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March 22, 2012
INSTITUTIONAL EQUITIES INDIA RESEARCH
LOGISTICS
Wake Up & Smell The Future
Rajesh Kumar Ravi
Prasun Kumar
+91-22-6184 4313 +91-22-6184 4325 rajesh.ravi@karvy.com prasun.kumar@karvy.com
March 22, 2012 Institutional Equities
India Research
Logistics
Wake Up & Smell The Future
THEME REPORT
On Growth Track, Good Times Ahead

Positive on logistics demand outlook: We expect India's EXIM trade (non oil) to grow by atleast 15% CAGR in FY1217E period (>2x India's GDP growt h) inline with India's 25x GDP growth over the last eight years. The IMF projects India's GDP CAGR of 8% for FY1217E period. We believe that government's continued impetus on infrastructure spending
Allcargo Logistics (AGLL IN)

CMP Target Price Upside (%) 52 Week High/Low (Rs) 3m ADV (Rs mn /US$ mn)
BUY
138 213 54 190/115 02/0.0
should help achieve the growth targets: During the 11th & 12th FYPs, the Arshiya International (ARST IN) BUY infrastructure outlay has doubled to US$500 bn and US$1,000 bn, which bodes well for logistics demand in India. Additionally, the rising FDI in Indian CMP 140 companies (> Rs. 140 bn in CY0811) should drive the need for improved Target Price 227 Upside (%) logistics requirement in India. 62 Capacity issues to get addressed going forward: Indian logistics sector 52 Week High/Low (Rs) remains highly unorganized and inefficient due to lack of infrastructure 3m ADV (Rs mn /US$ mn) capacity across railways, roadways, and ports etc. While the government has Container Corp (CCRI IN) lagged its own investment targets in these sectors by 9% and 21% in 10th & 11th FYPs respectively, we expect things to improve going forward, as both the CMP NHAI & the DFCCIL have been trying to speed up their road and rail track Target Price expansion programmes. Meanwhile, the port capacities should benefit led by
Upside (%) 234/115 34/0.7
BUY
879 1,115 27
the new Maritime Agenda 20102020. Favourable for companies which increase their asset base ahead of
52 Week High/Low (Rs) 3m ADV (Rs mn /US$ mn)
1,332/801 73/1.5
infrastructure improvement: Various tax incentives (to attract investment in Gateway Distriparks (GDPL IN) BUY logistics sector) and Indian Railways allowing private container train operators should benefit logistics companies that continue to invest in their asset base CMP 149 (rakes, warehousing, and technology etc). These companies should benefit the Target Price 204 37 most as infrastructure starts falling in place. The GST implementation in FY13 Upside (%) 157/108 will be a big driver for the sector. It would pave way for larger, unified and 52 Week High/Low (Rs) modern warehousing, thereby allowing India to slowly but steadily move up 3m ADV (Rs mn /US$ mn) 29/0.6 the logistics chain from current 2PL toward integrated logistics. Source; Bloomberg, Karvy Institutional Research We like growth focused companies: Gateway Distriparks (GDPL) continues to grow across the CFS, rail and cold chain businesses without straining its balance sheet. While Allcargo Logistics (AGLL) enjoys the 2nd position globally in the stable MTO business, it is expanding its presence in the CFS and project logistics space. The stable presence of Arshiya International (ARST) in 3 PL services should further get boosted as the Company is aggressively expanding its FTWZ division and is adding more rakes in its rail business. The leadin g container train operator Container Corporation of India (CCRI) with strong cash position is striving to increase value added services in its bid to prote ct revenue growth and margins to sustain competitive pressure. Valuation Summary
M Cap Stocks (Rs bn) AGLL ARST CCRI Rating FY12E FY13E FY14E FY12E FY13E FY14E FY12E FY13E FY14E FY12E FY13E FY14E RoE (%) RoCE (%) P/E (x) EV/EBITDA (x)
Analysts Contact
Rajesh Kumar Ravi 022 6184 4313 rajesh.ravi@karvy.com Prasun Kumar 022 6184 4325 prasun.kumar@karvy.com
17.6 8.3 113.7 5.0 GDPL
BUY BUY BUY 16.3
16.6 14.0 16.6 BUY
15.5 15.7 16.6 13.0
15.6 27.8 16.8 13.6
14.2 7.7 16.0 14.9
12.9 9.0 16.0 12.3
12.9 13.3 16.2 12.7
8.0 7.7 12.8 14.0
7.2 6.0 11.2 11.5
6.2 2.8 9.6 9.9
5.7 9.9 7.8 8.0
4.7 7.7 6.3 6.0
4.1 4.9 5.0
3.9
Source: Karvy Institutional Research
March 22, 2012
Logistics Thematic
Table of contents
SECTOR
On Growth Track, Good Times Ahead .................................................................... 1 Executive Summary .................................................................................................... 3 Summary of Companies covered in the Report ....................................................... 6 Key Financial Summary ............................................................................................ 7 Sensitivity Analysis ................................................................................................... 8 Profile of Indian Logistics Industry .......................................................................... 9 Segmental Analysis of Companies Covered in the Report ................................... 10 Key Positive Triggers for the Indian Logistics Industry .......................................... 10 1. Growing Indian economy, rising government spends and FDI to keep logistics demand buoyant .............................................................................................................. 11 2. 3. Ensuing Logistics Inefficiency Provides Opportunities for Logistics Providers .... 16 Government Initiatives to Address the Infrastructure Bottlenecks ....................... 18
4. Emergence of Private Container Train Operators have brought in Competitiveness .............................................................................................................. 23 5. FDI Policy related to Logistics Sector has Encouraged Foreign Players/ PEs to invest in the Sector ......................................................................................................... 27 6. Impending GST - Another Booster for the Industry ............................................. 28
7. Value Added Services 3PL & above - to Provide the Next Level of Growth for Logistics Industry ........................................................................................................... 29 Key Risks .................................................................................................................. 30 Companies Section ................................................................................................... 31
COMPANY
Allcargo Logistics..32 Arshiya International....42 Conta iner Corporation of India..52 Gateway Di striparks.62
March 22, 2012
Logistics Thematic
Executive Summary
Concerns Overdone; Valuations Attractive Led by Long Ter m Growth
While our logistics coverage universe has delivered upto 40% return CAGR over the past three years, the last 12M's underperformance has resulted on account of economy growth concerns. On risk adjusted basis, the valuation multiples do not discount the lon g term sectoral growth potential and hence provides attractive entry point.
Sector in an Upcycle Phase - Growing Economy and EXIM Trade Boosts Outlook for Logistics Demand
The demand for logistics services (transportation, warehousing and value added services) in India has remained buoyant, as the Indian economy has grown by ~8% CAG R during the last eight years and the IMF projects India's GDP CAGR of 8% for FY1217 E period (higher than world GDP CAGR of 4.5%). This reflects that India's EXI M trade should grow at >15% CAGR (2x GDP growth), as it has grown at 25x GDP in F Y0311 period. The sustained focus on rising infrastructure spend by the government (US $500 bn in 10th FYP and US$1 trillion in 12th FYP) and rising FDIs in Indian companies (> Rs. 140 bn over the last four years) should drive the need for improved logistics requirement.
Infrastructure Development Acceleration - Key to Attract Logistics Players

