoCE ................................................................ 16
Container Freight Station (CFS) and Inland Container Depot (ICD) ................................................... 17
Approximately 45% of Container traffic is handled by CFS’s and 28% by ICD’s in India ................... 18
AGL enjoys the early mover advantage in CFS business .................................................................... 18
Competition continues to be tough limiting new entrants in the CFS/ICD business ........................ 20
Strategically located CFS’s benefits AGL ............................................................................................ 20
AGL is continuously exploring opportunities to establish Pan-India ICD’s through strategic JV’s .... 21
Project Engineering and Services (PES) ............................................................................................. 21
Equipment Rental – Constitutes significant EBIT to segment results .......................................... 22
Project Logistics ........................................................................................................................... 23
Coastal Shipping – Constitutes almost 15% of Segment revenues .............................................. 23
PES is an asset-heavy business; catching the cycle right is important .............................................. 24
Assumption Sheet ....................................................................................................... 25
Financials .................................................................................................................... 26
AGL is expected to generate cash profit in excess of Rs4.8bn per annum over the next two years . 26
Strong cash flows has historically funded capex ............................................................................... 27
Domestic debt gradually inching lower over the last four years ....................................................... 27
Valuation and Outlook ................................................................................................ 28
Risks and Concerns ..................................................................................................... 30
Large acquisitions in MTO segment to enhance reach or consolidate existing position in the region .......................................................................................................................................... 30
Goodwill of Rs8.3bn poses an Impairment risk ................................................................................. 30
Currency translation Risk ................................................................................................................... 30
Liability Risk ....................................................................................................................................... 30
Allcargo Logistics
Company Report October 07, 2015
Rating BUY
Price Rs310
Target Price Rs386
Implied Upside 24.5%
Sensex 26,933
Nifty 8,153
(Prices as on October 06, 2015)
Trading data
Market Cap. (Rs bn) 39.1
Shares o/s (m) 126.2
3M Avg. Daily value (Rs m) 36
Major shareholders (As on 30 June 2015)
Promoters 69.90%
Foreign 25.40%
Domestic Inst. 0.00%
Public & Other 4.70%
Stock Performance
(%) 1M 6M 12M
Absolute 7.0 (6.1) 33.0
Relative 0.1 (0.6) 31.7
How we differ from Consensus
EPS (Rs) PL Cons. % Diff.
2016 23.3 24.5 -4.9
2017 27.5 30.1 -8.6
Price Performance (RIC: ACLL.BO, BB: AGLL IN)
Source: Bloomberg
050
100150200250300350400
Oct
-14
De
c-1
4
Feb
-15
Ap
r-1
5
Jun
-15
Au
g-1
5
(Rs)
Allcargo logistics (AGL) is expected to generate a cash profit of Rs9.8bn over FY15-FY17E period against the current Net Debt of Rs3.2bn. These cash generations is expected from, (i) a steady 7-9% growth in the global NVOCC business, (ii) a 8-10% growth in the domestic NVOCC businesss, (iii) a steady 10% growth in the domestic CFS business and, (iv) sharp increase in the capacity utilisation of the Project and Engineering Services business catapulting AGLL into a net cash company by FY17. The stock at Rs310 trades at a one year forward multiple of 12.2x Sept 16 earnings, a significant discount to the market multiple of 16.4x one year forward multiple, offering ample scope for a re-rating. Performance in NVOCC segment has been robust with a 22% CAGR volume growth over FY13-FY15 period despite weak global growth, as AGL primarily operates in LCL segment which is lesser impacted compared to the FCL trade. Strong domestic presence across CFS and Project Engineering space is expected to bode well for AGL as it benefits from the domestic capex cycle recovery, with the current capacity utilisation at 95% against the FY15 average of 79%. AGL trades at 11.3xFY17E earnings, P/BV of 1.6x, D/E ratio of 0.11x and EV/EBITDA of 5.5x which we feel is reasonable entry point considering 20.4% CAGR PAT over FY15-FY17E period, improving return ratios and strong management bandwidth. We initiate coverage on AGL with a ‘BUY’ and a Target Price of Rs386, valuing the company on PER of 14x FY17E.
Strong turnaround in the Project Engineering and Crane Rental business: AGL is experiencing high equipment utilization (95% in Q1FY16) and improving pricing in its crane rental business, which in our opinion, can double the EBIT from 0.7bn to 1.35bn over FY15-FY17E period.
CFS Business continues to remain a cash cow: With a capacity to handle 0.5m TEUs per annum, AGL’s CFS division has delivered strong operating cash flows over FY10-FY15 period (average EBIT of ~Rs1.1bn for the last five years).
Strong cashflows with minimal capex: AGL is firmly established in the logistics part of the business chain ranging from CFS to ICD to being an aggregator. In addition, their investments in the PE business during the downturn are seeing the benefits in the recovery of the economic cycle.
Key financials (Y/e March) 2014 2015 2016E 2017E
Revenues (Rs m) 48,594 56,288 60,930 67,141
Growth (%) 23.8 15.8 8.2 10.2
EBITDA (Rs m) 3,913 4,754 5,737 6,301
PAT (Rs m) 1,493 2,399 2,945 3,476
EPS (Rs) 11.8 19.0 23.3 27.5
Growth (%) (12.0) 60.6 22.7 18.0
Net DPS (Rs) 1.5 2.0 2.5 3.0
Profitability & Valuation 2014 2015 2016E 2017E
EBITDA margin (%) 8.1 8.4 9.4 9.4
RoE (%) 8.8 13.0 14.5 15.0
RoCE (%) 9.4 13.3 16.1 18.0
EV / sales (x) 1.0 0.8 0.6 0.5
EV / EBITDA (x) 12.1 9.2 6.7 5.5
PE (x) 26.2 16.3 13.3 11.3
P / BV (x) 2.2 2.1 1.8 1.6
Net dividend yield (%) 0.5 0.6 0.8 1.0
Source: Company Data; PL Research
Allcargo Logistics
October 07, 2015 4
What can drive the re-rating?
Exhibit 1: Management bandwidth addition
AGL has appointed Prakash Tulsiani as its CEO and Martin
Mueller as the Chief Commercial and Strategy Officer.
Tulsiani, 53, was earlier the Managing Director of Gujarat
Pipapav. He was also with the A P Moeller Maersk Group in
several management positions between 1995 and 2005.
He headed Gateway Terminals in Mumbai as COO from
2005 to 2009.
Mueller, 45, is a Swiss national and a former consultant of
McKinsey & Co.
He has also been associated with companies such as DHL
Global Forwarding and Agility Global Integrated Logistics.
