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Allcargo Logistics Ltd.

Initiating Coverage ▐ Sector: Transport & Logistics

Date: 25/03/2015

Rating BUY

CMP `310.0

Recommended Price `310.0

Target Price `400.0

View 1 Year & Above

Share Holding %

Promoters 69.92

FII 6.15

FI/MF/Insurance Co. 0.03

Bodies Corporate 1.19

Public & Others 22.71

StockData

Market Cap `3907.48Cr

52 Week High/Low `357.7/137.75

Sector Logistics

Bloomberg Code AGLL:IN

Reuters Code ACLL.NS

Bse Code 532749

Nse Code ALLCARGO

Outstanding Shares 126,047,762

Face Value `2

Allcargo Logistics part of the Awashya group is an integrated logistics

multinational, headquartered in India. Allcargo operates across 90 plus

countries through 200 plus offices globally. Allcargo’s service basket

comprises of global Multimodal Transport Operations (NVOCC, LCL, FCL),

pan India Container Freight Stations/Inland Container Depot operations,

Project & Engineering Solutions, Ship Owning & Chartering and 3PL &

Warehousing services.

Allcargo’s Multimodal Transport Operations is the backbone of the company,

with the segment contributing about 85% of the total revenues while it’s

Container Freight Stations and Project & Engineering Solutions businesses

chip in about 7.1% and 8.9% respectively to the operating income.

Over the last few years Allcargo has grown at a staggering pace in the

logistics domain aided by both organic and inorganic growth, to emerge as

the pioneers and leaders in the integrated logistics solutions space in India

and the global leader in LCL consolidation business.

During the first nine months of current fiscal, its consolidated operating

income surged 18.1% over the corresponding period last year to Rs. 4,214.02

crores while its Net Profit grew 33.8% over the 9M FY14 to Rs. 184.41

crores. EBITDA margins inched up 50 basis points to 8.7% during 9M FY15.

Key Triggers

Indian logistics industry is expected to witness healthy growth on the

back of economic revival.

LCL business will drive Allcargo’s future growth through organic and

inorganic growth.

Revival in EXIM trade will likely translate into higher demand for

containerization.

Project Engineering & Solutions business is glaring at a substantial

growth due to expected pick up in infrastructure activities.

Risks

Reversal from the initial signs of U.S. economic growth, slump in

European Union.

Geo-Political risks can pose serious challenge to company’s business.




Date: 25/03/2015

Allcargo Logistics is present in

more than 90 countries.

Multimodal Transport Operations

is transport of goods through

various modes of transport viz.

rail, road, sea and air.

MTO segment contributes about

85% of the total revenues.

Allcargo Logistics is an integrated multinational logistics company with

diversified presence across multiple logistics sectors including ocean & air

freight-forwarding, container freight stations (CFS), inland container depots

(ICD), project cargo, equipment rentals, Third Party Logistics (3PL) and

coastal shipping. Allcargo is globally present with more than 200 offices in

90+ countries covering over 4,000 port pairs managed by a strong

management team with experienced industry officials.

Company’s various businesses are housed under three major verticals, viz.

Multimodal Transport Operations (MTO), Container Freight Stations (CFS)

and Project & Engineering Solutions (P&E).

Multimodal Transport Operations (MTO)

MTO is transportation of goods under a single contract, but performed with

at least two different means of transport and where the carrier is liable for

the entire carriage, even-though it is performed by several different modes of

transport (by rail, sea and road). The carrier does not have to possess all the

means of transport and the carriage is often performed by sub-carriers. The

carrier responsible for the entire carriage is referred to as multimodal

transport operator.

Multimodal Transport Operations comprises Non Vessel Operating Common

Carrier (NVOCC) which constitutes Less than Container Load (LCL), Full

Container Load (FCL) and other value added services. MTO business is the

backbone of the company as it contributes about 85% of the total operating

income.

MTO segment involves NVOCC operations related to LCL Consolidation,

FCL Forwarding activities in India and across the world through its wholly

owned subsidiary, ECU Line. Less than Container Load cargo is the cargo

which is insufficient either in quantity or in weight to qualify for the freight

rates applied to a standard shipping container.




Date: 25/03/2015

LCL market accounts for about 8%

of the total container trade globally.

LCL Consolidation business

generates high Return on Capital

Employed (ROCE).