Despite buoyant demand for logistics the sector remains highly unorganized and inefficient on account of lack of infrastructure capacity across railways, roadways and po rts, etc. Capacity expansion has lagged the government's own targets laid out in t he plan documents. Logistics investments in 10th and 11th FYPs have missed their targets by 9% and 21%, respectively. We expect things to improve going forward, as b oth the NHAI and the DFCCIL have been trying to speed up their road and r ail track expansions, which have been delayed by three to five years. The Mini stry of Shipping has launched the new Maritime Agenda 20102020 to address t he slow pace of port expansions. The Government has also introduced various tax incentives to attract serious logistics companies.
Sector Dynamics opened up to Private Operators

Railways opened up container train operations for private players thereby attracting 15 operators, who have gained ~32% of market share from incumbent Container Corporation of India over the last five years.
Who would be benefitted?

Logistics companies who have been investing in asset base (rakes, warehousing and technology, etc.) to provide logistics solutions across the various segments s hould be the major beneficiaries as infrastructure starts falling in place. Almost all the th ree segments of Indian logistics (transportation, warehousing and value added se rvices) have strong growth potential and appear attractive on comparative analy sis and have seen continued interests in form of PE investments and M&A activities.
March 22, 2012
Logistics Thematic
GST Implementation to Accelerate India's Growth on Logistics Front

Goods & Services Tax (GST) - to be implemented in FY13 - would do away with multiple taxations and other complexities that the logistics providers have to deal with in different states of India. This will boost investments in large warehouses with latest technologies thereby gaining economies of scale. This in turn will increas e the attractiveness of integrated logistics companies, which can provide endtoend logistics solutions.
We Initiate Coverage on Four Stocks

We initiate coverage on four large logistic service providers - Gateway Distriparks (GDPL), Allcargo Logistics (AGLL), Arshiya International (ARST) and Container Corporation of India (CCRI) with 'BUY' recommendation, as they are trading well below their historical valuations.
Exhibit 1: Comparative positioning of the four logistics companies
Rail Transport Revenue profile (%) Gateway Distriparks Ltd Arshiya International Allcargo Logistics Container Corporation of India Key Industry metrics Market Size & Growth Competitive intensity Capital Intensity EBITDA margins Overall segmental attractiveness
Source: Company, Karvy Institutional Research
Cold chain 50% 25% 7%
MTO
Project logistics
Warehousing (CFS, ICD, FTWZ, FTWZ) 43% 15%
3PL
60%
84% 75% Medium, 1015% Low, 2030% Low, 1520% Low & stable Low 510% Medium
8%
8% 25%
Low, 2030% Low & stable Medium 2025% Strong
Medium, 1525% Low & rising High 5065% Strong
Low, 2530% Low & stable Low 1012% Strong
Medium & rising Low & stable High 1825% Medium Medium 2530% Strong
Valuation Summary of Four Stocks

Exhibit 2: Relative valuations & Target multiples - target price arrived at multiplying FY1314E average EPS (EBITDA for ARST) by their respective target P/E multiples (EV/EBITDA used for ARST)
CMP Stocks (Rs Cap M bn)
AGLL ARST CCRI GDPL
Rating
Target P/E
Target Price
Upside
P/E (x)
EV/EBIDTA
(Rs) 138 140 879 149 BUY BUY BUY BUY
multiple** (x) 10.5 7.0 13.2 12.0
(Rs) 213 227 1,115 204
(%) 54 62 27 37
FY12E FY13E FY14E 8.0 7.7 12.8 11.5 7.2 6.0 11.2 9.9 6.2 2.8 9.6 8.0
FY12E 5. 7 9.9 7.8 6.0
FY13E 4.7 7.7 6.3 5.0
FY14E 4.1 4.9 5.0 3.9
17.6 8.3 113.7 16.3
** ARST target multiple (x) is EV/EBITDA
March 22, 2012
Logistics Thematic
Logistic companies have delivered strong performance during the last three years
The logistic sector in general and the stocks under coverage in particular have delivered strong stock performance over the last three years. Most of the stocks have delivered double digit price CAGR. However, over the last one year, the s tocks have mostly delivered negative returns and have also underperformed the broader I ndex. As the companies' fundamentals have remained fairly intact and have been f urther improving; stock underperformance can largely be attributed to the impact of g overnment's policy inactions on slower pace of infrastructure development.
Exhibit 3: Price performance of various listed logistics companies in India
CMP Logistics Stock Performance (%) Container Corporation Allcargo Logistics Gateway Distriparks Arshiya International Blue Dart Express Transport Corporation of India (Rs)
875 135 151 142 1,934 61 4.5 2.7
Mkt cap (Rs bn)