Source: Company Data, PL Research
Exhibit 2: MTO business remains a cash cow with EBITDA generation of ~1.9bn for FY15, projected to grow 10% over next two years through organic growth alone
37
5
73
8
10
83
57
6
10
01
16
93
14
84
15
58
18
968
15
21
17
22
34 32 4147
0
10
20
30
40
50
0
500
1000
1500
2000
CY
06
CY
07
CY
08
CY
09
CY
10
FY
12
*
FY
13
FY
14
FY
15
EBIT (Rs m) Revenues (Rs bn) (RHS)
Source: Company Data, PL Research *for 15 months period
Exhibit 3: Early signs of domestic capex cycle revival bodes well for the Project Engineering Services (PES) division
Sectors like Power, Oil & Gas, Cement etc. to lead demand
growth for specialized transportation solutions
Government Allocation of Rs700bn for Infrastructure in
Budget 2015
Government plans to increase wind energy generation to
60,000 MW in the next five years
India's cement capacity expected to go up to 550MT by 2020
from current 370MT
53 Indian cities above 1m population & plan to build Metro
rail in all State Capitals
US$45bn is expected to be spent in Oil & Gas Sector in India
in the next few years
Equipment utilization for AGL has improved significantly
from 70% in FY14 to 95% as at Q1FY16
Source: Company Data, PL Research
Exhibit 4: In a sweet spot currently since major investments caught the wrong cycle during FY10-FY13 period
5,163
7,890
2,779
911 353
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
CY10 FY12* FY13 FY14 FY15
(Rs
m)
Capex
Source: Company Data, PL Research *for 15 months period
Allcargo Logistics
October 07, 2015 5
Exhibit 5: Stable EXIM trade will help CFS business improve utilization over next 2-3 years
8.8 9.4 9.710.5
11.312.1
13.2
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
Container Traffic (m TEUs)
29 31 29 30 34 37 40
9 11 14 1515
1719
0
20
40
60
80
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
(Rs
bn
)
Size of Indian CFS/ICD Industry
CFS ICD
Source: Navkar Corporation RHP, PL Research
Exhibit 6: Cash profit of Rs9.8bn over next 2 years
3,171 3,248
3,973
4,566
5,216
-
1,000
2,000
3,000
4,000
5,000
6,000
FY13 FY14 FY15 FY16E FY17E
(Rs
m)
Source: Company Data, PL Research
Exhibit 7: Return ratios inching higher
0.0
5.0
10.0
15.0
20.0
25.0
FY12* FY13 FY14 FY15 FY16E FY17E
RoAE (%) RoACE (%)
Source: Company Data, PL Research *for 15 months period
Exhibit 8: Capex mostly funded through cash flows and current debt stands at Rs3.2bn
5,853
4,914
6,882
4,165
3,210
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
FY12* FY13 FY14 FY15 Q1FY16
(Rs
m)
Net Debt
0.510.46
0.55
0.32
0.00
0.10
0.20
0.30
0.40
0.50
0.60
FY12* FY13 FY14 FY15
(x)
Debt/Equity
Source: Company Data, PL Research *for 15 months period
Allcargo Logistics
October 07, 2015 6
Investment Rationale
Proxy play to global containerized trade with market leadership in LCL Consolidation
AGL is amongst the fastest growing LCL operators currently with network spanning
over 90 countries and 200 offices worldwide. The company currently covers 82% of
world with a comprehensive network of 4000 port pairs connecting all continents
and trade hubs. The learning curve in MTO and the continuous business expansions
through the inorganic route funded by internal cash accruals have provided AGL not
only with strong financial credentials but exceptional management bandwidth over
the years.
AGL had invested EUR22m (Equity value) for the acquisition of Ecu-Line in Europe in
2005. Post that, all subsequent acquisitions were funded by internal accruals. The
MTO business has generated Rs1.5-1.9bn EBIT per year with negligible incremental
capex. With such strong franchise and a recurring cash flow visibility, AGL offers a
self-sustaining growth model.
Exhibit 9: Barring 2009, Global containerized trade is inching upwards
-10%
-5%
0%
5%
10%
15%
0
50
100
150
200
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
Containerised Trade (m TEUs) YoY gr. (RHS)
Source: UN Maritime Report 2014 , PL Research
Exhibit 10: AGL expected to touch 0.5m TEUs by FY17 growing @10%
2,84,7263,34,870
4,22,2004,64,420
5,10,862
0.0
5.0
10.0
15.0
20.0
25.0
30.0
0
1,00,000
2,00,000
3,00,000
4,00,000
5,00,000
6,00,000
FY13 FY14 FY15 FY16E FY17E
Volumes (TEU'S) (Cons) YoY gr. (%) (RHS)
Source: Company Data, PL Research
PES Segment to benefit from the cyclical recovery in economy
AGL is one of the few companies in India with a fleet of over 1000 owned
equipments, which includes range of Cranes (Crawler, Telescopic, Truck Lattice and
all Terrain), Hydraulic Axles & Self Propelled Modular Transporters (SPMTs), Strand
Jacks, Trailers (Low Bed, Semi Low & High Bed), Fork Lifts, and Reach Stackers. Most
of the fleet was acquired during FY10-FY13 period which caught the down-cycle in
the economy. But with economy expected to pick-up pace with increased corporate
capex and Government spending, high equipment utilization levels and firm pricing
will help the segment to almost double the EBIT from 0.7bn to 1.35bn over
FY15-FY17 period. We have already witnessed an increase in the capacity utilization
in 1QFY16 and we expect this to translate to firmer pricing in FY17.
Allcargo Logistics
October 07, 2015 7
Exhibit 11: Equipment Bank includes a fleet of 143 heavy-duty cranes
Less than 100 T
46.9%
100-250T
32.2%
250T and 750T21.0%
Source: Company Data, PL Research
CFS business continue to remain a cash cow
AGL has been amongst the very few early entrants in the CFS business who
recognized the scale of business opportunity and accordingly developed facilities
across JNPT (Mumbai), Mundra (Gujarat) & Chennai. With a capacity to handle
almost 0.5m TEUs per annum, AGL’s CFS division has delivered strong operating cash
flows over FY10-FY15 period (average EBIT of ~Rs1.1bn for last five years). However,
with significant under-utilized capacities and cut throat competition in the CFS
business, operating margins have fallen from the earlier highs. We believe that the
prices have bottomed out in FY14 and are expected to hold steady going forward
and we expect AGLL to benefit from improved utilization.
Exhibit 12: Stable EBIT in CFS despite falling margins
1.1
4
0.9
6
1.0
9
1.1
9
1.3
2
37.0
30.828.1 28.0 28.0
0.0
10.0
20.0
30.0
40.0
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
FY13 FY14 FY15 FY16E FY17E
EBIT (Rs bn) EBIT Margin (%) (RHS)
Source: Company Data, PL Research
Exhibit 13: Enough lee-way for utilization to pick up
2,5
8,8
59
2,5
0,2
09
2,9
1,5
72
3,1
9,3
95
3,5
5,3
8060.3
43.750.9
55.762.0
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
0
1,00,000
2,00,000
3,00,000
4,00,000
FY13 FY14 FY15 FY16E FY17E
TEU's Handled % Utilization (RHS)
Source: Company Data, PL Research
AGL caught the PES cycle wrong with bulk
of the investments done in FY10-FY13
period
AGL depends upon shipping lines for its CFS
business and in return it gives shipping
lines container volumes of its MTO
(multimodal transport) business. This
barter has helped AGL maintain both
business volumes and strong operating
cash flows in a fiercely competitive CFS
market
Allcargo Logistics
October 07, 2015 8
Strong cash flows and healthy balance sheet makes AGL a compelling story
AGL is expected to generate cash profit of ~Rs9.8bn over the next two years from
the existing business operations. Further, with most of the capex cycle behind in PES
and CFS division, AGL is in a sweet spot with strong balance sheet (D/E ratio at 0.15x
for FY16E) and improving return ratios. Strong cash flows generated over the next
few years will further reduce debt and help AGL pursue new growth opportunities.
Exhibit 14: Return Ratios inching higher
0.0
5.0
10.0
15.0
20.0
25.0
FY12* FY13 FY14 FY15 FY16E FY17E
RoAE (%) RoACE (%)
Source: Company Data, PL Research *for 15 months period
Exhibit 15: D/E Ratio inching lower
0.510.46
0.55
0.32
0.00
0.10
0.20
0.30
0.40
0.50
0.60
FY12* FY13 FY14 FY15
(x)
Debt/Equity
Source: Company Data, PL Research *for 15 months period
Allcargo Logistics
October 07, 2015 9
Company Background
Allcargo Logistics Ltd (AGL), a port-based logistics company founded by Mr. Shashi
Kiran Shetty, is engaged in providing specialised logistics services across multimodal
transport operations, inland container depot, container freight station operations,
third-party logistics operations and project and engineering solutions.