LCL Consolidation involves the movement of less than container load cargo

from an inland container depot to a nominated hub terminal under customs

seal. At the nominated, hub terminal, the sealed containers are opened and

the cargo re-worked on a destination wise basis without having to be

subjected to re-examination by customs. In 2012, the LCL market globally

accounted for about 8% of the total estimated container trade of about

600mn TEUs (Twenty Foot Equivalent Units).

LCL Consolidation is the asset light business with high returns on invested

capital, resilient to global market volatility which is evident from the fact

that the Global LCL Consolidation industry grew by 4% - 5% per annum in

last 3 years which were marred by slow economic growth globally.




Date: 25/03/2015

Allcargo has made substantial strides to become one of the biggest player

in the niche segment of LCL Consolidation since it first ventured into LCL

Consolidation as an agent of ECU Line in 1995. However, in 2005 – 06, the

company acquired ECU Line which was one of the largest NVOCC in the

world and 4 times larger than Allcargo, at the time of acquisition. Allcargo

had been successful in integrating the ECU Line with itself and on the

success of which it acquired 2 NVOCC operators in China in 2010 which

had extensive operations in Hong Kong, China and other parts of the

eastern region.

As late as in 2013, Allcargo acquired another LCL Consolidator,

Econocaribe Consolidators – 3rd largest NVOCC in the U.S. which has 9

offices and 22 receiving locations in the U.S.A. and Canada, to foray into

the U.S.A and Canada markets and take the pole position in LCL

Consolidation business globally by overtaking Vanguard Logistics Group

of the U.S.A which is the largest LCL operator in the world.

String of acquisitions made by Allcargo has acted as a catalyst to expand

and consolidate its network, gain footprint in major economies of the world

and add more product lines for customers. Income from the MTO division

of the company has grown at a CAGR of 10.6% over FY12 – 14 to Rs.

4,153.98 crores. EBIT Margins has remained steady at 4.7%.

During the first nine months of the current fiscal, income from MTO

division has grown at 17.7% over the same period last year to Rs. 3,591.03

crores while its EBIT margins has increased by 60 bps to 4.7% in 9M

FY15. During the period under review, Allcargo transported about 318,000

TEUs as compared to 335,000 TEUs it transported in the entire of FY14.

String of acquisitions across

geographies enabled it to become one

of the largest LCL Consolidators in

the world.

Acquired Econocaribe Consolidators

to consolidate its position in LCL

Consolidation business in the world

Allcargo has been successful in

integrating the acquired companies

with itself




Date: 25/03/2015

Allcargo has elite set of customers from across the world and includes

names like DHL, FedEx Express, Mitsubishi Logistics, APL Logistics,

Nippon Express, Reliance Industries Ltd., Vedanta, NTPC, JSW group,

among others. Asia Pacific region generates maximum MTO business with

the region contributing about 56% while Europe, Americas and Africa

completing the balance pie with contributions of 25%, 19% and 2%

respectively.

Allcargo has adopted a complementary strategy, wherein it depends upon

shipping lines for its Container Freight Stations business and in return it

gives shipping lines container volumes of its MTO business, making both

the parties interdependent on each other for some part of their business

during bad times too.

Company has also set its foot in the FCL (Full Container Load) business

by acquiring 75% stake in the Rotterdam (Netherlands) based FCL Marine

Agencies in 2013. FCL Marine Agencies is a leading neutral NVO service

provider in FCL segment with operations in Europe, U.S.A. and Canada.

Company through its strong network across world, provides complete air

freight solutions including custom clearances through its wholly owned

subsidiary – Hindustan Cargo Limited.

Elite set of customers with the likes

of DHL, FedEx Express, Mitsubishi

Logistics, Nippon Express, etc.

Complementary strategy to develop

CFS business




Date: 25/03/2015

CFS and ICD are transit facilities

offering services for containerization

of break-bulk cargo.

Container Freight Stations (CFS)/ Inland Container Deport (ICD).

Container Freight Stations / Inland Container Depot are common user

facilities with public authority status and equipped with fixed

installations, offering services for handling and temporary storage of

import/export laden and empty containers carried under customs control

and with Customs and other agencies competent to clear goods (cargo) for

home use, warehousing, temporary admissions, re-export, temporary

storage for onward transit and outright export.