113.7 17.6 16.3 8.3 45.9 12.6 32.9
Absolute return (%) 3 m return 1yr return 2 yr CAGR

5.9 9.7 21.9 17.8 33.7 (36.8) (41.5) (26.3) (14.0) 40.3 (33.2) 98.5 (22.6) (25.9) (17.1) (14.9) 9.8 (12.4) 65.3 23.2 (7.9)
Rel to Sensex (%) 3 yr CAGR

8.5 0.2 43.9 41.6 69.7 (3.5) 16.8
3 m return
(10.2) (6.4) 5.8 1.7 17.6
1yr return
(24.5) (12.1) 42.1 (31.4) 100.3 31
(35.0) Gati Ltd (39.7)
Source: Company, Karvy Institutional Research; (CMP as on close of 20th March 2012)
Improved fundamentals to boost stock performance of stock s under coverage

Going forward, we expect the stocks under coverage to deliver higher absolute/ relative stock performance led by their strengthening fundamentals and increased asset ut ilisations. We expect government reforms to accelerate from their current levels, which in turn should help speed up logistics infrastructure executions. Higher Debt to Equity ratio for ARST is a nearterm concern due to its aggressive FTWZ expansions in FY1214E period. However, the same should get relaxed by FY14E, as the expansion results in improved cash flows thereby helping the C ompany reduce its debt exposure. This is turn should boost ARST's asset turn o ver and RoCE in FY14E. Similarly, as GDPL's rail and CFS businesses expand alongwith higher utilisation, we expect the Company's sales turnover and return ratios to gain.
Exhibit 4: Relative scoring of listed logistics companies- Companies under coverage have fair well on their financial fundamentals
Companies Allcargo Logistics CFO/ EBITDA 3 3 2 4 3 4
Source: Capitaline, Karvy Institutional Research
D:E 3
WC/Sales 3 4 3 4
Sales T. O. 2 3 4 3 3
RoCE 4 2 3 3 2 2 2 Gati 2
Capex/Sales 4 3 2 4 4 1 1 3 2 4 1 1
Overall Container Corporation 3 Gateway Distriparks 3 4 4 3
3 Arshiya International 4 3 1
3 Blue Dart Express 2 2
4 Transport Corporation of India
March 22, 2012
Logistics Thematic
Summary of Companies covered in the Report

Allcargo Logistics (AGLL IN): We initiate coverage on the stock with "BUY " recommendation with a target price of Rs. 213 per share, valuing AGLL at 10.5x its FY13FY14E average EPS. MTO segment buoyed by ECU Line growth: Globally, AGLL is the 2nd largest LCL consolidator (Multimodal Transport Operations) post acquisition of ECU Line. This segment accounts for 80% of total revenues. With ECU Lines' increasin g presence in the high growth Asian countries, we expect the MTO revenues to grow at 14% CAGR during FY1214E. Expanding CFS/ ICD capacities to boost profitability: AGLL has three CFS at three major EXIM hubs JNPT, Mundra and Chennai. It is the number on e operator at Chennai and Mundra ports with major concentration towards high realisation import cargo handling. Arshiya International (ARST IN): We initiate coverage on the stock with "BUY" reco mmendation with a target price of Rs. 227 per share, valuing ARST at 7.0x its FY1314E average EBITDA. FTWZ expansion boosts earnings growth in FY1214E periods: Arshiy a International (ARST) is the pioneer of the FTWZ (Free Trade Warehousing Zones) concept in India. It plans to ramp up its warehouse capacities at both the FTW Z by tenfold to 35 warehouses by FY14E. Based on these expansions, we expect re venues of this high margin (EBIT margins of >55%) segment to grow by >100% CAGR during FY1214E. Rail Business (Third largest operator) on expansion spree: ARST is the third largest container train operator in India with 16 operational rakes and plans to add an other eight rakes during FY1314E. We expect these additions to boost the segmenta l revenues by 38% CAGR and EBITDA CAGR of 28% during FY1214E. Container Corporation of India (CCRI IN): We initiate coverage on the stock with "B UY" recommendation with a target price of Rs. 1,115 per share, valuing CCRI at 13.2x its FY1314E average EPS. Largest container train operator in India: Container Corporation of India (CCRI) is India's largest container train operator (CTO) with container train fleet strength of 240 container trains and 61 terminals spread across India. Currently, CCRI has ~68% of total container fleet operational in India. Strategic tieups with competitors & customers to support revenue growt h: CCRI has formed various JVs across India partnering with its customers as well as competing CTOs to support its revenue growth. In the domestic train handling , CCRI's FY1112E volume growths got impact after Indian Railways in Dec'10 ann ounced commodityspecific haulage charges increase for domestic cargoes. Ho wever, the quarterly volume trends suggest a bottom out situation in FY12E. Subse quently, we expect revenues to grow at 12% CAGR during FY1214E.
March 22, 2012
Logistics Thematic Gateway Distriparks (GDPL IN): We initiate coverage on the stock with "BU Y" recommendation with a target price of Rs. 204 per share, valuing GDPL at 12.0x its FY1314E average EPS. CFS Business the cash cow; expanding capacities to fuel growth: We expect GDPL's CFS volume to grow by 3% and 7% during FY1314E vs. 3% durin g FY12E, as new capacities get commissioned at JNPT and Kochi. Strong relationship with shipping lines should boost the growth as it the shipping lines that notify which CFS to do business with (and not the cargo owners) . Further, CFS is a cash cow, as it has very high OPM of ~54% and the segment generates >80% of PAT. Leadership position in the container train business: GDPL currently operates 21 rakes (2nd largest after Container Corp) with >85% of its capacity being deployed in the EXIM container transportation. It plans to add another 68 r akes during FY13E. We expect GDPL's rail volumes to grow by 29% and 15% during FY12E and FY13E.
Key Financial Summary