History of AGL
Mr Shetty moved to Mumbai from Mangalore in 1978. After a brief stint in a
shipping agency, he started logistics park Trans India in 1983, which was later
merged with AGL, formed in 1993. It started operations as a shipping and freight-
forwarding agency. He decided to operate in a niche area—LCL. In 1995, Belgium-
based Ecu-Line NV, the world’s second largest LCL firm, appointed AGL as its agent
for Mumbai and New Delhi, recognizing its position as India’s first LCL operator with
growing volumes of such cargo for aggregation to destinations worldwide in those
days. This transitioned AGL to a MTO which offered consolidation of LCL (less-than-
container load) and FCL (full container load) cargoes for exporters and importer.
Exhibit 17: Promoter holding above 70% over the years
FY10 FY11 FY12 FY13 FY14 FY15
Promoter Holding (%) 73.0 69.8 69.8 72.1 72.3 69.9
Source: Company Data, PL Research
Key Managerial Personnel
Mr Shashi Kiran Shetty: He has an experience of around four decades in the logistics
industry and has worked with various organisations like Inter-modal Transport and
Trading Systems, Forbes Gokak, a TATA Group Company etc. before starting his own
venture.
Mr Adarsh Hegde (Executive Director): He spearheads the CFS/ICD, project Logistics
and Warehousing business of the company. He has an experience of more than two
decades in the industry. He is also on the board of Ecu-Line and is the president of
CFS Association of India.
Mr S.Suryanarayan (Executive Director): He is a qualified Chartered Accountant and
has a rich work experience of three decades in industries like engineering, shipping
and logistics. Prior to joining AGL, he has worked in organizations like Reliance and
Great Eastern Shipping. He is also Director Finance & Joint CEO of Ecu-Line
Exhibit 16: Key Shareholders
Promoters 70%
Blackstone Capital Partners 15%
Acacia partners 6%
New Vernon PE 3%
Others 6%
Source: Bloomberg, PL Research
Blackstone has entered at an average price
of Rs188/share
Mr. Shashi Kiran Shetty sold 3m shares in
July 2014 for average price of Rs245,
aggregating Rs735m for some personal
pursuits
Allcargo Logistics
October 07, 2015 10
Global M&A Stint begins with Ecu-Line, acquisitions value accretive
Mr Shetty realized the opportunity of LCL Consolidation world-wide after operating
as Ecu-Line agent for a decade. In 2005, an opportunity arose and AGL took a 33.8%
stake in Ecu-Line and the following year, acquired the remaining stake thereby
making Ecu-line a 100% subsidiary of AGLL. The takeover of Ecu-Line, which had
almost five times the AGLL’s revenue in 2006, for an enterprise value of
approximately €45m, made AGL the world’s No. 2 LCL firm overnight, next only to
Vanguard logistics, a Private Equity supported firm based out of US.
To strengthen its domestic presence and participate in growing airfreight business,
AGL acquired Hindustan Cargo in January 2007 from Thomas Cook.
Exhibit 18: Showing M&A Stint at AGL
Year of acquisition
Cost of acquisition (EV)
Sales then* Sales Now*
MTO
ECULINE CY2005 ~EUR 50m* EUR100m EUR540m
CHINA/HONG KONG CY10 USD22m* USD 75m USD 91m
ECONOCARIBE (US) FY13 USD50m* USD128m USD140m
Source: Company Data, Media Reports, PL Research Estimates*
AGL continued to make strategic acquisitions in globla markets to connect the last
mile. It bought companies in the UK and Hong Kong to increase market share and
presence. But it still had gaps in the US, Australia, Canada and Africa. In Sept 2012,
AGL acquired US-based logistics company, Econocaribe Consolidators Inc, which had
over US$125m in revenue and happened to be the agent of Ecu-Line for its US
business. The acquisition gave AGL entry into the US and Canadian markets and a
front-runner position in the LCL business. To further consolidate its position in
Europe, it acquired 75% stake in Netherland-based FCL Marine Agencies.
New lines of business segments complementing core MTO operations
In 2003, AGL integrated forward into CFS operations in order to offer value-added
services to clients. It owns CFS (container freight station) near the Jawaharlal Nehru
Port Trust, Mumbai and also in Chennai and Mundra. The company gradually added
new lines of business verticals such as Project and Equipment Engineering solutions,
Inland Container Depot, Coastal Shipping and Air Freight.
Allcargo Logistics
October 07, 2015 11
Exhibit 19: AGL Business Snapshot
Source: Company Data, PL Research
Exhibit 20: Segment EBIDTA Profile for last 3 years
5.3 4.4 4.6
35.4 35.933.5
29.8 31.0 30.5
0.0
10.0
20.0
30.0
40.0
FY13 FY14 FY15
(%)
MTO CFS P&E
Source: Company Data, PL Research
Exhibit 21: Segment RoCE for last 3 years (MTO includes goodwill)
20.9
15.8 16.0
30.5
23.0 25.8
4.7 1.6
9.2
-
5.0
10.0
15.0
20.0
25.0
30.0
35.0
FY13 FY14 FY15
(%)
MTO CFS P&E
Source: Company Data, PL Research
.
FY15
Revenues : Rs 56.2 bn
EBIT Rs 3.71bn
MTO (ECULINE) (Multimodal Transport
Operations)
Revenues : Rs47.7bn
EBIT: Rs1.89bn
EBIT Margin: 4%
Revenue share :
83%
LCL
Less than container
load
FCL
Full container load
CFS (Container Freight Station)
Revenues : Rs4bn
EBIT: Rs1.08bn
EBIT Margin : 26.9%
Revenue share :
7%
CFS
JNPT 1
JNPT 2
Mundra
Chennai
ICD
Dadri
Pithampur
PES (Project and Engg services)
CRANE RENTAL
Revenues : Rs5.2bn
EBIT: Rs0.74bn
EBIT Margin : 14%
Revenue share : 9.2%
Project Logistics
(large turnkey projects)
Equipment Rentals
(Equipment Bank of 143
cranes)
Coastal Shipping (5 Ships)
Allcargo Logistics
October 07, 2015 12
Industry and Business Segments
Multimodal transport operations
AGL offers consolidation and freight services for export and import cargo, utilising
multiple modes of transport like sea, road and rail under a single multimodal
transport document. It receives LCL cargo from various freight forwarders which is
consolidated based on destinations into containers at bonded warehouses. These
containers are then shipped to either final destination or to hub ports from where it
is trans-shipped to final destination.
Exhibit 22: LCL consolidation explained
Source: PL Research
Allcargo Logistics
October 07, 2015 13
LCL is normally a shipment that will not fill up a container. With an LCL shipment, you
pay for your load to be shipped in a container with one or more loads from other
customers of the freight transport provider. If you know that you cannot fill even a
20-foot container (TEU), LCL is the most sensible option in terms of cost and
convenience.
Who uses LCL?
LCL is most commonly used by small as well as medium sized business units. This is
because most of the times, they don’t have enough goods to fill a full load. LCL is
even used by companies that offer services to smaller companies or are getting into
new markets. Retailers, especially apparel, are frequent LCL users, as are the
automotive, oil and gas, chemicals and e-commerce industries. As sourcing
locations diversify and demand increases, the scope of LCL services has grown
manifold over the years.
Prospects for the world economy, trade and shipping seem to be improving,
although a number of risks mostly on the downside remain. These include, in
particular, the fragile recovery in developed economies, the difficulties facing growth
in large emerging economies and geopolitical tensions that may escalate. These risks
could derail the world economy away from positive growth. AGL, as an LCL
consolidator, is less hurt by the weakness in the container market since a large part
of full container load volumes in tough times gets converted into LCL volumes.