Functionally there is no distinction between a CFS and ICD as both are

transit facilities, which offer services for containerization of break bulk

cargo and vice-versa through rail and/or road transport. However, an

ICD is generally located in the interiors of the country away from the

servicing ports while CFS is an off dock facility located near the servicing

ports which helps in decongesting the port by shifting cargo and Customs

related activities outside the port area. CFS are largely expected to deal

with break bulk cargo originating/terminating in the immediate

hinterland of a port and may also deal with rail borne traffic to and from

inland locations.

Allcargo had leveraged its relationships with freight forwarders and

major shipping lines by entering into CFs division in 2003 by setting up

its first Container Freight Station at JNPT port near Mumbai.

Currently, Allcargo operates 4 CFSs located at 2 in JNPT and 1 each in

Chennai and Mundra ports and 2 ICDs one in Dadri and one in Kheda

(Indore). CFS/ICD operations of the company involves import / export

cargo stuffing, de-stuffing, customs clearance and other related ancillary

services to both importers and exporters. Allcargo’s consolidated total

capacity of its CFSs and ICDs stood at 633,000 TEUs per annum.

Allcargo Logistics operates 4 CFS and

2 ICDs located in various parts of

India.




Date: 25/03/2015

Snapshot of Allcargo’s CFS/ICD facilities

JNPT - I

CFS

JNPT –

II CFS

Chennai

CFS

Mundra

CFS

Kheda

ICD

Dadri

ICD

Nearest Port/Rail

Siding18 kms 18 kms 7 kms 7 kms 3 kms 0.3 kms

Annual Capacity144000

TEUs

145000

TEUs

145000

TEUs

84000

TEUs

40000

TEUs

75000

TEUs

Land Area 23.5 acres 43 acres 24 acres 16 acres 14 acres 11 acres

Paved Yes Yes Yes Yes Yes Yes

Warehouse Area 11400 m2

22800 m2

14257 m2

12210 m2

3100 m2

5160 m2

Bonded Warehouse Yes Yes Yes No No No

Weighbridge Yes Yes Yes Yes Yes Yes

Trailers 130 40 25 45 35 10

Cranes 1 x 70 mt - - 1 x 50 mt - -

Reach Stackers 8 2 6 4 1 1

Forklifts 19 20 22 9 2 2

Reefer Points 32 32 22 15 6 48

RTGC (rubber tired

gantry crane)- Yes Yes - - -

Source: Company




Date: 25/03/2015

Allcargo Logistics is one of the

largest CFS operators with presence

at key container ports.

Allcargo is one of the largest CFS operators in India having presence at

key container ports of the country viz. JNPT, Chennai and Mundra which

are in proximity to industrial hubs, carry majority of the volumes and are

preferred choice of customers due to their strategic locations and they

collectively handle more than 75% of container cargo of India.

Allcargo Logistics has developed only about 50% of the land at 2nd CFS at

JNPT and has also land bank of more than 200 acres across 3 strategic

locations viz. Hyderabad, Bengaluru and Nagpur, offering opportunity to

ramp up capacities as demand picks up. Company also continues to

explore opportunities to set-up CFSs at new and upcoming ports and;

establish pan-India ICD presence through strategic JVs. Allcargo’s owned

fleet of trailer, RTGs, reach stackers and forklifts supports transportation

of containers between CFSs and ports.




Date: 25/03/2015

CFS business has witnessed pick – up

during the first nine months of FY15.

Revenues from CFS operations have fallen at a CAGR of 4.6% during

FY12 – FY14 to Rs. 320.94 crores and EBIT margins have also come

down to 26.1% in FY14 from 45.8% in FY12. Fall in revenues and

margins are attributed to falling EXIM trade during the period. However

in the first nine months of the current fiscal, revenues from CFS

operations have grown by 23.5% over the corresponding period of

preceding fiscal to Rs. 298.76 crores while EBIT margins have inched up

by 60 basis points from 26.1% at the end of FY 14 to 26.7% during the

period under review.

During the nine months ending December 2015, CFS business handled

volume of 161,000 TEUs as against 187,000 TEUs for the entire fiscal of

2014. Out of the total volume handled in 2014, 80% was related to

imports while balance 20% was of exports.

Allcargo operates its business model with unique synergies between

MTO and CFS businesses as it leases container space with major

shipping lines for its clients in MTO segment and on the other hand, it

gets clients of CFS from the same shipping companies.

Business model synergizes MTO and

CFS business.