Exhibit 5: Key financials of the four stocks covered in the report
Companies AGLL Year FY12E FY13E Revenues (Rs mn) 43,325 40,391 YoY (%) 21.1 16.5 6.9 ARST FY14E 43,169 25.7 5,320 12.3 2,845 16.3 6.2 15.6 EBIDTA (Rs mn) 4,927 4,667 OPM (%) 11.4 11.6 PAT (Rs mn) 2,765 2,446 YoY (%) 33.6 10.6 P/E (x) 8.0 7.2 RoE (%) 16.6 15.5 RoCE (%) 14.2 12.9 12.9 7.7 9.0 FY12E CCRI FY13E 13,886 39.7 8.3 GDPL FY14E 19,404 14.2 6,045 10,821 FY12E 41,471 14.3 12,321 FY13E 47,374 28.7 14,077 FY14E 54,129 14.3 2,593 26.0 26.0 11,813 1,423 16.1 FY12E 7,712 8 ,813 FY13E FY14E 35.5
10,326
34.5
2,497
24.2
1,079
32.4
7.7
14.0
13.3 16.0
3,686
26.5
1,378
27.8 116.8
6.0
15.7
16.0 16.2
31.2
2,988
1.1 14.7
2.8 12.8
27.8
12.3 12.7
26.1
8,878 10,185 16.0 11.2 9.6 47.1 11.5 9.9
16.6
14.0
16.6
16.8
14.6
3,051
33.6
1,652 22.8
8.0
13.0
10,103
3,590
34.6
2,029
13.6
14.9
March 22, 2012
Logistics Thematic
Sensitivity Analysis
Realisation changes have higher impact on earnings metrics and valuation compared to impact of respective volume changes in general.
Exhibit 6: AGLL Impact of changes in volumes & realization across CFS and NVOCC (ECU Line) verticals on the earnings metrics and target price estimates
FY14E estimates
10% lower CFS realization 10% lower CFS volumes 1% lower ECU Line realization 10% lower ECU Line volumes Source: Karvy Institutional Research
EPS (%)
(11) (5) (10) (6)
RoE (bps)
(160) (74) (142) (90)
RoCE (bps)
(108) (50) (96) (60)
TP (%)
(6) (3) (5) (3)
AGLL's target price sensitivity to ECU Line realisation is highest (~5x), as this is a low but stable margin (~57%) business and constitute >70% of topline.
Exhibit 7: ASRST Impact of changes in VAS multiple (FTWZ), volumes & realisation across FTWZ and Rail verticals on the earnings metrics and target price estimates
FY14E estimates
10% lower VAS multiple (FTWZ) 10% lower FTWZ volumes 10% lower FTWZ realisation 10% lower Rail volumes 10% lower Rail realisation Source: Karvy Institutional Research
EPS (%)
(6) (11) (17) (2) (12)
RoE (bps)
(148) (279) (427) (40) (285)
RoCE (bps)
(53) (98) (150) (14) (100)
TP (%)
(6) (12) (18) (2) (12)
ARST's earnings have higher sensitivity to FTWZ business compared to the rail business.
Exhibit 8: CCRI Impact of changes in realization and volumes on the earnings metrics and target price estimates
FY14E estimates
10% lower volumes 10% lower realization Source: Karvy Institutional Research
EPS (%)
(7) (110) (34)
RoE (bps)
(107) (4) (566)
RoCE (bps)
(549)
TP (%)
(18)
Exhibit 9: GDPL Impact of changes in realisation and volumes across CFS and Rail verticals on the earnings metrics and target price estimates
FY14E estimates 10% lower CFS realization 10% lower CFS volumes 10% lower Rail realization 10% lower Rail volumes
EPS (%) (16) (9) (19) (4)
RoE (bps) (221) (121) (261) (53)
RoCE (bps) (185) (102) (219) (44)
TP (%) (9) (5) (10) (2)
CFS business, the cash cow would continue to have higher impact on earnings over the next two years.
March 22, 2012
Logistics Thematic
Profile of Indian Logistics Industry

Indian logistics industry is ~3% of the global logistics and is highly fragmented so far. Lo gistics industry comprises of three major segments transportation, storage and value ad ded services. Based on the analysis of various subsegments in the Indian conte xt on various comparative factors, we believe companies in the storage and the value added service segments are wellplaced to capitalize on growing Indian economy. In the transportation segment, we like companies present in container train and project logistics.
Exhibit 10: Indian logistics market is ~3% of global logistics in value terms (US$)
Indian Logisitcs industry, 105 , 3%
Exhibit 11: and is highly fragmented even though the share of organized players is expected to double by FY15E
120% 100% 80% 60% 40% 20% 6% 2008 Organised Source: Industry, Karvy Institutional Research 2015E Unorganised 12%
US$ Bn
Global Logisitcs industry, 3,500 , 97% Source: CII, ASSOCHAM, Karvy Institutional Research
0%
Exhibit 12: Comparative analysis of Indian logistics sector across its various sub segments
Value Added Segments Road Transport FTL Transportation Express Logistics LTL Coastal Shipping Project Logistics Logistics Parks Storage Freight Forwarding Container Freight Stations Inland Container Depots Services Courier Services
Container Rail Transportation
Modern Warehousing
Cold Chain
Sub segment/
Comparative factors
Current Market Size Growth Potential Innovation Potential Technology Requirement Competitive Intensity Niche Capital Intensity Profit Margins Overall Attractiveness
Source: KPMG, Industry, Karvy Institutional Research
3PL / 4PL
Ports
March 22, 2012
Logistics Thematic
Segmental Analysis of Companies Covered in the Report

