Overview:Allcargo Logistic Ltd.

Transcription

1 DATE: 8-Feb-2018 Sector Sensex/Nifty CMP Recommended Target Price Time Horizon Transportation - Logistics / BUY Months Overview:Allcargo Logistic Ltd. Shareholding pattern promoters & promoter group DII 4.78 FII Public 9.93 Stock Details Market Cap. (Rs. Cr.) Trailing P/E Beta(12 M) 0.94 Face Value (Rs.) 2.00 EPS-TTM (Rs.) Wk H/L / Allcargo Logistics ltd is a integrated logistics solutions service provider. It provides various services such as inbound & outbound consolidation, multi-city consolidation, FCL forwarding, airfreight forwarding activities project cargo handling and transportation and CFS operations. Today it is one of the leading consolidators with 17 branches and 9 franchisees in India. The Company has made strategic investments in Ecu Hold NV Belgium ACM Lines Pty. Ltd. South Africa and has a JV with Trans-world Logistics and Shipping Services Inc. USA Incorporated in 1993 by promoter Shashi Kiran Shetty, Allcargo Logistics (a part of Avvashya Group) started operations as cargo handler at Mumbai port. Over the years through organic and inorganic route it has become a leading integrated logistics service provider. Investment Rationale A. Global presence with owned network. Global network in 160+ countries with 300+ offices covering over 4,000 port pairs, provides ability to offer pan-global services to multinational clients. Higher execution control with better visibility on the flow of cargo through presence at both ends of the cargo shipment. Covers all major economies of the world and has the ability to capture incremental cargo with pickup in global trade. Large scale enables preferential freight rates with shipping lines and leads to operating leverage. Creation of global network can be entry barrier. B. Experience management team. All the members of the management team have more than 30+ years of experience in the same field with a qualified degree. C. M.T.O is asset light business model. Being the largest player in the LCL freight-forwarding industry globally, ECU Worldwide is best positioned to benefit from increase in global cargo volumes. Exposure to global LCL(less than container load ) consolidated market where it is one of the top two player (which is fast growing sub segment in container shipping)with presence in >90 countries. D. Focus on high ROCE business: Management is moving away from the low returns business and sale of aged assets (sold one vessel), transfer of similar business to ACCI and one vessel under repairs for over 2 months. E. Creating a strong balansheet: Strong balance sheet, increasing FCF will help Allcargo to further consolidate in global LCL market and help it to make value accretive acquisitions to further spur growth. Its domestic land banks give it an opportunity to capitalize on upcoming rail DFC (dedicated freight corridor) and GST reform.

2 Company Profile Allcargo Logistics Ltd. (Allcargo), part of the Avvashya Group, is a leading logistics services player providing integrated logistics solutions. Allcargo was originally incorporated on 18 August 1993 as a private limited company as Allcargo Movers (India) Pvt. Ltd. It commenced operations as cargo handling operator providing freight forwarding services. Its key business divisions are global Multimodal Transport Operations (LCL and FCL consolidation) and, domestic CFS/ICD operations, Project and Engineering Solutions (Project Logistics, Equipment Hiring Solutions and Ship Owning & Chartering) along with 3PL and warehousing services. The company is the one of the largest non-vessel owning common carrier (NVOCC) in the world offering LCL consolidation services. The company currently operates out of 200+ offices in 90+ countries, covering 4000 port pairs and is supported by an even larger network of franchisee offices across the world. Allcargo operates container freight station with strategic locations at JNPT, Chennai and Mundra, as well as ICDs located at Pithampur (Indore) and Dadri. Allcargo is one of India's largest publicly owned logistics companies. Business Segment Multimodal Transport Operations (MTO) It is one of the two player in consolidation of Less-than Container Load (LCL) ocean cargo into containers for shipment across 4,000 port pairs globally. Global brand ECU Worldwide with presence in 160 plus countries Diversified customer base with an asset-light business model Presence in Full Container Load (FCL). Container Freight Stations(CFS) Provides storage & custom clearance services for EXIM cargo at major Indian ports Amongst top 5 CFS operators at JNPT, Chennai and Mundra ICDs at Pithampur & Dadri; presence in Contract Logistics segment CFS at Kolkata to be operational soon Logistics Park at Jhajjar under consideration Land bank of more than 200 acres Project & Engineering Solutions (P&E) Offers integrated end-to-end logistics services including transportation of over-dimensional & over-weight cargo, on-site lifting & shifting Diverse fleet of equipment needed for building & creating infrastructure Presence in Coastal Shipping through 3 owned ships