Date: 25/03/2015

Fleet Strength

Equipment Type As on 31st March 2014

Trailers 585

Hydraulic Axles 201

Cranes 143

Reach Stackers and Forklifts 79

Prime Mover 20

Ships 3

Others 3

Total 1,034

Source: Company

Allcargo provides integrated end-to-end

project, engineering and logistics

services through a diverse fleet of

special equipments.

Project and Engineering Solutions

Allcargo Logistics through its Project & Engineering Solutions division,

provides integrated end-to-end project, engineering and logistics

services through a diverse fleet of owned / rented special equipment like

hydraulic axles, cranes, barges, reach – stackers and ships to carry ODC

(Over Dimensional Consignment) / OWC (Over Weight Cargos) as well

as project engineering solutions across various sectors.

Company’s P&E division combines equipment leasing, project

movement and coastal shipping as the company focuses to provide

integrated logistics solutions to clients and at the same time also

harnessing synergies from MTO and CFS verticals. With this, the

company is planning to build niche business offering translating into

customer stickiness and higher margins.

Allcargo owns a diverse fleet of over 1,000 equipments including cranes,

hydraulic axles, trailers, reach – stackers, forklifts, prime movers,

barges and coastal vessels to serve diversified customer base

representing some of the major infrastructure sectors of the Indian

economy with long term strategic value.

Allcargo owns a diverse fleet of over

1,000 equipments catering to major

infrastructure sectors.




Date: 25/03/2015

Forged international partnerships to

tap heaviest erection jobs across India

Company has forged international partnerships with Netherlands based

Mammoet to provide crawler lattice boom cranes from 1,000 MT up to

5,000 MT besides technical support foe erection and lift plan. Allcargo

also exclusively represents Germany’s Hansa Heavy Lift – world leader in

heavy lift business, with 21 multipurpose heavy-lift freighters.

Allcargo’s Project & Engineering Solutions divisions’ income has fallen by

10.0% CAGR over FY12 – FY14 to Rs. 446.32 crores due to sluggish

economic environment and limping infrastructure sector. Its EBIT

margins also collapsed from 20.3% in FY12 to 1.9% in FY14. However,

P&E division has witnessed some signs of revival during the first nine

months of FY15 as the income from the division has registered growth of

13.5% over the matching period last year to Rs. 375.38 crores. EBIT

margins have however, come down by 150 basis points to 11.0% during

9M FY15 from 12.5% during 9M FY14.

Allcargo has consistently increased its fleet size on the back of trust and

reliability bestowed by its customers from the thermal power, wind

power, engineering, infrastructure, cement and steel sectors.

Fleet size caters to varied

infrastructure sectors.




Date: 25/03/2015

Indian logistics industry is expected to

reach Rs. 21.5 trillion size by FY16.

LCL Consolidation business is the

pivot of the company’s future growth

due to its vast experience.

India’s container transport comprises

of about 21% - 22% of total cargo

traffic as compared to global average

of about 70% - 75%.

Indian logistics industry is expected to witness healthy growth to touch

Rs. 21.5 trillion by FY16. The growth in the Indian logistics industry is

expected to be led mainly by volume growth in containerization,

development of new terminals at ports which will result in incremental

growth in volumes, dedicated freight corridors, Delhi – Mumbai

Industrial corridor and new business segments like 3PL and cold chain

facilities.

Allcargo is well placed to capture the growth in the logistics sector due its

presence in various segments of the industry viz. Multimodal Transport

Operations, Container Freight Stations/ Inland Container Depot, 3PL &

Warehousing and upcoming segment in the nature of coastal shipping.

LCL Consolidation is a highly fragmented market globally with industry

consolidation being witnessed in last few years. Allcargo's subsidiary,

Eculine has demonstrated strong capabilities in identifying suitable and

value accretive acquisition opportunities.

Company due to its long standing experience in the LCL Consolidation is

racing ahead and it further plans to expand its business in high growth

markets like Far East and China, selectively opening new offices to serve

additional port pairs and setting up warehouses in Antwerp, Rotterdam,

Dubai and Shanghai.

Containerization is gaining traction ever year and has risen to about 20%

in the EXIM trade from approximately 11.5% a decade ago. Container

transport constitutes about 21% - 22% of India’s cargo traffic which is

much below the global average of 70% - 75%.




Date: 25/03/2015

Infrastructure led growth especially

in sectors like power, cement, public

transport, oil & gas, steel, etc. will

increase the demand for specialized

transport solutions.

