Arshiya International Ltd.

Transcription

1 CMP Rs. 138 Target Rs. 223 Initiating Coverage- Buy Key Share Data Face Value (Rs.) 2. Equity Capital (Rs. crs) Market. Capitalization (Rs. crs) wk High / Low (Rs. ) 363 / 134 Average Yearly Volume BSE code 5674 NSE code Reuters code Bloomberg code ARSHIYA ARTC.BO ARST IN August 8, 211 First mover advantage.... Company Profile Arshiya International Ltd (AIL), a flagship company of Arshiya group, having a 1 years lineage in logistics, is an integrated supply chain and logistics infrastructure solutions provider headquartered in Mumbai, India. Arshiya International Ltd had taken its initiative to develop India s first Free Trade Warehousing Zone (FTWZ) at Panvel, Mumbai spanning across 165 acres. AIL has entered into various verticals such as FTWZs, Domestic Distriparks, Rail Business etc. Shareholding Pattern 3th June 211 Others, 9.6% Financials (Consolidated) (Rs. Crore) FY1 FY11 FY12E FY13E Net Sales Sales Gr 4% 56% 3% 48% EBIDTA PAT 98.3* PAT Gr 5% -24% 32% 66% EPS (Rs.) CEPS (Rs) * includes extraordinary income of Rs crore. Ratios Public, 15.7% Promoter, 43.2% Foreign, 29.2% Institutio ns, 2.3% Key Financial Ratios FY1 FY11 FY12E FY13E Div. yield.7%.7%.7%.7% P/E P/BV P/Cash EPS MCap/Sales EV/EBIDTA ROCE 1% 6% 6% 9% ROE 15% 1% 12% 17% EBITDM(%) 16% 19% 23% 29% NPM (%) 19% 9% 9% 1% Debt-Equity I year Performance comparison AIL v/s BSE Midcap Investment Rationale FTWZ aggressive growth arena Arshiya International Ltd has taken initiative to establish India s first FTWZ. It started its first FTWZ at Panvel, Mumbai in Nov 21 spanning across 165 acres. AIL is also in process of setting up second FTWZ at Delhi, followed by Nagpur and two more at South and East. These five FTWZs set up at strategic locations across India will bring about a revolutionary change in the Indian logistics landscape. We expect this segment to generate revenue of Rs. 146 crore and Rs. 512 crore For FY12E and FY13E respectively. Expansion of Rail business to capture burgeoning future growth AIL has planned an investment of Rs. 626 crore for its Rail Infrastructure project, phased over the next two years. Currently company is operating fifteen rakes; AIL plans to expand the rakes to 22 and 3 by FY12E and FY13E respectively. We estimate AIL s Railway business s sales to grow at a 36% CAGR in FY11-FY13E. Domestic Distriparks contiguous growth AIL has planned to set up five domestic distripark. First of AIL s five planned domestic distriparks is strategically located at the convergence of the Eastern and Western freight corridors at Khurja (near Delhi). Phase I of Khurja distripark is expected to commence its operation in Q3FY12 and phase II construction is scheduled to get completed by Q1FY14E. We believe, this segment will contribute around 1% and 3.8% to company s total revenue in FY12E and FY13E respectively AIL BSEMIDCAP Analyst: Kamna Jain Tel No.: , Mobile kamna.jain@skpmoneywise.com Valuation At current market price of Rs. 138-, AIL is trading at P/E of 8.2x and 5.x of FY12E and FY13E earnings of Rs and 27.8 respectively. We recommend BUY rating on the stock with a target price of Rs. 223/- (62% upside) in 15 months at the P/E of 8x on FY13 earnings. SKP Securities Ltd Page 1 of 13