3 Business Overview Multimodal Transport Operations (MTO) Allcargo/ECU Worldwide receives Less-than-Container-Load (LCL) cargo from various freight-forwarders Cargo for each destination is consolidated into containers at bonded warehouses, to be shipped to either final destination or to hub ports from where it is trans-shipped to final destination After consolidating the LCL cargo into Full-Container-Load (FCL) consignments, Allcargo forwards the consignments to shipping lines for transportation to the final destination Besides LCL consolidation, Allcargo has also forayed into FCL freight-forwarding through acquisition of FCL Marine, a Netherlands based FCL freight-forwarding company Allcargo s MTO service comprises NVOCC operations related to LCL consolidation and FCL activities globally, through its wholly owned subsidiary ECU Line (based in Belgium). In 1995, Belgium-based ECU-Line NV, the world s second largest LCL firm, appointed Allcargo as its agent for India, recognizing Allcargo s position as India s first LCL operator with growing volumes of such cargo for aggregation to destinations worldwide in those days. In 2005, Allcargo took a 33.8% stake in ECU-Line and the following year, acquired the remaining shares. The takeover of ECU Line, which had four-five times the acquirers revenue in 2006, made Allcargo the world s one of the top LCL consolidators amongst others. Allcargo continued to make strategic acquisitions in other markets. It bought companies in the UK, China and other parts of the world to increase market share and presence. But it still had gaps in the US. Allcargo acquired Econocaribe (for about $50 million), which was the agent of ECU-Line, for its US business. The acquisition gave the company entry into the US and Canada markets, and a front runner position in the LCL business there. Then it acquired FCL Marine based in Netherlands in September The acquisition of FCL Marine Agencies Rotterdam, was a step forward to consolidate Allcargo s global leadership and cater to its customer s request for a FCL (full container load) services through its global network and benchmark services.

4 Container Freight Stations(CFS)/ Inland Container Depots (ICD) Allcargo commenced CFS operations in 2003 at JNPT (near Mumbai). The CFS/ICD segment operations cater to the handling of import/export cargo, stuffing,de-stuffing,customs clearance and other related ancillary services. The Company operates CFS and ICD facilities at JNPT-Nhava Sheva, Chennai, Mundra, Dadri and Kheda. Being one of the largest CFS operators in India, Allcargo is the only company with significant presence at key container ports of the country, viz JNPT, Chennai and Mundra, a new CFS at Kolkata port is expected to be operational soon. CFSs at JNPT, Chennai and Mundra with total installed capacity of 620,000 TEUs p.a. and ICDs at Pithampur and Dadri with total installed capacity of 88,000 TEUs p.a. CFSs of Allcargo are strategically located in proximity to main industrial hubs. The current dwell time for ports is ~10-12 days. They collectively handle around 75% of total container traffic of India. In 2009 Allcargo entered the business of Inland Container Depots. Its first ICD was at Kheda-Pithampur near Indore in the state of Madhya Pradesh, in a joint venture with Hind Terminals (part of the Samsara Group), with Allcargo s stake at 51%,It has capacity of 36,000 TEUs. Its second ICD was started at Dadri in the national capital region, in a joint venture with Container Corporation of India (CONCOR), with Allcargo s stake at 51%. It has capacity of 52,000 TEUs thus taking the total capacity to 88,000 TEUs. Opened a new CFS in Mundra on asset light model focusing on exports. Only part of land at 2nd CFS at JNPT has been developed, offering opportunity to increase as demand picks up. Land bank of more than 200 acres across 3 strategic locations viz Hyderabad, Bangalore and Nagpur. Allcargo operates its business model with unique synergies between MTO and CFS business. Allcargo leases container space with major shipping companies for its clients in MTO segment and on other hand, it gets clients of CFS segment from the same shipping companies. 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 cargo's have higher dwell time compared to export cargos as the former takes longer time for custom clearance. For Allcargo, the mix of Export: Import volumes have been higher on the import side, thus benefitting its revenues. Allcargo has always been an import heavy operator.