Perhaps that's why LCL has grown over the past decade.
Getting a precise percentage of steamship cargo moving via LCL is tough because
service providers often consolidate shipments and then present them to steamship
carriers as full containers.
Exhibit 23: Containerized trade on a rise over the past 10 years
-10%
-5%
0%
5%
10%
15%
0
20
40
60
80
100
120
140
160
180
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Containerised Trade (m TEUs) YoY gr. (RHS)
Source: UN Maritime Report 2014 , PL Research
The consolidator need to offer all services
required at the destination, such as strong
local Customs and transportation
knowledge, and several partners to provide
flexible shipping options. Primary
requirement for LCL business include a
strong track record and a solid global
network.
Today's LCL is much improved, with end-to-
end pricing; direct routes and frequent
sailings; increased visibility and control;
streamlined processes and packaged
solutions that provide security, clarity,
speed, and certainty. Freight forwarders
continue to introduce new LCL services in
previously under-served markets and to
customize solutions to meet ocean
shippers' specific needs
Growth in GDP, merchandise trade and
seaborne shipments are interlinked and
continue to move in tandem. Trade can
generally grow faster or slower than GDP,
although since the 1990s it has tended to
grow about twice as fast
Allcargo Logistics
October 07, 2015 14
Revenues in MTO business irrelevant; focus is on EBIT/TEU
Freight rates are a function of trade routes and therefore are not controlled by AGL.
So, while the volume growth could remain strong in the near term, revenues may
not grow proportionately driven by lower freight rates due to the fall in crude prices.
AGL, however, should be able to sustain its margins since the MTO business model
allows for the pass through of the freight rates and the earnings is based on
EBIT/TEU carried.
Exhibit 24: MTO Business model
Revenues recognised 100%
Pass Through Costs mainly to shipping lines 73%
Gross profit 27%
Employees Cost 15%
Other Expenses 6%
EBIDTA Margin 5%
Leveraging factor: Volume growth in LCL Segment
Source: Company Data, PL Research
Exhibit 25: EBIT per TEU is largely stable over the years
4,000
4,200
4,400
4,600
4,800
5,000
5,200
5,400
FY13 FY14 FY15 FY16E FY17E
(Rs)
Rs 4536/TEU
Source: Company Data, PL Research
The flip side though, is the slowing trade in developed markets impacting its fortunes
but we believe, the wide scope of its business offering would lend it the much-
needed cushion. It merits note here that the freight consolidation business had
remained relatively unscathed even in the 2008 Global Financial Crisis downturn as
well.
MTO continues to show robust volume growth backed by increased coverage
AGL has shown strong business traction in the MTO segment handling 422,000 TEUs
in FY15, a YoY growth of 26% and is expected to deliver a volume growth of 10%
CAGR to 510,862 TEUs by FY17. Most of this business is controlled by overseas
revenues forming ~92% of turnover (including Hindustan cargo-the air freight
division), while Indian operations account for 7.6%. AGL has been able to maintain
volume growth by making strategic acquisitions in different geographies and
consolidating its network of offices and third party agents. Markets of Germany, UK,
USA, Australia, Malaysia and China majorly contribute to organic volume increase
in the MTO segment over the years. Besides LCL consolidation, AGL has also forayed
into FCL freight-forwarding through acquisition of FCL Marine, a Netherlands based
FCL freight-forwarding company
Allcargo Logistics
October 07, 2015 15
Exhibit 26: Volume growth continues to be strong with stable margins
4.7%
3.8%4.0% 4.1% 4.1%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
0
1,00,000
2,00,000
3,00,000
4,00,000
5,00,000
6,00,000
FY13 FY14 FY15 FY16E FY17E
Volumes (TEU'S) (Cons) EBIT Margins (RHS)
Source: Company Data, PL Research
Exhibit 27: Ecu-Line dominates the MTO Business with almost 86% revenue share
0
10,000
20,000
30,000
40,000
50,000
60,000
FY13 FY14 FY15 FY16E FY17E
(Rs
m)
ECULINE Hindusthan Cargo India NVOCC
82.0% 85.8% 86.2% 86.4% 86.9%
82.0% 85.8% 86.2% 86.4%
5.6%
5.9%6.2%
6.6%
8.1%
10.0%
7.6%
7.6%7.7%
7.6%
Source: Company Data, PL Research
Exhibit 28: Asia Pacific and Europe accounts for almost 80% of volumes in MTO
58% 64%56% 58%
31% 24%25% 24%
9% 10%19% 17%
0%
20%
40%
60%
80%
100%
FY12 FY13 FY14 FY15
Asia Pacific Europe US & LATAM Africa
Source: Company Data, PL Research *for 15 months period
Allcargo Logistics
October 07, 2015 16
Ecu-Line is a self sustaining business model with just Rs684m invested from AGL balance sheet
AGL acquired Ecu-Line in CY05 for a consideration of ~EUR50m EV. All the
subsequent acquisitions including two Hongkong based companies (EV-US$22m) in
CY10, Econocaribe-US (EV-US$50m) in FY13 and Netherland based FCL Marine
(undisclosed amount) in FY13 have been funded by cashflows of Ecu-Line. Today,
Ecu-Line is the fastest growing LCL operators with network spanning over 90
countries and a comprehensive network of 4000 port pairs connecting all continents
and trade hubs globally.
Exhibit 29: Barring 2009 and 2013, MTO operations have never seen dips in absolute EBIT
375
738
10
83
576
10
01
16
93
14
84
15
58
18
96
8
15
21
17
22
34 32 41
47
0
10
20
30
40
50
0
500
1000
1500
2000
CY06
CY07
CY08
CY09
CY10
FY
12
*
FY
13
FY
14
FY15
EBIT (Rs m) Revenues (Rs bn) (RHS)
Source: Company Data, PL Research *for 15 months period
MTO is an asset-light business with inherently high RoCE
Historically, Ecu-Line acquires a complementing LCL/FCL service provider which
either gives increased penetration or consolidation in the existing geographies with
the cash flows accumulated every 2-3 years. This has resulted in a goodwill
component of Rs8.3bn, which get reflected in the capital employed for the MTO,
thus, depressing the RoCE. Ex goodwill, AGL has deployed Rs3.85bn in the MTO
business which implies RoCE upwards of 40% for the last three financial years. Even
the global listed players enjoy RoCE upwards of 50% in the LCL business which makes
it an attractive business proposition considering the near zero interest rates
prevailing in the US and Euro Zone.
Allcargo Logistics
October 07, 2015 17
Exhibit 30: RoCE including goodwill and excluding goodwill
20.915.8 16.0
45.042.0
49.0
0.0
10.0
20.0
30.0
40.0
50.0
60.0
FY13 FY14 FY15
(%)
Considering Goodwill Without Considering Goodwill
Source: Company Data, PL Research
Container Freight Station (CFS) and Inland Container Depot (ICD)
Container volumes in India is expected to grow ~8% CAGR over 2015-2020 period,
driven by EXIM trade and an increase in containerization from the current 55% to
>65% (vs developed markets average of 70%). In the long term, the container traffic
at JNPT is expected to increase due to upcoming infrastructure projects such as the
Dedicated Freight Corridor and the Delhi Mumbai Industrial Corridor. However, until
these projects become operational, non-major ports will continue to attract
incremental traffic, albeit at a slower pace. In 2016, an additional container handling
capacity of 1.3 million TEUs is expected to become operational at Mundra.