2 Industry Overview Logistics Industry The Indian logistics industry accounts for a mere 2% ($1 billion) of the $5 billion global logistics industry despite having the second largest network of roads at 3.83 million km, the fourth largest rail network of 63 km, 128 airports, 12 major ports, 1 trans-shipment port and 187 non major ports. The Indian Logistics sector grew by 8 to 1 percent annually over the last decade. Several factors have favorably impacted the growth of the logistics industry, like the country s tax regime, growth across major industry segments such as automobile, pharmaceutical, fast moving consumer goods (FMCG) and the emergence of organized retail. Economic survey for reflects that economy is an upswing mode, with a growth of 8.6% in FY1 and FY11 and is projected to grow at 8.75% % in FY12. Strong economic growth and liberalization have led to considerable increase in domestic and international trade volumes over the past few years. Consequently, the requirement for transportation, handling and warehousing is growing at a robust pace and is driving the demand for integrated logistics solutions. Exim trade volume of India is growing consistently from last decade hence India is set to increase its share in global trade from less than 1% now to about 1.6% in In d ia 's Ex im T ra d e 12 1 Rs. crores FY 1 FY 2 FY 3 FY 4 FY 5 FY 6 FY 7 FY 8 FY 9 FY 1 A pr- Dec Ex ports Imports 11 Source: Economic survey The trend towards containerization picked up in India in the last decade Container traffic has seen a 12% CAGR in India from 2.5 million TEU in 2-1 to 6.9 million TEU in The incessant growth in containerized traffic provides significant indication of increase in multimodal transport as containers are designed for door to door transportation by different modes. 8 Container traffic (TEU') FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 Apr-Feb11 Source: IPA & SKP Research SKP Securities Ltd Page 2 of 13

3 Free Trade Warehousing Zone (FTWZ) The Government of India introduced the Free Trade and Warehousing Zones Policy, as a part of Foreign Trade Policy (FTP) It is a deemed foreign territory within India which was created as a subsection of the Special Economic Zone. The FTWZ regulatory framework will give India the much needed impetus to drive its economic growth to the next level, while truly leveraging country s vast domestic market and purchasing power parity. With FTWZ India will emerge as a major economic hub for companies importing, exporting or doing value addition of products, for selling in India or other regional countries. Need: Logistics cost in India is fairly high at around 14% of GDP, as against 9%-1% in most developed nations. On a 1.6 trillion GDP; this represents absolute value of in-efficiency and therefore logistics market potential of over US$65 billion. This inefficiency is reflected on all products being manufactured, consumed, warehoused and traded in India, contributing significantly to the biggest challenge faced by India s growing economy- Inflation. Even with the poor Road infrastructure & disorganized trucking network in the country, road currently accounts for approximately 65% of the total Indian freight transport, while Railway have only about 3% market share. Thus dependency on road makes hinterland cargo movement more expensive and inefficient. India burns nearly US$2.5 billion worth of fuel on account of trucks standing idle on state checkposts. Compared to European countries, rail transportation in India is almost 3.5 times more expensive and the average transit time by road is three times longer. India's level of containerization is less than 25% as against global average of 6% -7%. India's container throughput in CY1 was just over 7.7 million TEU's as compared to Dubai (12 million), Singapore (24 million) & China (186 million). The average time taken to clear import & export cargo at ports is about 19 days in India, against 3 to 4 in Singapore These underlying industry dynamics provide a strong growth opportunity for organized and integrated players providing end to end services through innovative logistics infrastructure solutions, such as Free Trade Warehousing Zones (FTWZ), Domestic Distriparks, Customized Rail Containers and Dedicated Rail Sidings, across strategic location in India. At present, majority of product hubbing & value addition is done in Dubai & Singapore. As compared to Dubai or Singapore, India is a much larger market for product consumption and is an emerging manufacturing hub. India has tremendous advantages in terms of cost & skill arbitrage vis-à-vis Dubai & Singapore. With its strategic positioning, India is much better suited for being a transhipment, value addition & global distribution hub than other economies. SKP Securities Ltd Page 3 of 13