5 Project Engineering & Solutions (P&E) Allcargo is into crane rental business with 135 cranes This segment operates in the project logistics, equipment leasing and coastal shipping. P&E segment provides integrated end-to-end project, engineering and logistic services through a diverse fleet of owned/rented special equipments like hydraulic axles, cranes, trailers, barges, reach-stackers, forklifts and ships to carry bulk and Over Dimensional/Over Weight cargos as well as project engineering solutions across various sectors. Allcargo focusing on providing integrated logistics solutions to clients through above businesses. Planning to build niche business offering translating into customer stickiness and higher margins Allcargo has developed in-house repairs and maintenance (R&M) division to efficiently manage all types of R&M of its fleets where-ever deployed All sites are closely knitted with On-line Real time Web-based connectivity with integrated IT platforms including CRM (Marketing), EAM (Engineering & Operations) and FMS (Finance and Audit) with centralized HR software. Equipment Type As on 31st March, 2017 Cranes 135 Trailers 394 Hydraulic Axles 201 Reach Stackers and Forklifts 48 Prime Mover 21 Ships 3 Others 5 Total 807 Contract Logistics Contract logistics is one of the fastest growing sub-sector of logistics in India and is poised to grow substantially post implementation of the Goods and Service Tax. The Company had a presence in this segment since last few years. In FY , the Company expanded and strengthened its presence in this segment by acquiring major equity stake in Avvashya CCI Logistics Private Limited ( ACCI ). ACCI is one of the predominant player in this segment managing activities for key clients in Chemicals, Auto and Engineering, Pharma, Fashion and Retail sectors. This segment is scalable and growth oriented.

6 Logistic Industry An Overview Global View Global Logistics Industry includes all activities of the supply chain such as transportation, customer service, inventory management, flow of information and order processing. Other activities of the supply chain are warehousing, material handling, purchasing, packaging, information dissemination and maintenance among others. The Logistics market in terms of revenue was valued at US$ billion in 2015 and is expected to reach US$ billion by 2023, growing at a CAGR of 7.5% from 2015 to 2024.The market in terms of volume was valued at billion tons in 2015 and is expected to reach billion tons by 2024 growing at a CAGR of 6% from 2016 to Indian Perspective The Indian logistics sector is valued at USD$ 150 billion, contributing 14.4 % of country s GDP. With the easing of FDI norms, proposed implementation of GST, increasing globalization, growth of E-commerce, positive changes in the regulatory policies, and government initiatives such as Sagarmala, Make in India, the sector is expected to touch $200 billion by In the World Bank s Logistics performance ranking 2016, India s ranks has improved from 54 in 2014 to 35 in 2016, jumping 19 places. Out of this USD 150 billion logistics cost, almost 99% is accounted for by the unorganized sector (such as owners of less than 5 trucks, affiliated to a broker or a transport company, small warehouse operators, customs brokers, freight forwarders, etc.), and slightly more than 1%, i.e. approximately USD 1.5 billion, is contributed by the organized sector. However, the industry is growing at a fast pace and if India can bring down its logistics cost from 14% to 9% of the GDP (level in the US), savings to the tune of USD 50 billion will be realized at the current GDP level, making Indian goods more competitive in the global market. Moreover, growth in the logistics sector would imply improved service delivery and customer satisfaction leading to growth of export of Indian goods. Container Freight Stations Container volume in India is expected to be 2x by 2020, driven by EXIM trade and an increase in containerization from the current 55% to >65% (versus developed countries average of 70%) Revival in EXIM trade expected to translate into higher demand for containerization due to their efficiency Infrastructural initiatives like Dedicated Freight Corridor and development of multi-model logistics park, to further support growth of cargo containerization Several upcoming container terminals planned at both major and non-major ports - to further increase flow of container traffic 3PL Market in India The CRISIL Report has estimated the 3PL market in India at billion in Fiscal 2017, which is expected to grow at a CAGR of 19-21% to reach billion by Fiscal Contract Logistics Contract logistics market in India is estimated at INR 110 billion (US$ 1.7 billion) in FY 2017 Contract logistics spend has grown at a faster pace than the overall logistics industry at 17% annually between FY Contract logistics market is expected to grow to INR 244 billion (US$ 3.8 billion) in FY 2022, nearly 2.2 times the size of FY2017 market, at a CAGR of 17%.

7 Global Presence with owned network. Being one of the largest CFS operators in India, Allcargo is the only company with significant presence at key container ports of the country, viz JNPT, Chennai and Mundra, a new CFS at Kolkata port is expected to be operational soon. These ports are in proximity to main industrial hubs, carry majority of the volumes and are preferred choice for customers because of their strategic location. The three ports together handle around 75% of total container traffic of India. Allcargo has leveraged its relationships with freight forwarders and major shipping lines by entering into CFS sector. CFSs at JNPT, Chennai and Mundra with total installed capacity of 620,000 TEUs1 p.a. and ICDs at Pithampur and Dadri with total installed capacity of 88,000 TEUs p.a.