Exhibit 31: EXIM Trade has been growing @16% over last 5 yrs
0
10,000
20,000
30,000
40,000
50,000
FY
00
FY
01
FY
02
FY
03
FY
04
FY
05
FY
06
FY
07
FY
08
FY
09
FY
10
FY
11
FY
12
FY
13
FY
14
FY
15
(Rs
bn
)
Export Import
Source: Ministry of Commerce & Industry, PL Research
Exhibit 32: Container traffic movement at major ports
4,466
2,718
1,552
560 528 365 248
0
1,000
2,000
3,000
4,000
5,000
(00
0' T
EU
s)
Container Traffic at Key Ports in FY15
Source: Indian Ports Asso, Adani Ports & SEZ, PL Research
Almost 80% of the total container traffic in
India is handled by four ports, JNPT Port,
Chennai Port, Mundra Port and Pipavav
Port
Allcargo Logistics
October 07, 2015 18
Approximately 45% of Container traffic is handled by CFS’s and 28% by ICD’s in India
Almost 55% of all imports and 35% of all exports use CFS facilities in India. The share
of export traffic handled by CFSs of total container traffic is comparatively less
because custom regulations are more facilitative for exporters. Exporters typically
stuff the containers at the factory then the containers are cleared by the custom and
excise authorities at the plant and are directly transported (~37%) to the port
without employing the services of a CFS. ICDs are employed by some exporters and
handle ~ 28% of the total export traffic.
Exhibit 33: Import handled split at major ports
CFS55%ICD
29%
Ports16%
Source: Navkar Corporation RHP, PL Research
Exhibit 34: Exports handled split at major ports
CFS35%
ICD28%
Ports
37%
Source: Navkar Corporation RHP, PL Research
AGL enjoys the early mover advantage in CFS business
AGL has been amongst the very few early entrants in the CFS business who
recognized the scale of business opportunity and accordingly developed facilities
across JNPT (Mumbai), Mundra (Gujarat) & Chennai. AGL is the only company having
significant presence at all 3 major container ports of India. With a capacity to handle
almost 0.5m TEUs per annum, AGL’s CFS division has delivered strong operating cash
flows over FY10-FY15 period (average EBIT of ~Rs 1.1bn for last 5 yrs).
Allcargo Logistics
October 07, 2015 19
Exhibit 35: CFS Segment has significant operations across 3 major container ports of India
Source: Company Data, PL Research
In FY15, AGL, in terms of volume, was the leading CFS operator at Chennai port and
amongst the top five operators at JNPT and Mundra ports. CFS business due to its
nature and constraints for the new entrants (proximity to port, contiguous land
parcel and capital) enables operators to earn rich margins in the business. The
operating costs involved in the CFS are relatively low and hence operators can earn
high operating margins based on higher utilization rates.
Exhibit 36: CFS business for AGL dominated by JNPT volumes
2,58,859 2,50,209
2,91,572 3,19,395
3,55,380
-
50,000
1,00,000
1,50,000
2,00,000
2,50,000
3,00,000
3,50,000
4,00,000
FY13 FY14 FY15 FY16E FY17E
TEU
s
Volumes handled at CFSs
Source: PL Research
AGL leases container space with major
shipping companies for its clients in MTO
segment and on the other hand, it gets
clients of CFS segment from the same
shipping lines
Allcargo Logistics
October 07, 2015 20
CFS business is mostly driven by EXIM trade volumes. CFS business is also driven by
dwell time - the ground rent charged to customers for using the space for storage of
containers. EBITDA/TEU for each of the CFS is directly linked to the dwell time, i.e.,
the number of days for which the container stays at the freight station. Hence, the
higher the dwell time, the higher the CFS revenue. Typically, import cargos have
higher dwell time compared to export cargos as the former takes longer time for
custom clearance. AGL has always been an import heavy operator (80%), i.e, the mix
of Export: Import volumes have been higher on the import side, thus benefitting its
revenues.
Exhibit 37: Dwell Time has been stable around 10 days for most CFS’s
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
FY12 FY13 FY14 FY15
Source: Industry, PL Research estimates
Exhibit 38: AGL CFS volumes are dominated by Imports
0%
20%
40%
60%
80%
100%
CY10 FY12 FY13 FY14 FY15
Import Export
Source: Company data, PL Research
Competition continues to be tough limiting new entrants in the CFS/ICD business
There are approximately 31 CFS companies at JNPT, 28 at Chennai port and 10 at
Mundra port. Due to the large number of companies, utilisation and margins are
expected to remain under pressure. However, over the long term, better
infrastructure and healthy growth in container traffic resulting from capacity
additions at major ports will improve utilisation rates thus stabilize margins. The
limited availability of land at strategic locations near ports acts as a barrier to entry
due to high land prices. Additionally, the host of guidelines issued by the Inter-
Ministerial Committee pertaining to requirements on land, minimum equipment and
minimum TEUs to be handled, may dissuade new players from entering the CFS and
ICD industry.
Strategically located CFS’s benefits AGL
AGL derives significant revenues from JNPT CFS which is strategically located at a
distance of 17kms from the JNPT port. Major costs in running a CFS are
transportation and logistics costs. CFS set-up cost which includes costs of land and
construction of the CFS facility has increased manifold over the years making CFS
set-up non lucrative business proposition currently. However, margins have been
under pressure and we believe the same has bottomed out in FY14.
There are approximately 31 CFS companies
at JN Port, 28 at Chennai port and 10 at
Mundra port.
Allcargo Logistics
October 07, 2015 21
Exhibit 39: Fall in margins over last couple of years have stabilized
0.0
10.0
20.0
30.0
40.0
50.0
60.0
0
5,000
10,000
15,000
FY12 FY13 FY14 FY15 FY16E FY17E
Revenue/TEU (Rs) EBIT/TEU (Rs)
EBIT Margin (%) (RHS)
Source: Company Data, PL Research *for 15 months period
Exhibit 40: Enough lee-way to improve capacity utilization over FY15-FY17E period
-
10.0
20.0
30.0
40.0
50.0
60.0
70.0
0
1,00,000
2,00,000
3,00,000
4,00,000
5,00,000
6,00,000
7,00,000
FY13 FY14 FY15 FY16E FY17E
Total Capacity (TEUs) % Utilization (RHS)
Source: Company Data, PL Research
AGL is continuously exploring opportunities to establish Pan-India ICD’s through strategic JV’s
AGL currently operates 2 ICD’s, one at Pithampur, MP with installed capacity of
36,000 TEU’s per annum and another at Dadri, UP with capacity of 52,000 TEU’s. AGL
has entered into a JV with Container Corporation of India for setting up an ICD at
Dadri. AGL owns 51% of the JV, with balance owned by Concor. The facility is set up
on a 11 acre land belonging to Concor. AGL has not seen significant traction in its ICD
business over the years and contributes less than 10% of CFS revenues. However,
AGL is best placed to capture any business opportunity arising in future with
significant historic land bank spread across three strategic locations.
Exhibit 41: Land bank of 200 acres spread across three strategic locations
Bangalore 110 acres
Hyderabad 40 acres
Nagpur 63 acres
Source: Company Data, PL Research
Project Engineering and Services (PES)
AGL, through its projects and engineering solutions segment, offers services that
include equipment leasing, transportation of high-value specialised equipment such
as oilfield equipment, power plants and compressor stations that cannot be
containerised on a turnkey basis and Coastal shipping. This is a cyclical business,
inherently asset heavy and tends to perform extremely well during capex cycle
revival. The capacity utilisation has improved to 95% in 1QFY16 and we expect the
pricing to improve in FY17.