EXIM trade is likely to witness robust growth going forward on the back of

improvement in economic growth in India as well as in other part of the

world (though at a slower pace), demographic and lifestyle changes in

India, urbanization and growth of secondary cities. Government’s thrust

on “Make in India” can provide the right lever to the EXIM trade as it

envisages making India a manufacturing hub. Allcargo is expected to

enjoy the fruits for the investments it has made in CFSs/ICDs as revival in

EXIM trade will translate into higher container traffic.

India is at the cusp of the second economic revolution which will be

demand significant investments in infrastructure sector. Huge

investments is expected in power sector which will not be restricted to only

Greenfield projects but will also extend to transmission and distribution

segments as well. Government’s increased focus on building up capacities

of green and renewable energy will also attract higher investments.

Cement capacities in India is expected to grow to 550 MT by FY20 from its

current capacity of about 370 MT. Public transport facilities like Metro

rails are fully operational in only 2 cities of the 53 Indian cities with a

population of more than one million. Almost all the state capitals are

having plans to build metro rails.

Oil & Gas sector is expected to spend about US$45 billion in India in next

few years. All these investments will drive demand for steel. Company is

expected to benefit significantly from the infrastructure led growth

especially in sectors like power, cement, public transport, oil & gas among

others as its P&E division owns a diverse fleet of over 1,000 equipments

catering to various infrastructure sectors and providing specialized

transport solutions.




Date: 25/03/2015

Allcargo is exposed to economic risks

which can impact its various

business segments and thwart its

growth.

Revival in EXIM trade is key for the

company’s growth.

Challenges

Allcargo’s business is substantially dependent on the prevailing global

economic conditions and as witnessed in the previous years, global trade

directly impacts company’s MTO business. Slowdown in infrastructure

development, inflation, changes in tax, trade, fiscal and monetary policies,

scarcity of credit, etc. may adversely affect the India as well as global

growth which in turn could affect the company’s CFS/ICD, warehousing

and P&E solutions business.

Company can be affected by the rise and fall in the levels of imports and

exports in the country. Allcargo’s CFS/ICD business will face major

challenges as it is essentially dependent on imports and exports of

containerized cargo in India. This can also have a debilitating effect on the

company’s financial matrix due to high margin nature of the business.

Company faces different levels of competition in each of its business

segment from domestic as well as multinational companies. Allcargo also

faces liability risk arising from any damage to cargo, equipments, life and

third parties which may adversely affect the business.

Execution risk is also one of the major risk that company faces as the

project execution is largely dependent upon land purchase, project

management skills and timely delivery by equipment suppliers. Any delay

in project implementation can impact revenue and profit for that period.

Soaring land prices, a complex tax structure, infrastructure bottlenecks,

retaining talent and unprecedented natural & man-made disasters and

political and social turmoil continue to pose severe risk to the business.




Date: 25/03/2015




Date: 25/03/2015

FINANCIAL SUMMARY: P&L CONSOLIDATED

Y/E MARCH (`CR)

PARTICULARS 3Q FY15 2Q FY15 3Q FY14 9M FY15 9M FY14

Net Sales 1,430.52 1,461.02 1,515.55 4,210.16 3,565.83

Other Operating Income 1.14 0.77 0.82 3.86 2.80

Other Income 11.66 14.70 12.69 34.70 32.64

Total Income 1,443.32 1,476.49 1,529.06 4,248.72 3,601.27

Total Expenditure 1,299.26 1,343.99 1,405.39 3,845.76 3,274.79

PBIDT 132.40 117.80 110.98 368.26 293.84

Gain/(Loss) on Forex fluctuations - - - - -

Interest 14.03 14.14 18.79 44.57 40.07

PBDT 130.03 118.36 104.88 358.39 286.41

Depreciation 37.22 39.05 33.24 118.98 99.49

PBT before exceptional items 92.81 79.31 71.64 239.41 186.92

Exceptional (income)/expense - - - - -

PBT 92.81 79.31 71.64 239.41 186.92

Tax 16.64 12.90 7.38 47.11 29.24

Deferred Tax 2.01 0.30 6.69 0.64 14.65

Reported Profit After Tax 74.16 66.11 57.57 191.66 143.03

Minority Interest After NP - - - - -

Profit/Loss of Associate Company (2.38) (2.48) (0.55) (7.25) (5.22)

