Allcargo Global Logistics: For the long haul: Buy

Presence in high-traffic ports, relationship with major shipping lines and expanding footprintthrough inland container depots make the stock attractive.



Allcargo Global Logistics, whose business straddles the logistics value-chain offers a proxy to the growing economy. The company's presence in high-traffic ports, established relationship with major shipping lines and expanding footprint through inland container depots (ICD) make it an attractive investment bet for the long term.

With the country's export-import volumes beginning to pick up, Allcargo seems well-placed to leverage from it. Focused efforts to develop the logistics network in the country — road development, cold-chain logistics and warehouse development — too augur well for the company.

That it is now expanding into third party logistics (3PL) services and adding to its existing capacities also adds in its favour. Given this growth backdrop, valuations seem reasonable. At the current market price of Rs 164, the stock trades at about 11 times its expected CY-11 per share earnings.

Growth drivers

Notably, Allcargo is among the leading players in the global LCL (less-than container load) consolidation market. It enjoys strong working relationships with global players, given that it actively liaises with shipping lines, port agents and local carriers.

The company, through its wholly-owned subsidiary, ECU Line, also has a strong presence in Europe, Latin America and Africa.

Allcargo had only recently acquired two Hong Kong-based companies engaged in non-vessel owning common carrier business to expand its presence in China and it plans further acquisitions in the fast-growing markets of India and East Asia.

It is also looking to expand its logistics service to the West Asian region too. Such planned acquisitions in the Multimodal transport Operator (MTO) and LCL segment would straightaway add to the company's market share.

The company also has a significant presence in the high-margin container freight station (CFS) segment — in JNPT, Chennai and Mundra ports. Its presence in the latter two ports is strategic as it will help Allcargo get a slice of the action, what with Gujarat turning into an investment hot-spot among Indian industrialists and Chennai becoming a car manufacturing hub. Notably, only recently, it increased the capacity at its Mundra (77,000 TEUs) and Chennai (120,000 TEUs) stations.

The utilisation level at JNPT is above 90 per cent (annual capacity 144,000 TEUs) and the company is now looking to acquire capacities to supplement that. Developments on this front, therefore, would be a key trigger to look out for.

Allcargo also has an inland container depot at Indore with a capacity of 36,000 TEU per annum. It plans to establish a Pan-India presence by setting up new ICD facilities in Hyderabad, Dadri, Nagpur and Bangalore.

Engineering Solutions

Allcargo, through its projects and engineering solutions segment, offers services that include transportation of high-value specialised equipment such as oilfield equipment, power plants and compressor stations that cannot be containerised on a turnkey basis.

The company recently merged its equipment hiring division into the projects division to focus on high-growth sectors and invest in high-quality assets. The segment, therefore, has considerable long-term growth potential. As of December 2010, it had an order book of about Rs 55 crore for the project business and about Rs 125 crore for the equipment business.

Capex Plans

Allcargo has planned a capex of about Rs 250 crore in the calendar year 2011. Of this, it plans to use about Rs 100-125 crore for its CFS/ICD (largely JNPT acquisition and Hyderabad ICD) and Rs 80 crore for its equipment division. Incidentally, the company had done a capex of about Rs 300 crore last year. It had also raised about Rs 100 crore through QIP last year in April.

A manageable debt: equity (at about 0.2 times end of CY09) gives it the leeway to tap debt resources if required. Even so, its asset-light business makes it easy for the company to tap funds. Allcargo had a net debt of about Rs 290 crore (as of December 2010).

Scorecard

In the last four years, the company has managed to grow its consolidated revenues and profits at a compounded rate of about 34 per cent and 32 per cent respectively to Rs 2,861 crore and Rs 166 crore.

In the calendar year 2010, its income from operations increased by about 38 per cent while net profits grew by about 28 per cent. Operating margins were lower by a percentage point at 9.4 per cent.

In terms of segment-wise performance, while the MTO segment increased its revenues by about 24 per cent, the CFS and project engineering businesses saw a revenue growth of about 31 per cent and 47 per cent respectively. For the coming year, the management expects grow its profits by about 25-30 per cent.

Read the rest of this article by Signing up for Portfolio.It's completely free!

What You'll Get





Related

This article is closed for comments.
Please Email the Editor