4 Company Overview Arshiya International Ltd(AIL), Arshiya International Ltd (AIL), a flagship company of Arshiya group, having a 1 years lineage logistics, is an integrated supply chain and logistics infrastructure solutions provider headquartered in Mumbai, India. Arshiya International Ltd had taken its initiative to develop India s first Free Trade Warehousing Zone (FTWZ) at Panvel, Mumbai spanning across 165 acres. Very soon it would roll out the second FTWZ at Khurja, near Delhi followed by Nagpur with plans afoot for two more at South & East. Along with FTWZs, the company is also investing in the development of rail infrastructure to provide pan-india rail freight operations, building Rail terminals in strategic locations across India. With state-of-the-art infrastructure, Arshiya s rail logistic network can help in aggregate & consolidate products for domestic movement, as well as, customize rail containers for faster and more efficient product loading/unloading. Arshiya is also initiating development of Domestic Distriparks as state-of-the-art regional distribution hubs, for domestic and EXIM cargo, towards product consolidation for in-land India movement. AIL has sold marketing rights of its logistics software product for Rs.39 crore but the company will maintainthe IPR on the product and will continue to get 25% royalty on the revenue generated from the existing clients and will receive 2% royalty share from any new clients added. FTWZ Handling & Transportation Technology Arshiya International Ltd Rail infrastructure Domestic Distripark Supply Chain Management Logistics SKP Securities Ltd Page 4 of 13

5 Investment Arguments Logistics business to remain buoyant- taking advantage of asset light model AIL has 1 years of experience in providing end to end freight management and transportation services in over 15 countries worldwide. AIL is successfully integrating innovative hard infrastructure such as FTWZ, Domestic Distriparks and Rail infrastructure with soft infrastructure such as asset light 3PL, Domestic 4PL, Handling & Transportation and IT. Arshiya is rapidly expanding their business capabilities through continuous internal development and aggressive acquisitions in complimentary space. Arshiya International is continuously putting efforts towards innovative logistics infrastructure, thereby enabling it to have a stronger platform for its core supply chain, freight forwarding & IT service portfolio. India's level of containerization is less than 25% as against global average of 6% -7%, India's container throughput in CY1 was just over 7.7 million TEU's, as compared to Dubai (12 million), Singapore (24 million) & China (186 million) with growing containerization there is huge opportunity for AIL to grow. Freight forwarding volume is growing with a pick up in EXIM trade in emerging economies. Container traffic volume at major ports shows a sign of revival with a steady improvement in EXIM trades. 2 Container traf f ic (TEU') Q1FY 1 Q2FY 1 Q3FY 1 Q4FY 1 Q1FY 11 Q2FY 11 Q3FY 11 Source: IPA and SKP Research AIL s freight forwarding segment is looking fairly optimistic on the back of elevated international trade. We expect revenue from logistics business to grow at a moderate CAGR of 8% from FY11 to FY13E. Logistics business contributed around 75% of AIL s total revenue in FY11. Domestic Distriparks contiguous growth AIL s domestic distripark is a venture designed to provide companies with a strategic hub warehousing for domestic consolidation of goods. AIL has planned to set up five such domestic distripark. First of AIL s five planned domestic distriparks is strategically located at the convergence of the Eastern and Western freight corridors at Khurja (near Delhi). Khurja Distripark is also connected with the modern high capacity Arshiya Rail infrastructure and FTWZs, benefiting its customer through economies of scale. Phase I of Khurja distripark is expected to commence its operation in Q3FY12 and phase II construction is scheduled to get completed by FY14E. We believe, this segment will contribute around 1% and 3.8% to company s total revenue in FY12E and FY13E respectively. SKP Securities Ltd Page 5 of 13

6 Expansion of Rail business to capture burgeoning future growth In April 28, AIL had acquired licence to operate pan India rail services. Arshiya's Rail Infrastructure services have been operational from February, 29 and currently operating fifteen rakes. AIL s unique business modal has enabled it to be one of the most profitable private container train operators with its unparalleled rail infrastructure, modern rakes, customised containers, new sidings, pan-india network and superior connectivity. Arshiya's operates on dedicated rake model wherein rakes are specifically assigned to a client based on the fixed committed volumes for a longer period, which helps in improve the margins. Strong growth potential In FY8 total Indian freight transport system carried approx. 2.8 billion MT of cargo, of which road transport has 6% and Rail has just 35% market share. High dependence on road transport causes inefficiencies and higher cost, to curve this there is a huge need of improving Rail s share in the Indian freight transport system. We believe, railways will maintain their relative advantage over truckers given the price benefits. Further the construction of dedicated freight corridor (DFC) would provide boost to the players operating in the railway haulage business by adding additional capacity that they can utilize. Unaffected by hike in railway haulage charges AIL will not have much adverse affect of the new railway haulage policy announced by Indian Railways effective October 1st, 21 as its own FTWZs and domestic distriparks will serve as captive cargo consolidation and aggregation hubs in India s key markets providing captive cargo in the form of consumer goods, electronics, auto components and others for Arshiya Rail Infrastructure to move between the infrastructure hubs. Plans to expand to 3 rakes by FY13E AIL had planned an investment of Rs. 626 crore for its Rail Infrastructure project, phased over the next two years. Currently company is operating fifteen rakes; AIL plans to expand the rakes to 22 and 3 by FY12E and FY13E respectively. We estimate AIL s Railway business s sales to grow at a 41% CAGR in FY11-FY13E. 4 Revenue(Rs. crore) 4 No. of rakes FY1 FY11 FY12E FY13E FY1 FY11 FY12E FY13E Source: Company and SKP Research SKP Securities Ltd Page 6 of 13