Net Profit after Minority Interest & P/L Asso.Co. 71.78 63.63 57.02 184.41 137.81

Extra-ordinary Items - - - - -

Adjusted Profit After Extra-ordinary item 71.78 63.63 57.02 184.41 137.81

EQUITY 25.21 25.21 25.21 25.21 25.21

EPS Before Minority Interest 5.88 5.24 4.57 15.21 11.35

EPS After Minority Interest 5.69 5.05 4.52 14.63 10.93

Source: Company, Our Research




Date: 25/03/2015

FINANCIAL SUMMARY P&L CONSOLIDATED

Y/E MARCH (`CR) PARTICULARS FY13 FY14 FY 15E FY16E

Net Sales 3,926.27 4,859.43 5,588.34 6,426.60

Other Operating Income - - - -

Other Income 66.18 36.50 46.00 60.00

Total Income 3,992.45 4,895.93 5,634.34 6,486.60

Total Expenditure 3,566.26 4,463.50 5,110.54 5,886.76

PBIDT 360.01 395.93 477.80 539.83

Gain/(Loss) on Forex fluctuations - - - -

Interest 45.30 60.94 55.88 64.27

PBDT 380.89 371.49 467.92 535.57

Depreciation 147.35 175.46 153.68 176.73

PBT before exceptional items 233.54 196.03 314.24 358.84

Exceptional (income)/expense - - - -

PBT 233.54 196.03 314.24 358.84

Tax 31.97 27.65 67.56 77.15

Deferred Tax 19.24 13.94 - -

Reported Profit After Tax 182.33 154.44 246.68 281.69

Minority Interest After NP 12.94 5.11 9.37 10.70

Profit/Loss of Associate Company 0.35 - - -

Net Profit after Minority Interest & P/L Asso.Co. 169.04 149.33 237.31 270.98

Extra-ordinary Items 7.57 5.42 - -

Adjusted Profit After Extra-ordinary item 161.47 143.91 237.31 270.98

EQUITY 25.21 25.21 25.21 25.21

EPS Before Minority Interest 14.47 12.25 19.57 22.35

EPS After Minority Interest 13.41 11.85 18.83 21.50

Valuation Ratios EBITDA MARGINS (%) 9.2% 8.1% 8.6% 8.4%

EV/EBITDA 4.84 6.34 9.07 8.03

DEBT/EQUITY 0.47 0.50 0.45 0.40

DIVIDEND PAYOUT RATIO (%) 3.7% 12.7% 18.6% 18.6%

MKT CAP/ SALES 0.38 0.39 0.70 0.61

Source: Company, Our Research




Date: 25/03/2015

BALANCE SHEET CONSOLIDATED Y/E MARCH (`CR)

PARTICULARS As at 30/9/14 As at 31/3/14 Equity and Liabilities: SHAREHOLDER'S FUNDS Share Capital 25.24 25.24 Reserves & Surplus 1,828.20 1,767.88

1,853.44 1,793.12

MINORITY INTEREST 35.14 46.33 NON-CURRENT LIABILITIES Long Term Borrowings 457.07 520.75 Deferred Tax Liabilities (Net) 101.73 104.53 Other Long Term Liabilities 22.83 33.79 Long Term Provisions 36.22 32.65

617.85 691.72

CURRENT LIABILITIES Short Term Borrowings 126.45 91.98 Trade Payables 536.11 466.81 Other Current Liabilities 356.43 512.36 Short Term Provisions 22.06 27.52

1,041.05 1,098.67

TOTAL 3,547.48 3,629.84

ASSETS NON-CURRENT ASSETS Fixed Assets 1,315.49 1,385.19 Goodwill on consolidation 849.14 870.99 Non - current Investments 56.43 55.56 Deferred Tax Assets (Net) - - Long Term Loans and Advances 296.38 253.92 Other Non - current Assets 2.55 2.94

2,519.99 2,568.60

CURRENT ASSETS Current Investments 52.15 134.68 Inventories 11.27 11.41 Trade Receivables 617.24 571.50 Cash and Bank Balances 156.44 164.69 Short Term Loans and Advances 131.62 132.22 Other Current Assets 58.77 46.74

1,027.49 1,061.24

TOTAL 3,547.48 3,629.84

Source: Company




Date: 25/03/2015

Present in multiple channels of

logistics industry.