Allcargo Logistics
October 07, 2015 22
Equipment Rental – Constitutes significant EBIT to segment results
AGL owns a diverse fleet of over 1000 owned equipments, that includes complete
range of Cranes (Crawler, Telescopic, Truck Lattice and all Terrain), Hydraulic Axles &
Self Propelled Modular Transporters (SPMTs), Strand Jacks, Trailers (Low Bed, Semi
Low & High Bed), Fork Lifts, prime movers, barges, coastal vessels & Reach Stackers
Exhibit 42: Equipment bank of over 1000 Equipments
Cranes
143
Trailers
571
Hydraulic Axles
201
Reach Stackers
and Forklifts
47
Prime Mover
20Ships
5Others
5
Source: Company Data, PL Research
With the economy showing some signs of revival and infra projects getting the
required push, there is a slow recovery in the capex cycle. AGL is already seeing
some benefits in terms of increased order inflows and utilization. As at end Q1FY16,
crane utilization stood at 95%.
Exhibit 43: Asset utilization is on a rise
79
70
79
95
0
10
20
30
40
50
60
70
80
90
100
FY13 FY14 FY15 Q1FY16
(%)
Source: Company Data, PL Research
Crane fleet includes world-class OEMs like
Demag, Faun, Fuwa, Kobelco, Sany, Krupp,
Liebherr, Sumitomo and Terex. The best
part about these OEMs is that even after
the crane has been used for four to five
years, its re-sell value is above 80% of the
acquisition cost
Allcargo Logistics
October 07, 2015 23
Project Logistics
AGL also operates in the project logistics segment which acts as a leveraging factor
to the already existing clientele. The company specializes in managing end-to-end
project logistics, from planning to movement of project cargo, over dimensional
cargo, over-weight consignments from port-to-site or site-to-site basis, route surveys
and multimodal/location transportation. This segment also caters to logistic services
for typically heavy capex projects like setting up of power plants, aluminum smelters,
steel blast furnaces etc.
Exhibit 44: Industry-wise share of revenues for PES division in FY15
Power32%
Oil & Gas16%Engineering &
Infra
9%
Logistics7%
Cement & Metals
6%
Port & CFS
5%
Others25%
Source: Company Data, PL Research
International partnerships
AGL has entered into an alliance with Netherland-based Mammoet to provide
crawler lattice boom cranes from 1000MT upto 5000MT besides technical
support for erection and lift plans.
AGL also exclusively represents Germany-based Hansa Heavy Lift, world market
leader in heavy lift business with 21 multipurpose heavy-lift freighters.
Coastal Shipping – Constitutes almost 15% of Segment revenues
India has over 7,000km of coastline and coastal shipping is considered as efficient,
cost-effective and time-saving mode of cargo transport. AGL specializes in moving
bulk, break bulk, containerized and project cargo under its coastal shipping business.
AGL has six mid-sized ships, out of which, five shipping vessels are owned and one is
a chartered ship. It has recently acquired two ships for its coastal shipping business
which have an aggregate capacity of 24,000 DWT against a dedicated MNC contract
for 2+2 yrs.
Allcargo Logistics
October 07, 2015 24
PES is an asset-heavy business; catching the cycle right is important
AGL invested ~Rs7.2bn for acquiring the equipment fleet during the slump of FY10-
FY13 period. Though AGL was caught in the down-cycle and was hit badly for two
consecutive financial years i.e., FY13 & FY14, the environment in the PES segment
improved in FY15. Further, with economy expected to pick-up pace with increased
corporate capex and Govt. spending over the next two years, high equipment
utilization levels and firm pricing will help the segment to almost double the EBIT
from 0.7bn to 1.35bn over FY15-FY17 period. However, this segment has high
working capital requirement which is normally between 75-90days.
Exhibit 45: Investments over last five years
2,368
3,937
937
464
32 -
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
CY10 FY12* FY13 FY14 FY15
(Rs
m)
PES capex cycle
peaked in FY12
Source: Company Data, PL Research *for 15 months period
Exhibit 46: EBIT to almost double over FY15-FY17E period
0
200
400
600
800
1,000
1,200
1,400
1,600
FY13 FY14 FY15 FY16E FY17E
(Rs
m)
Source: Company Data, PL Research
Exhibit 47: Cycle in PES clearly turning around
15.816.7
4.7
1.6
9.2
0.0
5.0
10.0
15.0
20.0
CY10 FY12 FY13 FY14 FY15
RoCE (%)
Source: PL Research estimates *for 15 months period
Allcargo Logistics
October 07, 2015 25
Assumption Sheet
Exhibit 48: Assumption Table (Rs m)
FY13 FY14 FY15 FY16E FY17E
MTO Segment
Revenues 31,824 41,248 47,308 50,914 56,227
Freight and other ancillary cost 23,120 30,153 34,563 37,167 41,046
Gross Profit 8,704 11,095 12,745 13,747 15,181
Gross profit Margin (%) 27.3% 26.9% 26.9% 27.0% 27.0%
Volumes (TEUs) (Cons) 284,726 334,870 422,200 464,420 510,862
Realization per TEUs (Rs) 111,770 123,177 112,052 109,629 110,063
EBIT 1,484 1,558 1,896 2,090 2,299
EBIT Margin 4.7% 3.8% 4.0% 4.1% 4.1%
EBIT/TEU (Rs) 5,212 4,653 4,490 4,500 4,500
CFS Segment
Revenues 3,080 3,121 3,875 4,248 4,730
Handling, Transportation and Fuel charges 1,113 1,288 1,772 1,954 2,176
Gross Profit 1,967 1,833 2,103 2,294 2,554
Gross profit Margin (%) 63.9% 58.7% 54.3% 54.0% 54.0%
EBIT 1,140 962 1,090 1,190 1,324
EBIT Margin 37.0% 30.8% 28.1% 28.0% 28.0%
Volumes (TEUS) 258,859 250,209 291,572 319,395 355,380
PES Segment
Revenues 4,290 4,131 4,976 5,767 6,184
Project operating and hiring expenses + Power & Fuel 2,723 2,548 2,972 3,460 3,711
Gross Profit 1,567 1,583 2,004 2,307 2,474
Gross profit Margin (%) 36.5% 38.3% 40.3% 40.0% 40.0%
Asset Utilization % 79 70 79 93 95
Consolidated Turnover 39,193 48,500 56,160 60,930 67,141
Consol EBIT 3,033 2,656 3,731 4,335 4,963
EBIT Margins (Cons) 7.7% 5.5% 6.6% 7.1% 7.3%
EUR INR (Rate) 70 81 78 74 74
Tax Rate 21.9 21.2 22.1 24.0 25.0
Source: Company Data, PL Research
Allcargo Logistics
October 07, 2015 26
Financials
AGL is expected to generate cash profit in excess of Rs9.7bn over the next two years
AGL is expected to show good overall performance across all its business segments
buoyed by good volume growth in MTO and turnaround in the PES division. EBIT in
the PES in FY16E is expected to get back to the FY12 levels based on the strong
utilization rate of 95% already shown in Q1FY16. Further, with bulk of capex behind
barring any unforeseen acquisition in MTO, AGL is expected to be theoretically a
debt-free company in FY16.
Exhibit 49: Cash profit over FY13 –FY17E period
3,171 3,248
3,973
4,566
5,216
0
1,000
2,000
3,000
4,000
5,000
6,000
FY13 FY14 FY15 FY16E FY17E
(Rs
m)
Source: Company Data, PL Research
Exhibit 50: EBITDA growing @15% over FY15-FY17E
3,562 3,913
4,754
5,737 6,301
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
FY13 FY14 FY15 FY16E FY17E
(Rs
m)
Source: Company Data, PL Research
Exhibit 51: Strong PAT growth of 20% over FY15-FY17E
1,697 1,493
2,399
2,945
3,476
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
FY13 FY14 FY15 FY16E FY17E
(Rs
m)
Source: Company Data, PL Research
Allcargo Logistics
October 07, 2015 27
Strong cash flows has historically funded capex
AGL, over the years, has used cash flow from operations to build the MTO business
through the inorganic route. Major Capex in the Indian operations (CFS and PES)
during FY10-FY13 period, were funded by internal accruals, Equity issuances
(Rs1.1bn in CY10) and Debt (Rs6bn during FY11 to FY14). However, with strong cash-
flows in FY14 & FY15, net debt levels have started coming off from a peak of Rs6.9bn
in FY14 to Rs4.2bn in FY15 and ~Rs3.2bn at the end of Q1FY16.