7 FTWZ aggressive growth arena Arshiya International Ltd. has set up Free Trade and Warehousing Zones (FTWZ) to offer specially designated areas as deemed foreign territories to facilitate movement of customer goods, increase operational efficiency and leverage India's cost and skill arbitrage. Arshiya International Ltd has taken initiative to establish India s first FTWZ. It started its first FTWZ at Panvel, Mumbai in Nov 21 spanning across 165 acres. AIL is also in process of setting up second FTWZ at Delhi, followed by Nagpur and two more at South and East. These five FTWZs set up at strategic locations across India will bring about a revolutionary change in the Indian logistics landscape. Arshiya FTWZs strategically located across the country with dedicated Container Yards (CY), Over Dimensional Cargo (ODC) yard, world class material handling equipment, custom office, warehouses and a comprehensive support system, these offer a value proposition with an unparalleled cost and time advantage. Unique benefits of FTWZs For Imports For Exports For Re- Exports Flexibility towards end distribution in India Products from India entering the FTWZ are treated as deemed export providing immediate benefits to suppliers Service tax exemption on all activities conducted inside the FTWZ including rental & labour Duty deferment benefits Quality control capability prior to duty payment Exemption on SAD, VAT & CST on imports through FTWZ, service tax exemption on services availed Hassle free re- export regulatory/ duty implications Reduced buffer stocks Local tax exemption (e.g. CST, Sales tax, Excise & VAT) Export quotas able to be met for companies exporting into FTWZ Increased efficiency through lowered reverse logistics through quality control before dispatch from India Foreign exchange transaction capability Increasing supply chain efficiencies (forward & reverse) while enhancing capital cash flow Exemption from custom and stamp duty on products imported into FTWZ, meant for re- export out of India Income tax exemption Hassle free re-export process Permission of 1% FDI for the set up of units by the unit holder of the FTWZ Ability to leverage India s cost, skill & geographic positioning advantage as a hub for regional/ global distribution post value addition activities Lowered product costs Foreign exchange transaction capability SKP Securities Ltd Page 7 of 13

8 Five FTWZs across strategic locations in India WEST Mumbai- Panvel 165 acres of mega Logistics Park Operational since Nov, 21 NORTH Delhi Khurja 315 acres of mega Logistics Park 135 acres of FTWZ 13 acres of Distripark 5 acres of Rail Infrastructure CENTER Nagpur 11 acres of mega logistics park Locational advantage: FTWZ should be located at near the port or at hinterland areas which is close to manufacturing hub. A FTWZ near the port provides hassle free movement of cargo while importing, exporting or re-exporting and can also be utilized as warehousing zone for high value added products. Similarly, FTWZ, which is near the manufacturing hub, provides better and economical logistics solution to manufacturers and traders. AIL has acquired all its land at strategic location. SOUTH & EAST To be announced Mumbai FTWZ- started operation from Nov 21 Arshiya had started its operation at its Mumbai FTWZ in August 21. Spread over 165 acres, It is 24 km away from Jawaharlal Nehru Port Trust (JNPT), which currently caters to approx. 62% of India s container traffic. It is also located just 23km from new proposed international airport in Mumbai. The phase I of project has 4 warehouses, out of which three warehouses are already operational and fourth one is expected to commence from Q2FY12. AIL already started its phase II construction of Mumbai FTWZ and has plan to add 13 warehouses by FY14E. Khurja FTWZ Near the manufacturing hub With proximity to the industrial hub in Northern India, AIL s Khurja FTWZ is spread over 135 acres of land. FTWZ in Khurja is well connected to eastern and western freight corridors with manufacturing hub in NCR and 18 Km from the new Yamuna Expressway connecting Noida to Agra. Company is planning to set up 3 warehouses in Phase I and further 13 warehouses in phase II construction. Phase I construction expected to complete by FY12. Nagpur FTWZ - centrally located It is located in central India which connects the various important industrial hubs in the hinterland. This FTWZ is located near MIHAN- India s upcoming mega hub for air cargo. Huge Capex Plan: AIL has allocated fund for all its five strategically located FTWZs. AIL has allocated Rs crore for its phase I expansion which includes Phase I expansion of Rail infrastructure, phase I expansion of Mumbai, Khurja and Nagpur FTWZ along with Phase I expansion of Domestic Distripark at Khurja and Rs. 127 crore has been allocated for Phase II expansion of Mumbai FTWZ, this capex will be spent by 213, out of which Rs crore has been already spent as on 31 st Mar 211. SKP Securities Ltd Page 8 of 13