8 Experience management team. Shashi Kiran Shetty Executive Chairman Arathi Shetty Non-Executive Director Adarsh Hegde Joint Managing Director Keki Elavia Non-Executive, Independent Director Mohinder Pal Bansal Non-Executive, Independent Director Prakash Tulsiani Chief Operating Officer & Executive Director-Operations P. P. Shetty Mentor - Human Resource Management Started his career in the logistics industry in 1978 with Inter-modal Transport and Trading Systems, Mumbai from where he moved to Forbes Gokak, a TATA Group Company. Holds a Bachelor of Commerce degree Arathi Shetty is the Non-Executive Director of the Company since its incorporation. She holds a Bachelor s degree in Arts from Bhavan s College, University of Mumbai. She has an experience of over 19 years in the business of logistics. Adarsh Hegde has been associated with Allcargo Logistics since its inception. With over two and half decades of experience in the field of logistics Under his leadership, Allcargo Logistics established 6 CFS & ICD facilities PAN India, making Allcargo CFS & ICD division one of the largest private players in the country. He continues to lead the blue print and strategy for the division. Keki Elavia is a fellow of the Institute of Chartered Accountants of India. He retired as a Senior Partner of Kalyaniwalla & Mistry - Chartered Accountants, a firm with which he was associated for more than 40 years. He was also a partner of S. R. Batliboi & Co- Chartered Accountants, for a brief period. He is currently on board of several companies such as Godrej Industries Limited, Tata Asset Management Limited, DCB Bank Limited, Goa Carbon Limited, Grindwell Norton Limited, Go Airlines India Limited and others. A Chartered Accountant by qualification, he has more than 25 years of experience in Mergers & Acquisitions, Strategic Advising, Capital Markets, Company Portfolio Integration as well as post-acquisition performance management in India, Asia and Europe. He has advised corporates across sectors including logistics, auto components, manufacturing, realty, banking, education and IT and also a started newspaper for children called Newshouse in June 1996 along with the promoters of Navneet Publications. He is currently on board of several companies such as Blacksoil Realty Investment Advisors LLP, Concorde Motors India Limited, Navneet Learning LLP and others. Prakash Tulsiani is a Chartered Accountant and a Company Secretary by qualification. He also holds a degree in Law and Commerce. Mr. Tulsiani joined the leadership team at Allcargo Logistics in 2015 to head the Operations division. He is also responsible for the Project Forwarding division. He brings with him over three decades of experience and expertise in scaling businesses and expanding services. P. P. Shetty is a mechanical engineer with over 4 decades of experience. He has been working with Allcargo Logistics for 12 years as HR Mentor supporting the development of key HR initiatives such as institutionalising change and performance management system, developing HR policy framework and others for Allcargo & its group companies.

9 Risk Factors: Economic Risk A part of business is substantially dependent on the prevailing global economic conditions. CFS and MTO businesses are closely linked to the global trade volumes. Factors that may adversely affect the global economy and in turn India s economic growth, that could affect the CFS/ ICD, warehousing and project & engineering solutions businesses, include slowdown in the rate of infrastructure development, inflation, changes in tax, trade, fiscal and monetary policies, scarcity of credit etc. However, given the planned infrastructure investments in FY 2018, along with growth in global EXIM traffic and increase in outsourcing of the logistics function by companies, we do not expect to be significantly affected by this risk. Competition Risk This risk arises from more players wanting a share in the same pie. Like in most other industries, opportunity brings with itself competition.they face different levels of competition in each segment, from domestic as well as multinational companies. However, Allcargo has established strong brand goodwill in the market and a strong foothold in the entire logistics value spectrum. They are one of the largest LCL Consolidator in the world, with 300+ offices in 160+ countries covering over 4,000 port pairs. Their wide geographical presence and network across the globe helps them to generate higher volumes.they are working on a blueprint to consolidate our position as the market leader and enter newer segments and offer their customers a one-stop-shop for logistics services. Trade Risk Their business can be affected by the rise and fall in the levels of imports and exports in the country. Given the projected growth in the Indian economy and expected recovery in global trade, rising spending in the infrastructure and manufacturing space and increasing per capita and disposable income, it is estimated that imports will continue to rise steadily. The Company is also focusing on its CFS/ ICD business, which is essentially dependent on imports of containerized cargo in India.Currently the EXIM trade is volatile to some extent. However, with expectation of revival in the EXIM Trade, CFS business volume is expected to grow. Since the Company operates in the diverse business verticals within the logistics space including Contract Logistics, it has reduced its dependence on any particular business.thus we feel this risk can be mitigated. Regulatory Risk If they are unable to obtain required approvals and licenses in a timely manner, their business and operations may be adversely affected. They require certain approvals, licenses, registrations and permissions for operating their MTO and CFS/ICD business. They may encounter delays in obtaining these requisite approvals, or may not be able to obtain such approvals at all, which may have an adverse effect on Their revenues. Any change in policy for EXIM and Logistics can affect their business. However, the Government has come up with a number of initiatives to boost the logistics sector and has planned massive investments in the infrastructure sector. As all industry predictions suggest that this will be the trend in the future. Currency Risk The MTO revenues are generated by subsidiaries based outside India. While preparing the consolidated statements, the earnings are translated into INR. Any fluctuations in forex will hence impact the financial statements of the company. Execution Risk The Company has undertaken number of projects in the last year and several more are in the pipeline. 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.