Leadership position in LCL

Consolidation, revival in EXIM trade

and pick up in infrastructure sector

will augur well for the company.

Initial signs of improvement in

business, visible during the first nine

months of FY 15 with sales and

profits rising 18.1% and 33.8%

respectively over the corresponding

period of last year.

Emerging areas like 3PL &

Warehousing and coastal shipping to

accentuate the growth in future.

Investment Rationale

Allcargo Logistics by diversifying its presence across multiple logistics

channels like ocean and air freight forwarding, container freight stations,

inland container depots, project cargo, equipment rentals, 3PL and coastal

shipping has placed itself in one of the best position to capture the high

growth as India’s long term growth prospects remain bright due to the

possession of strengths viz. demographic transition, urbanization & growth

of secondary cities, change in lifestyle patterns, etc.

Company through string of acquisitions has become one of the largest LCL

Consolidators in the world and is all set to take advantage of its dominant

position from the expected revival in EXIM trade. Allcargo’s CFS/ICD

business will also benefit as revival in EXIM trade will translate into

higher demand for containerization resulting in growth of container traffic

and pick up in infrastructure spending will bode well for its Project

Engineering & Solutions vertical.

New areas like 3PL (third party logistics) & warehousing under which it

offers value added services like packaging, labeling, segregation, etc. as per

customer requirements and coastal shipping wherein it offers a variety of

services in bulk, break-bulk and project cargo shipping across ports in

India and the sub-continent will add up to the company’s growth going

forward.

Allcargo’s operating income has grown at a CAGR of 14.1% during FY10 –

FY14 helped by acquisitions while its Profits are down by 2.6% during the

period due to slump in global economies and higher interest burden for the

debt raised to fund the acquisitions. EBITDA margins have also remained

subdued for the reasons mentioned above.




Date: 25/03/2015

Peer Comparison - Financial Ratios

PARTICULARS Year M-Cap/Sales EV/EBITDA Debt/EquityEBITDA

Margins

Interest

CoverageEPS Cash EPS P/E

Allcargo Logistics Ltd. FY 13 0.38 4.84 0.47 10.85 6.16 13.21 25.9 8.74

FY 14 0.39 6.34 0.5 8.9 4.22 11.59 25.92 13.09

Transport Corporation of India Ltd. FY 13 0.19 3.89 0.88 8.57 3.87 9.29 15.66 5.95

FY 14 0.36 6.16 0.77 8.03 4.04 9.51 15.94 11.66

Container Corporation Ltd. FY 13 3.01 7.59 0.01 31.1 373.35 45.79 82.25 15

FY 14 3.72 11.25 0 28.35 1054.45 46.63 56.62 20.89

Gateway Distriparks Ltd. FY 13 1.42 5.79 0.17 27.45 10.28 10.54 17.84 11.86

FY 14 1.79 7.34 0.25 27.23 6.65 11.32 19.75 14.77

Gati Ltd. FY 13 0.18 7.16 0.76 7.72 1.68 0.81 4.55 32.16

FY 14 0.63 12.21 0.62 8.48 2.24 3.06 5.39 26.47

Blue Dart Ltd. FY 13 2.56 17.25 0 14.22 27410 55.44 82.83 42.32

FY 14 4.54 41.07 0 10.93 6151 42.8 53.62 86.71

Source: Company, Capital Line, Our Research

Allcargo Logistics is attractively

valued.

However, for the first nine months of the current fiscal initial signs of

improvement in the financials are visible with sales and net profits rising

18.1% and 33.8% respectively over the corresponding period of last year

while EBITDA margins have also inched up to 8.7% from 8.2% registered

in 9M FY14.

Allcargo enjoys good credit rating which is evident from the fact that the

credit rating agency, CRISIL has assigned a rating of CRISIL AA-/Stable

for its long term debt and CRISIL A1+ (highest) for its short term debt.

Considering all the above factors we recommend buying Allcargo Logistics

at current market price of Rs. 320 which translates into price-to-equity

ratio of 14.88x its consolidated FY16 (E) earnings per share of Rs. 21.5 and

EV/EBITDA of 8.03 for a target of Rs. 400.0 from a long term perspective.




Date: 25/03/2015

Wellworth Wealth Management LLP

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reuters code 357.7/137.75 bse code 532749 3907.48cr nse … · 2015-03-27 · allcargo had...

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