Domestic debt gradually inching lower over the last four years
AGL over the last four years has gradually reduced its high cost domestic debt.
Further, with most of the capex cycle behind in PES and CFS division, AGL is in a
sweet spot with strong balance sheet (D/E ratio at 0.15x for FY16E) and improving
return ratios. Strong cash flows generated over the next few years will further
reduce debt and help AGL pursue new growth opportunities.
Exhibit 52: Consolidated Debt (Rs m)
CY10 FY12* FY13 FY14 FY15
Consolidated Debt
Debt 3,778 7,626 7,234 9,875 6,095
Cash 2,749 1,773 2,320 2,994 1,930
Net Debt 1,029 5,853 4,914 6,882 4,165
Overseas Debt
Debt 1,305 2,036 2,551 5,529 3,353
Cash 1,853 1,339 1,323 1,696 1,696
Net Debt -548 697 1,228 3,833 1,657
Standalone debt
Standalone debt 2,473 5,590 4,683 4,346 2,742
Cash 896 434 998 1,298 234
Net Debt 1,577 5,156 3,686 3,049 2,508
Source: Company Data, PL Research *for 15 months period
AGL capex cycle has moderated over the
last two years and is focusing on improved
utilization of assets created
Allcargo Logistics
October 07, 2015 28
Valuation and Outlook
With container volumes largely stable and domestic industrial activity showing signs
of revival, growth outlook for AGL looks fairly decent. The performance in NVOCC
segment has shown a 22% CAGR volume growth over FY13-FY15 period despite
weak global growth as AGL primarily operates in LCL segment which is more immune
to sluggishness in FCL trade. Strong domestic presence across the CFS and Project
Engineering space is expected to bode well for AGL as it benefits from the domestic
capex cycle recovery. AGL trades at 11.3xFY17E earnings, P/BV of 1.6x, D/E ratio of
0.11x and EV/EBITDA of 5.5x which is reasonable entry point considering 20.4%
CAGR PAT over FY15-FY17E period, improving return ratios and strong management
bandwidth. We initiate coverage on AGL with a ‘BUY’ and a Target price of Rs386
valuing the company on PER of 14x FY17E.
Exhibit 53: 1 Yr forward P/E Chart
Source: Company Data, PL Research
Exhibit 54: 1 Yr forward P/BV Chart
Source: Company Data, PL Research
AGL offers an attractive play on global & local logistics segment with significant
presence in Projects Engineering and services which benefits out of the capex cycle
recovery.
Exhibit 55: Comparative Valuations
Bloomberg Code
Mcap (bn)
Sales (m) P/E (x) RoE (x) EV/EBITDA (x) CY/FY15-CY/FY17
CAGR (%)
CY14 / FY15
CY15E FY16E
CY16E FY17E
CY14 / FY15
CY15E FY16E
CY16E FY17E
CY14 / FY15
CY15E FY16E
CY16E FY17E
CY14 / FY15
CY15E FY16E
CY16E FY17E
Sales EBITDA PAT
International (CHF)
PWTN SW 2.6 6,707 6,333 6,614 30.2 25.0 18.7 12.3 14.6 18.3 12.9 12.4 10.0 (0.7) 17.5 26.8
KNIN EU 15.3 17,501 20,071 21,067 24.1 23.1 21.3 25.4 27.9 31.5 14.7 14.6 13.8 9.7 3.7 6.3
Domestic (Rs)
AGLL IN 39.2 56,288 60,930 67,141 16.3 13.3 11.3 13.0 14.5 15.0 9.1 6.7 5.5 9.2 15.1 20.4
SGM IN 13.6 3,060 4,380 5,544 168.9 18.5 11.6 1.2 10.3 14.7 9.0 5.7 4.3 34.6 43.9 281.5
GDPL IN 37.3 11,113 11,573 13,614 19.9 22.7 18.6 21.3 16.0 17.6 12.7 12.2 10.2 10.7 10.7 4.4
Source: Company Data, Bloomberg, PL Research
11.8
16.4
10.6
10.2
4.60.0
5.0
10.0
15.0
20.0
Mar
-09
Sep
-09
Feb
-10
Jul-
10
Dec
-10
May
-11
Oct
-11
Ap
r-1
2
Sep
-12
Feb
-13
Jul-
13
Dec
-13
May
-14
No
v-1
4
Ap
r-1
5
Sep
-15
P/E (x) Peak(x)
Avg(x) Median(x)
1.62.3
1.4
1.4
0.5
0.0
0.5
1.0
1.5
2.0
2.5
Mar
-09
Sep
-09
Feb
-10
Jul-
10
Dec
-10
May
-11
Oct
-11
Ap
r-1
2
Sep
-12
Feb
-13
Jul-
13
Dec
-13
May
-14
No
v-1
4
Ap
r-1
5
Sep
-15
P/B (x) Peak(x)
Avg(x) Median(x)
Allcargo Logistics
October 07, 2015 29
Though there is no direct listed comparable for AGL, we have collated valuation
sheet for significant players in the business segments where it operates. Panalpina
group and Kuehne+Nagel International are significant players in global ocean freight
where AGL operates through the MTO (ECULINE) division. Similarly, two other listed
companies Sanghvi Movers (Bloom Code: SGM IN) and Gateway Distriparks (Bloom
code: GDPL IN) are significant listed players in Equipment rental & CFS business,
respectively.
Exhibit 56: Sanghvi Movers and AGL’s PES segment both derive significant revenues from crane leasing
Sanghvi Movers All Cargo PES segment*
FY12 FY13 FY14 FY15 FY12 (15M) FY13 FY14 FY15
Revenues 4,505 3,392 2,444 3,082 4,969 4,290 4,131 4,976
EBIT 2,048 1,136 179 585 1,081 409 135 745
PAT 1,018 409 (145) 81 NA NA NA NA
Cranes 375 cranes; >90% of cranes above 100T Equipment fleet which includes 143 cranes
EV - (Rs M) 16,027
Mcap – (Rs M) 13,597
Source: Company Data, Bloomberg, PL Research
PES division is strictly not comparable between SGM and AGL since for AGL, its PES
division also involves project logistics and coastal shipping. However, AGL has the
second largest heavy Engineering crane fleet after SGM in the listed space. Similarly,
AGL and GDPL have major CFS capacities, both located at Mumbai and Chennai.
Exhibit 57: AGL compares well with the GDPL’s CFS Business
Gateway Distriparks CFS Segment* AGL CFS Segment
FY13 FY14 FY15 FY13 FY14 FY15
Capacity (TEUs) 550,000 570,000 620,000 573,000 573,000 573,000
Volumes carried (TEUs) 342,662 340,004 387,136 258,859 250,209 291,572
Revenues In CFS 3,150 2,274 3,368 3,080 3,121 3,875
EBITDA Rs (M) 1,510 1,225 1,369 1,090 1,120 1,300
EBITDA Margin (%) 47.9% 53.9% 40.6% 35.4% 35.9% 33.5%
EV - (Rs M) 40,769
Mcap – (Rs M) 37,277
Source: Company Data, Bloomberg, PL Research (*EV for GDPL and AGL cannot be compared as GDPL also houses rail division and cold storage)
Allcargo Logistics
October 07, 2015 30
Risks and Concerns
Large acquisitions in MTO segment to enhance reach or consolidate existing position in the region
AGL has been using Ecu-Line’s cashflow to grow inorganically over the years. The
company has been acquiring companies which strategically complement Ecu-Line’s
existing operations every 2-3 years. AGL has, thus, far acquired companies in the
range of 6-12x EV/EBITDA and with a maximum deal size value of US$50m. Any large
acquisitions than the usual ticket size of US$20-50m and at a multiple above 10x
EV/EBITDA can not only drain the existing cash flows but can have adverse impact on
D/E ratios in the near term.