Exhibit 13: Comparative positioning of the four logistics companies
Rail Transport Revenue profile (%) Gateway Distriparks A rshiya International Allcargo Logistics Container Corporation of India Key Industry metrics Market Size & Growth Medium, 1015% Low, 2030% Low, 2530% Competitive intensity Low & rising Capital Intensity EBITDA margins
Cold chain 7%
MTO (LTL)
Project logistics
Warehousing (CFS, ICD, FTWZ, FTWZ) 43% 15%
3PL
50% 25%
60%
84% 75% Low, 1520%
8%
8% 25%
Low, 2030%
Medium, 1525% Low & stable Low & stable
Medium & rising Low & stable Low & stable
High 1825%
Medium 2530%
Low 510%
Medium 2025%
High 5065%
Low 1012%
1. Growing economy, rising government spends to buoy EXIM trade and logistics demand
EXIM trade to double to US$ 1 trillion by CY16E Containerized EXIM throughout to grow at 12% CAGR during FY0826E Logistic spends to rise on sustained infrastructure investments Rising FDI in Indian companies Increased container penetration provides opportunities for varied logistics services
2. Ensuing inefficiency in logistics sector provides opportunities for logistics providers

India lags on logistics efficiency due to its poor infrastructure Hinterland connectivity has been a bottleneck for logistics sector Rail Road mix should complement each other
Key Positive Triggers for the
3. Government initiatives to address th e infrastructure bottlenecks

DFC (Railways) to augment track capacity by ~2,750 Kms NHAI has sped up its road execution rates New Maritime Agenda 20102020 will boos t port capacity Coastal/ Inland waterways can further rela x logistics constraints Container ports Major ports are operatin g at peak capacity Growth of minor ports & private ports brightens up sector outlook Multiple tax incentives to attract investment in the sector
Indian Logistics Industry
4. Emergence of Private Container Train Operators have brought in competiveness

Private CTOs reduce Container Corp's monopoly, improve competitiveness Growth opportunities abound for CTOs even on a conservative basis Economics of a CTO/ICD Operator
6. Impending GST another booster the industry
Modern warehousing segment to be a large beneficiary of GST
5. FDI policy related to logistics sector has encouraged foreign players to invest in the
7. Value Added Services 3PL and above to provide the next level of growth for the
sector
logistics industry
10
March 22, 2012
Logistics Thematic
1. Growing Indian economy, rising government spends and FDI to keep logistics demand buoyant
Growth in logistics sector is related to increased economic activities and rising EXIM trade. India's GDP has grown by ~8% CAGR during the last eight years and the IM F forecasts it to grow by similar rate during FY1217E period. The IMF also forecasts worl d GDP growth to pick up in CY1216E period. These bode well for the Indian logistics sector, as the growing economies should boost demand for logistics services.
Exhibit 14: IMF expects India's GDP to grow at 8% CAGR during CY1116E periodsat the same at which it grew during the preceding 78 years
12 10 86 42 0 2 4.6 5.3 5.4 2.8 9.0 9.5 10.0 6.2 6.8 5.1 4.0 10.1 7.8 7.5 4.0 8.1 4.5 8.1 4.7 8.1 4.8 8.1 4.9
(0.7) 2005 2006 2007 2008 2009 2010 2011E 2012E 2013E 2014E 2015E 2016E 4.5 FY11
World GDP Source: IMF, Karvy Institutional Research
India GDP (%)
1.1 India's EXIM trade should double to US$ 1 trillion by CY16E

During FY0311 period, EXIM trade (nonoil) has grown at ~25x GDP growth. Assuming EXIM trade (nonoil) growth of 2 times GDP growth, India's EXIM t rade should grow at more than 15% CAGR through CY16E to US$1 trillion. Over the las t eight years, India's global trade has grown at ~1.7x global trade in value ter m. This resulted in 100 bps expansion in India's share in global trade thereby boosting India's significance on the global trade map.
Exhibit 15: Both imports and exports growth in India picked up Exhibit 16: India's EXIM trade (non Oil) has grown at >2x GDP after a temporary dip in FY10 growth during the last nine years
50 40 30 20 10 0 10 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 2000 2001 2002 3 11 39 32
Exim / GDP Multiple