9 Planned Capex Actual spent Projects Debt Equity Total Debt Equity Total Arshiya Rail Infrastructure (P I) Arshiya Western FTWZ (P I) Arshiya Northern FTWZ (P I) Arshiya Central FTWZ (P I) Arshiya Northern Domestic Distripark (P I) Arshiya Western FTWZ (P II) Total Source: Company & SKP Research Multiple revenue streams FTWZs attracts multiple revenue streams for a company, it generate revenue from rental income from the warehousing and simultaneously a big chunk of revenue comes from value added services like labeling, packaging, equipment handling, cold storage etc. We believe AIL Mumbai FTWZ will be operational for full year and Khurja FTWZ will also start contributing from Q3FY12. With all these FTWZs to be operational in FY12E, we believe this segment to generate revenue of Rs. 146 crore and Rs. 512 crore For FY12E and FY13E respectively. We expect this segment to contribute around 32 % in total revenue by FY13E. 6 FTWZ Re ve nue (Rs. crore ) FY 11 FY 12E FY 13E Key Concerns Source: Company & SKP Research Increased competition: Logistic industry in India is quite fragmented. There are many small and large players providing end to end logistics solution, make this market highly competitive. However, with innovative concept of providing integrated logistic solution, AIL has advantage to obtain a good growth over others. Economic downturn: Container growth depends on the EXIM volume in a country. In 28-9 companies have already seen a global turmoil. Any further slowdown can affect AIL s utilization and rates for its service offering. Delay in project execution: AIL has a huge capex plan for next few years. Any delay in execution of these projects may affect our projection and may put margin under pressure. SKP Securities Ltd Page 9 of 13

10 Valuations & Outlook Arshiya International Ltd is one of the India s fastest growing logistics solutions company. AIL is the first company to start with FTWZ services in India. Arshiya has a unique business model which helps in combining asset light soft infrastructure such as 3PL, 4PL serices with innovative hard infrastructure such as FTWZ, rail infrasturcture and domestic distriparks, hence providing economies of scale to all manufacturers and traders countrywide. At current market price of Rs. 138-, AIL is trading at P/E of 8.2x and 5.x of FY12E and FY13E earnings of Rs and 27.8 respectively. We recommend BUY rating on the stock with a target price of Rs. 223/- (62% upside) in 15 months at the P/E of 8x on FY13 earnings. 1 year forward P/E Band 1 year forward P/BV Band Price in Rs Source: SKP Research Financial Outlook Apr-7 Aug-7 Dec-7 Apr-8 Aug-8 Dec-8 Apr-9 Aug-9 Dec-9 Apr-1 Aug-1 Dec-1 Apr X 15. X 2. X 25. X Price (in Rs.) Apr-7 Aug-7 Dec-7 Apr-8 Aug-8 Dec-8 Apr-9 Aug-9 Dec-9 Apr-1 Aug-1 Dec-1 Apr-11.5 X 1. X 1.5 X 2. X 2.5 X Rs. in crore % % % % Topline to grow at a CAGR of 38.8% over FY11-13E We expect consolidated revenue to grow at a CAGR of 38.8% over FY11-FY13E on back of growth in logistics and supply chain management business, commencement of two FTWZ from current financial year and capacity expansion in rail segment by adding new rakes.. FY1 FY11 FY12E FY13E Logistics business is expected to grow at a CAGR of 8% over FY11-FY13E led by expected increase in volume growth due to growing international trade. FTWZ business is expected to register a topline of Rs crore in FY13E backed by expansion of Mumbai and Khurja FTWZ and domestic distripark at Khurja. Railway division is expected to grow at a CAGR of 41% over FY11-FY13E led by increase in number of rakes. SKP Securities Ltd Page 1 of 13