AGLL has gone in public record that they expect to achieve US$2bn revenue by 2020
and to achieve the same they may need to invest US$500mn. While the FY15-17E
cash generation is likely to be short of the funding requirement, should the company
go through any acquisition, further issuance of equity or increase in debt cannot be
ruled out.
Goodwill of Rs8.3bn poses an Impairment risk
AGL has over 100 subsidiaries that have been acquired over the past decade. If the
performance of any of its subsidiaries weakens for a couple of years, AGL estimates
the recoverable amount of the asset by forecasting future cash flows. If the
recoverable amount of the discounted cash flow is less than the carrying account of
the asset, there are chances of impairment of the goodwill. This reduction is treated
as an impairment loss and is recognized in the statement of P&L. AGL has goodwill
on consolidation of Rs8.3bn which is not amortized but is tested for impairment on
each balance sheet date and impairment losses are recognised, where applicable.
Currency translation Risk
Global operations for AGL have significant exposure to currency volatility leading to
currency translation impact on reported financials on the balance sheet date.
Though these are notional losses, reported financials may show a distorted picture
not actually reflecting the underlying strength or weakness of global business.
Liability Risk
Liability Risk arises out of any damage to cargo, equipment, life and third parties due
to existing business operations. However, AGL attempts to mitigate this risk through
contractual obligations and insurance policies.
Allcargo Logistics
October 07, 2015 31
Income Statement (Rs m)
Y/e March 2014 2015 2016E 2017E
Net Revenue 48,594 56,288 60,930 67,141
Raw Material Expenses 34,039 39,381 41,931 46,622
Gross Profit 14,556 16,908 18,999 20,520
Employee Cost 7,276 8,566 9,423 9,988
Other Expenses 3,366 3,587 3,839 4,230
EBITDA 3,913 4,754 5,737 6,301
Depr. & Amortization 1,755 1,574 1,621 1,740
Net Interest 563 535 359 222
Other Income 365 526 219 401
Profit before Tax 1,960 3,171 3,976 4,741
Total Tax 416 700 954 1,185
Profit after Tax 1,544 2,472 3,021 3,556
Ex-Od items / Min. Int. 51 112 117 124
Adj. PAT 1,493 2,399 2,945 3,476
Avg. Shares O/S (m) 126.2 126.2 126.2 126.2
EPS (Rs.) 11.8 19.0 23.3 27.5
Cash Flow Abstract (Rs m)
Y/e March 2014 2015 2016E 2017E
C/F from Operations 3,107 4,300 4,776 5,594
C/F from Investing (4,390) (27) (1,117) (1,624)
C/F from Financing 1,350 (3,957) (2,241) (1,216)
Inc. / Dec. in Cash 67 316 1,418 2,755
Opening Cash 1,314 1,596 1,659 3,078
Closing Cash 1,596 1,659 3,078 5,833
FCFF 133 5,476 4,756 3,845
FCFE 2,774 1,695 1,894 3,293
Key Financial Metrics
Y/e March 2014 2015 2016E 2017E
Growth
Revenue (%) 23.8 15.8 8.2 10.2
EBITDA (%) 9.9 21.5 20.7 9.8
PAT (%) (12.0) 60.6 22.7 18.0
EPS (%) (12.0) 60.6 22.7 18.0
Profitability
EBITDA Margin (%) 8.1 8.4 9.4 9.4
PAT Margin (%) 3.1 4.3 4.8 5.2
RoCE (%) 9.4 13.3 16.1 18.0
RoE (%) 8.8 13.0 14.5 15.0
Balance Sheet
Net Debt : Equity 0.4 0.2 0.0 (0.2)
Valuation
PER (x) 26.2 16.3 13.3 11.3
P / B (x) 2.2 2.1 1.8 1.6
EV / EBITDA (x) 12.1 9.2 6.7 5.5
EV / Sales (x) 1.0 0.8 0.6 0.5
Earnings Quality
Eff. Tax Rate 21.2 22.1 24.0 25.0
Other Inc / PBT 18.6 16.6 5.5 8.5
Eff. Depr. Rate (%) 8.4 7.6 7.5 7.5
FCFE / PAT 185.8 70.7 64.3 94.7
Source: Company Data, PL Research.
Balance Sheet Abstract (Rs m)
Y/e March 2014 2015 2016E 2017E
Shareholder's Funds 17,931 19,079 21,657 24,691
Total Debt 9,875 6,095 3,233 2,681
Other Liabilities 1,847 1,562 1,731 1,852
Total Liabilities 29,653 26,735 26,622 29,225
Net Fixed Assets 14,011 12,605 11,983 11,744
Goodwill 8,710 8,314 7,898 7,503
Investments 3,132 3,146 3,268 3,395
Net Current Assets 3,800 2,672 3,473 6,582
Cash & Equivalents 1,647 1,738 3,729 6,968
Other Current Assets 8,798 8,659 9,264 10,019
Current Liabilities 6,645 7,726 9,520 10,404
Other Assets
Total Assets 29,653 26,735 26,622 29,225
Quarterly Financials (Rs m)
Y/e March Q2FY15 Q3FY15 Q4FY15 Q1FY16
Net Revenue 14,618 14,317 14,152 14,779
EBITDA 1,178 1,325 1,060 1,369
% of revenue 8.1 9.3 7.5 9.3
Depr. & Amortization 391 372 384 362
Net Interest 141 140 89 91
Other Income 147 116 191 44
Profit before Tax 793 928 777 960
Total Tax 132 187 222 190
Profit after Tax 636 718 555 751
Adj. PAT 636 718 555 751
Key Operating Metrics
Y/e March 2014 2015 2016E 2017E
Segment Revenues
MTO 41,248 47,308 50,914 56,227
CFS 3,121 3,875 4,248 4,730
PES 4,131 4,976 5,767 6,184
EBIT
MTO 1,558 1,896 2,090 2,299
CFS 962 1,090 1,190 1,324
PES 135 745 1,055 1,340
Capital Employed
MTO 12,490 11,145 11,600 11,750
CFS 4,198 4,237 4,387 4,537
PES 8,312 7,916 8,616 8,916
Others 4,361 3,234 2,630 2,630
Source: Company Data, PL Research.
Allcargo Logistics
October 07, 2015 32
Prabhudas Lilladher Pvt. Ltd.
3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai-400 018, India
Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209
Rating Distribution of Research Coverage PL’s Recommendation Nomenclature
43.8% 43.8%
12.4%
0.0%0%
10%
20%
30%
40%
50%
BUY Accumulate Reduce Sell
% o
f To
tal C
ove
rage
BUY : Over 15% Outperformance to Sensex over 12-months
Accumulate : Outperformance to Sensex over 12-months
Reduce : Underperformance to Sensex over 12-months
Sell : Over 15% underperformance to Sensex over 12-months
Trading Buy : Over 10% absolute upside in 1-month
Trading Sell : Over 10% absolute decline in 1-month
Not Rated (NR) : No specific call on the stock
Under Review (UR) : Rating likely to change shortly
DISCLAIMER/DISCLOSURES
ANALYST CERTIFICATION
We/I, Mr. Nishna Biyani (BE, MBA-Finance), Mr. Keyur Pandya (Mcom, MBA-Finance), Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.
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