6 5 4 3 2 1 0 1 FY03 FY04 FY05 FY06 FY07 FY08 FY09 (0.4) FY10 2.7 3.4 3.8 2.5 2.0 3.0 4.8
Exports YoY (%)
Imports YoY (%)
Source: CEIC, Karvy Institutional Research (Non Oil Export Import trends)
Source: CEIC, Karvy Institutional Research
11
March 22, 2012
Logistics Thematic
Exhibit 17: At 2x GDP growth, India's EXIM (non Oil) trade Exhibit 18: Strong EXIM growth has increased India's share in should double to US$ 1 trillion by CY16E global trade by ~100bps during the last eight years
1,200 1,000 1,000 800 600 400 200 2006 2007 2008 2009 2010 2011E 2012E 2013E 2014E 2015E 2016E 0 197 476 2.0% 1.8% 1.6% 1.4% 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% 2002 2003 2004 2005 2006 2007 2008 2009 2010 800 600 400 200 FY08 FY26E P O L C o a l Sou rce: IP A, Kar vy I nsti tuti ona O t h e r 0.0% 0.8% 1.8%
1.2 Containerized EXIM throughout to grow at 12% CAGR during FY0826E - to benefit logistics services across 3 verticals
Indian Port Association (IPA) forecasts India's EXIM volumes at major Indian ports to grow at 6.5% CAGR during FY0826E at about the similar rate of 7% at which volumes grew during FY0010 period. Cont ainerized cargo handling at major ports would be the major beneficiary and is expected to grow at 12% CAGR during the same period. At this rate, EXIM throughput at major p orts will double to 228 bn MT during FY1117E period. Even if we assume this growt h rate to be optimistic and factor in an 8% base case scenario, EXIM thr oughput should grow by 1.6 times to 182 bn MT by FY17E thereby dep icting strong demand potential for logistics services across all the three verticals - transportation, warehousing and value added services.
Exhibit 19: EXIM volumes handled at major ports in India has Exhibit 20: EXIM traffic handled at major ports in India is grown by 7% CAGR during FY0010 expected to grow by 6.5% CAGR during FY0826E
600 500 400 300 200 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 100 FY10 14% 12% 10% 8% 6% 4% 2% 0% 100 300 200 400
mn MT
mn MT
Total EXIM (Bn MT) at major ports Source: CEIC, Karvy Institutional Research
YoY Growth (%) RHS
l Research
Iron Ore Fertilisers Containers (RHS)
12
March 22, 2012
Logistics Thematic
Exhibit 21: Containerized cargo is expected to witness highest Exhibit 22: and at this rate EXIM container throughput (mn MT) at major ports should double in next six years ~12% growth during the same period (FY0826E)
14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% POL Iron Ore Coal Containers Fertilisers Other Cargo Total 4.2% 2.1% 5.3% 5.0% 5.6% 6.5% 12.3%
250,000 200,000 150,000 114,040 100,000 50,000 FY11

Source: IPA, Karvy Institutional Research
225,095
FY17E
1.3 Logistic spend to rise on sustained infrastructure investments

While the 11th and 12th Five Year Plans have seen the government's investment in the infrastructure segment double during each plan period to Rs. 5.7 trillion during the 11th FYP, the 12th FYP has further doubled it to Rs. 11.3 trillion.
Exhibit 23:
Infrastructure investment outlay has doubled during each of 10th 11th and 12th FYPs
Power Telecom Irrigation Gas Water & Sanitation Storage Airports Ports Railways Roads 2,000 4,000 6,000 8,000 10,000 12,000
Expenditure XI Plan Allocation Source: Planning Commission of India, Karvy Institutional Research
Expenditure XII Plan Alloacation (Rs bn)
Exhibit 24: Infrastructure investment share of GDP has risen Exhibit 25: Transportation spend (% of GDP) has also grown by ~100bps to ~6% during the last 20 years sharply during FYP1012 (FY0217)
14 % of GD P 12 10
7.0 6.5 6.0 5.5
8 FYP10 FYP11 6 4 2
Source: Planning Commission of India, Karvy Institutional Research
FYP12
FYP1
FYP2
FYP3
FYP4
FYP5
FYP6
FYP7
FYP8
FYP9
5.0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 4.5 4.0
Five Year Plans
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March 22, 2012
Logistics Thematic
1.4 Rising FDI in Indian companies should increase demand for organized logistics players
Strong economic growth during the last several years has attracted strong FDI across various industries in India. These foreign companies have seen the cost b enefits of enhanced logistics systems in their countries. Hence, these companies s hould be willing to allocate their logistics requirements to organized logistics pl ayers thereby increasing the demand for integrated logistics service providers in India.
Exhibit 26: FDI Inflow in India has grown multifold over the Exhibit 27: Major beneficiaries of FDI Inflows in India during last decade the last five years
50 40 34.8 30 20 2001 2002 2003 2004 2005 2006 2007 10 0 6.1 4.0 5.0 4.3 6.1 9.0 22.8 41.9 37.7 32.9 200 150 100 Electricals Pharma Food Proc. Chemicals Hotel & Tourism Cement & Gypsum Prod Industrial Mach Metallurgy 2010 50 2009 2010 2011
FDI in India (Rs bn) 2006 Source: CEIC, Karvy Institutional Research 2007 2008 2009 Source: CEIC, Karvy Institutional Research
1.5 Increased container penetration provides opportunities for varied logistics services multimodal transport, warehousing & value added services
While container logistics in India was introduced by Indian Railways as early as in 1966 to provide doortodoor service to their customers, it was only after 20 years when Government of India realized the importance of containerization. In 1988, it commissione d the JNPT and subsequently created a Corporation called Container Corp of India, which constructed its first ICD at Tughlakabad in New Delhi. Container traffic in India has grown at 11% CAGR during FY0112 boosted by rising EXIM trade. Increased containerization has further facilitated multimodal transport in India.
2008
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March 22, 2012
Logistics Thematic
Exhibit 28: Container traffic throughput at major Ports has Exhibit 29: Containerized cargo market share has been on a rise grown at ~11% CAGR during FY01FY12 over the last six years
10.0 8.0 6.0 4.0 2.0 0.0 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12E
Mn TEUs
21% 20% 19% 18% 17% 16% 15% 14% 13% 12% 2006 2007 2008 2009 2010 14.6% 15.8% 17.8% 17.6% 18.0%
20.0%
Exhibit 30: Railways share in container trade increased to ~44% in 2005 vs 35% in 1994
5.0 4.0 3.0 2.0 1.0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Mn TEUs
Rail Source: Indian Railways, Karvy Institutional Research
Road
2011
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March 22, 2012
Logistics Thematic
2. Ensuing Logistics Inefficiency Provides Opportunities for Logistics Providers