10 Financial Statements Quarterly Performance Total Income has increased in last 2 quarter of fy18 due to volume growth in MTO business, but EBITDA has decrease in last 2 quarter of fy18 mainly on account of increase in expenses relating to lease rentals of managing the CFS in Mundra and reduced contribution from P&E due to sale of unproductive and low yielding assets, decrease in asset utilization and increase in provision for doubtful debts (conservative accounting policy followed by Company) & a conscious decision to move away from lower ROCE business leading to strategic sale of low yielding assets. Crane segment has seen a decline in asset utilization due to lower capex in wind sector, which is one of the clients for the crane hiring segment. Year End Q1FY18 Q1FY17 %Change Q2FY18 Q2FY17 % Change Net Sales Other Income Total Income Gross Profit Operating Expense Operating Profit EBITDA PAT EPS Income statement In last 3 year if we have seen Revenue has grown at CAGR of 4.74% only but PAT has grown at CAGR of 14.36%. there is a wide difference between Revenue growth and PAT growth, this is due to revenue mix composition. ALLCARGO has 3 segments MTO, CFS, P&E In that CFS is high margin business, as compared to both businesses. it has increased its portion in last 3to 4 years and rest 2 segments has de-grown or remain flat in % terms. This led to higher profit growth in spite of lower sales growth. Year End Revenue From Operation Other Income Total Income Gross Profit Operating Expense Operating Profit EBITDA PAT EPS

11 Balance Sheet Year End Source of Fund Share Capital Minority Interest Non-Current Liabilities Current Liabilities Total Liability Application of Fund Non Current Assets Current Assets Total Assets Cash Flow Statement Year End Cash Flow from Operating Activities Cash Flow form Investing Activities Purchase of Fixed Assets Sale of Fixed Assets Cash Flow from Financing Activities Net Cash Inflow/Outflow Free Cash Flow

12 Key Ratios Year End Operating profit margin(%) EBITDA Margin(%) PAT Margin(%) ROE(%) ROCE(%) Asset Turnover(x) Inventory Turnover(x) Debt - Equity(x) Current Ratio EV/EBITDA Our Views and Valuation 1. Allcargo is focused on Revenue and PAT growth, high ROCE business, increasing free cash flows across all the businesses. With low debt-equity ratio, competent management with a strong established presence in the industry, Allcargo is well placed to benefit out of the upcoming opportunities in the logistics space in India over the next few years. 2. Industry CAPEX will boost project engineering business due to: Infrastructure led growth especially in sectors like power, oil & gas, cement and steel expected to increase demand for specialized transport solutions Government focusing and incentivizing on shifting cargo carried by rail and road to coastal shipping and inland waterways Government plans to take wind energy generation to 60,000 MW in the next 5 years from around 20,000 MW currently. Government also plans to have 100,000 MW of solar power capacity by 2022 Government plans to set up 5 new Ultra Mega Power Projects, each of 4,000 MW. US$ 45 Billion is expected to be spent on oil & gas sector in India in the next few years India's cement demand is expected to reach Million Tonnes Per Annum (MTPA) by To meet this demand, cement companies are expected to add 56 MT capacity over the next three years. India s steel sector is expected to grow from 91 Mn tons in 2015 to 300 Mn tons by Currently metro rails are fully operational in only 2 cities out of 53 Indian cities with a population of more than one Million. Almost all the state capitals are having plans to build metro railways Significant capex expected not only on Greenfield projects, but also on repairs & maintenance, and transmission & distribution Demand for world-class quality supply chains to handle project cargo is expected to increase significantly. 3. New CFS at Kolkata port of 1,00,000 TEUS which is operational soon through this also there would be growth in sales in CFS business.

13 Projection calculated as on 31st March 2017 is as follow: Particulars (E) 2019(E) Net Sales Operating profit PAT We expect Net Sales, Operating Profit and Pat to grow at a CAGR of 12%, 15% and 20% from current level. Company is available at P/E of 20.46x multiple and we expect P/E to rerate at 25x with a target price of Rs We recommend to Invest in Allcargo Logistic Ltd. for mid to long term for decent return.

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