11 Revenue Mix: 1% 8% 6% 4% 2% % FY 1 FY 11 FY 12E FY 13E Logistics FTWZ & Distripark Rail Technology EBITDA to grow at a CAGR of 7.3% over FY11- Rs. in crore FY1 FY11 FY12E FY13E (%) 1.. FY13E We expect EBITDA margin to improve by approx 97 bps from 19.2% to 28.8% over FY11-FY13E, mainly due to growing contribution of FTWZ revenue which attracts higher operating margin. Apart from this, increasing contribution from railway segment and operational efficiency of its asset light logistics business will also drive profitability. EBITDA EBITDA Margin(%) Rs. in crore (%) Net profit margin is expected to remain stagnant mainly due to high amount of depreciation and interest cost. We expect Net profit margin at 9.2% and 1.4% for FY12E and FY13E respectively.. FY1 FY11 FY12E FY13E Net Profit PAT Margin (%). Source: SKP Research SKP Securities Ltd Page 11 of 13

12 Consolidated Financials for FY March (Rs. in Crore) Income Statement Balance Sheet Financial Year FY1 FY11 FY12E FY13E Net Sales Growth (%) 4.5% 55.7% 3.4% 47.8% Total Expenditure Operating profit Growth (%) 16.4% 82.2% 57.5% 84.2% Depreciation EBIT Interest Other Income PBT Tax PAT 98.* Minority interest Adj. PAT Growth (%) 49.8% -24.1% 32.2% 65.7% O/S shares EPS (Rs.) * includes extraordinary income of Rs crore. Ratios Year End March FY1 FY11E FY12E FY13E Valuation Ratios Price Earning (P/E) Price / Book Value Price / Cash EPS EV / EBIDTA Market Cap / Sales Earning Ratios OPM (%) 16.4% 19.2% 23.1% 28.8% NPM (%) 18.7% 9.1% 9.2% 1.4% RoNW (%) 14.7% 1.1% 11.9% 16.6% RoCE (%) 9.5% 5.8% 6.4% 9.1% DPR 6.% 7.9% 6.% 3.6% Balance Sheet Ratios Debt-Equity Current Ratio Debtors Days Year End March FY1 FY11E FY12E FY13E Equity capital ESOPs Reserves & Surplus Shareholder's Fund Total debt Minority Interest Sources of funds Net Block Capital WIP Investments Goodwill Total Current Assets Debtors Cash & Bank Balance Loans & Advances Total Current Liabilities Net Current Assets Misc. Expenses Uses of funds Cash Flow statement Year End March FY1 FY11E FY12E FY13E Profit before tax Add: Depreciation, Int. & other expenses Net changes in working capital Direct taxes paid Cash Flow from Operating activities Capital expenditure Change in Investments Dividend, Interest & others Cash flow from investing activities Cash Flow from Financing activities Cash Flow during the year Opening Cash Cash & cash equivalent Assets turnover (x) SKP Securities Ltd Page 12 of 13

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SKP Securities Ltd Contacts Research Sales Mumbai Kolkata Mumbai Kolkata Phone Fax researchmum@skpmoneywise.com research@skpmoneywise.com Skp.sec@bloomberg.net Member: NSE BSE NSDL CDSL NCDEX* MCX* MCX-SX FPSB *Group Entities INB/INF: , BSE INB: , CDSL IN-DP-CDSL-132-2, DPID: 218, NSDL IN-DP-NSDL: , DP ID: IN32646, ARN: 6, NCDEX: 715, MCX: 3175, MCX-SX: INE SKP Securities Ltd Page 13 of 13