2.1 India lags on logistics efficiency due to its poor infrastructure
India ranks 47 amongst 155 countries on a Logistics Performance Index (LPI) o f World Bank. The ranks have been populated based on six parameters Customs, Infrastructure, International Shipment, Logistics competence, Tracking & Tracing and Timeliness.
Exhibit 31: India ranks low on World Bank's logistics index
60 50 40 30 20 Sweden 1 2 Singapore Germany 10 0 3 15 USA China India Vietnam 27 LPI Rank 47 53
Exhibit 32: as India is at the early stages of logistics evolution

Internal Integrated Logistics3PL China, Phillipines, Indonesia
Physical Distribution India, Vietnam, Laos
External Integrated logistics 4PL Hong Kong, Korea, Singapore
Global logistics Management USA, UK, Germany
Source: World Bank, Karvy Institutional Research
Source: IMaCS, Karvy Institutional Research
2.2 Hinterland connectivity has been a bottleneck for logistics sector

India's freight traffic is heavily concentrated along the seven major routes (as shown in Exhibit 34 below). These seven routes account for ~50% of total freight traffi c (2007). I. The northern Corridors Delhi Mumbai and Delhi Kolkata routes handle ~19% of total traffic. The high traffic flow along these two routes is on account of EXIM traffic from the hinterland areas to the ports of Kandla, Mumbai and Kolkata. II. The Southern Corridors Chennai Mumbai and Chennai Kolkata routes handle relatively low er freight traffic (10%). The presence of most of the major and minor ports along th e coastline of the southern half of the country reduces the need to traverse longer distance s along the major routes discussed above. While traffic concentration along these routes is expected to grow further, road and rail infrastructure development has not kept pace with traffic growth. Rail: Almost 80% of the present railways network was built before India's independence in 1947. Rail traffic grew by >10x since independence, while track length grew by a modest ~1.5x. The existing trunk routes of HowrahDelhi on the Easter n Corridor and MumbaiDelhi on the Western Corridor are highly saturated with line capacity utilization varying between 115% and 150%. Road: While road traffic grew by >200x since 1951, road length has grown by just 8x thereby impacting transportation efficiency of the country. Almost 30% of the existing National Highways were constructed prior to independence.
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March 22, 2012
Logistics Thematic
Exhibit 33: Indian RoadwaysHighways form a meager 6% of total road network; Developing the remaining 94% will enhance the last mile connectiv ity (<100 kms) - a key ingredient to improve logistics efficiency
Expressways 0.01%
National Highways 2.1% State Highways 4.0%
Rural and Other Roads 79.8%
Major District Roads 14.1%
Source: NHAI, Karvy Institutional Research
Exhibit 34: The seven major routes in India accounted for ~50% of freight traffic in India in 2007 (Roadways - 24%, Railways - 20%, Waterways 6%)
New Delhi
Kandla
1 4
Mumbai 5
3 6 7
Kolkata
Chennai Kochi
Source: McKinsey, Karvy Institutional Research
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March 22, 2012
Logistics Thematic
2.3 Rail Road Mix should complement each other

Predominance of road transport in India has added to higher logistics costs for India. India spends ~13% of its GDP on logistics vs. 78% in the developed c ountries. In India, a large chunk of cargo traffic moves through roadways even though these are capable of being transported through railways. On an average, rail transport costs one third the transportation cost by road. However, roads have the adv antage of the last mile connectivity and hence logistics costs can be reduced by judicious mix of both rail and road transport
Exhibit 35: Even though India freight traffic comprises majorly Exhibit 36: bulk materials movement over longer distances, 57% is of freight traffic (~2.5 Bn MT in 2008) move through roadways leading to logistics inefficiency
100% 80% 60% 40% 20% 0% 36 6 India Airways Waterways 14 US Railways 30 57 47 48 37 22
As road transport is the most expensive mode of transportation in India; Two thirds of road freight structurally suitable for rail and waterways transportation
Logistics cost Rs 0.11 per km per MT Rs 0.35 per nautical mile per MT Rs 1.25 per km per MT
Modes Pipelines Coastal Rail
China Roadways
Road
Rs 3.50 per km per MT
Source: McKinsey, Karvy Institutional Research
Source: India Infrastructure, Karvy Institutional Research
3. Government Initiatives to Address the Infrastructure Bottlenecks

3.1 Planned Expenditure by Govt has missed targets 12th Plan fixed at Rs. 13 trillion
There have been initiatives to augment capacities across all the modes of transportation. While the 10th Five Year Plan (20022007) outlay Rs. 2.6 trillion for the logistics sector, the same has been doubled to Rs. 5.6 trillion in 11th FYP. There have been slippages in these investments with the railways being a major laggard in terms of investments. In the 11th FYP, the port development suffered major setbacks, as the actual spending estimates were halved. Going forward, the 12th FY P has doubled the outlay to ~Rs. 13 trillion to augment logistics infrastructure.
Exhibit 37: Logistics development has suffered as planned expenditures have missed targets during Xth and XIth FYPs; XIIth FYP has further doubled its outlay to Rs 13 trillion
Logistics Segment (Rs bn) Roads & bridges Railways (incl. MRTS) Ports (incl. inland waterways) Xth FYP Actual 1,271 1,021 230 68 2 17 90 5,652 29 Xth FYP Planned 1,449 1,197 141 361 224 7,173 33 Dev % (12) (15) 63 406 310 (60) Total (21) XIth FYP Actual# 2,787 2,008 880 17 Storage 2,647 28 XIth FYP Planned 3,142 2,618 (54) Airports 56 2,902 35 Dev % (11) (23) 69 48 (9)
% of Total Infrastructure
Source: Planning Commission of India, Karvy Institutional Research
#Revised investment estimates in the Midterm review of the XIth FYP
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March 22, 2012
Logistics Thematic
3.2 Dedicated Freight Corridors (railways) to augment track capacity by ~2,750 Kms
The Ministry of Railways (MoR) set up the Dedicated Freight Corridor Corporation of India Limited (DFCCIL) in 2006 to address the issue of capacit y constrain for freight traffic movement in India. The DFCCIL conceived the quadrilateral project to augment freight handling capacity by Indian railways. The quadrilateral includes a Western and Eastern Corridor linking the four metro cities Delhi, Mumbai, Chennai and Howrah. While it was expected to be operational by 2017, inadvertent delays at various fronts have delayed the project by 34 years. Nonetheless, the commissioning of the same would help decongest the major traffic routes as well as improve the hinterland connec tivity with the ports.
Exhibit 38: Phasing of Dedicated Freight Corridors; Expect Delays of 34 years
The Western Corridor would connect JNPT to Dadri via VadodaraAhmedabadPalanpur

PhuleraRewari, total distance of 1,483 km of double line electric (2 X 25 KV) track. This route is one of t he most congested rail routes and hence the proposed expansion will benefit both train operators in term of increased cargo volumes as well as companies in reducing their logistics costs. Phase I Phase II Rewari Vadodara (920 Kms) Vadodara JNPT(430Kms) 20102017 Phase III Dadri(140 Kms) 20102017 Rewari 20092016
The Eastern Corridor connects Ludhiana to Sonnagar, total distance of 1,279 Km covering 6
states and is projected to cater to a number of traffic streams coal for the power plants in the northern region of U.P., Delhi, Haryana, Punjab and parts of Rajasthan from the Eastern coal fields, finished steel, food grains, cement, fertilizers, lime stone from Rajasthan to steel plants in the east and general goods. Phase IAPL1 Phase IIAPL2 Ph ase IIIAPL3 Phase IV (Funding through PPP) Phase Ia ( Funding by Ministry of Railways)
Source: DFCCIL, Karvy Institutional Research
Khurja Kanpur (343 Kms) Kanpur Mughalsarai (390 Kms) KhurjaLudhiana (397 Kms) Dankuni Sonnagar (550 Kms) Sonnagar Mugal Sarai (125 Kms)
20092016 20102016 20112016 20112016 20102016
3.3 NHAI has sped up its road execution rates

Over the last few years, the National Highway Development Authority (NHAI the apex government body in India for the planning and implementation of dev elopment projects on national highways) has faced various hurdles such as prob lems in land acquisition, non availability of funds and cost escalations, etc., whi ch has led to slippages in implementing the targets set out in the various FYPs. Recently, NHAI's project execution has sped up and this should help ease infrastructure constraints for the logistics industry.
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March 22, 2012
Logistics Thematic
Exhibit 39: Most of the major expansions - 2laning & 6lanning, Expressways & Flyovers works are yet to be completed These should improve road connectivity
Project Golden Quadrilateral NSEW Phase I & II NHDP Phase IV NHDP Phase V NHDP Phase VI NHDP Phase VII Port Connectivity Total
Source: NHAI, Karvy Institutional Research
Particulars
Approval Date Dec00
Planned Timeline
Total Length (Km) 5,846 12,109 14,799 6,500 1,000 700 1,778 50,412
Completed so far 100% 24% 0% 11% 0% 1% 53% 33%
Dec03 Upgradation of NH on BOT basis Twolaning of single laned NH Six laning of GQ & other stretches Building Expressways Flyover, bypasses, ring roads Dec00
Dec09 Mar05 to Apr07 Dec 06 to Dec 09 Oct06 Nov06 Dec07 380
7,300 Dec09Dec12 Dec06Dec15 Dec12 Dec07 to Dec15 Dec06 to Dec14 89% SARDP & Others
81% NHDP Phase III
3.4 New Maritime Agenda 20102020 will boost port capacity driving EXIM trade growth
Currently there are 12 major ports (capacity 681 mn MT) in India and ~187 minor ports (capacity 392 mn MT). The nonmajor ports have maximum concentration in the states of Gujarat (42) and Maharashtra (48). The government had set up NMDP at the start of 11th FYP (FY0712) with an investment outlay of Rs. 550 bn to double the 12 major ports' capacity to 1 bn MT (276 pro jects) by FY12. However, it could only invest 10% of the total fund during FY0710 peri od. Subsequently, the Government has recently scrapped NMDP (expiring in Mar'12) and has launched the Maritime Agenda 20102020. The Maritime Agenda 20102020 has set aside US$110 bn fund size to develop ports and shipbuilding industry by 2020. It envisages augmenting major ports c apacities to 3.1 bn MT by 2020. The port sector under the new plan would invest US$66 b n, of which the majority will be from private investors. Two new ports will be built, one o n each coast, while four of the 12 existing major ports (Nhava Sheva, Cochin, Chennai and Visakhapatnam) will be substantially upgraded.
Exhibit 40: Ongoing expansion programs
at major ports in India -
These projects are expected to increase major ports capacity by ~30% o ver the next four -five years
Major Ports Jawaharlal Nehru Port Mumbai Port Mormugao Port Kandla Port Tuticorin Port Visakhapatnam Port Paradip Port C hennai Port Ennore Port Kolkata (HDC) Cochin Port New Mangalore Port Total Existing Port Capacity (Mn MT) 64 51 41 88 27 65 77 80 31 72 41 46 681 Capex (Rs mn) 17,000 14,600 2,500 12,798 1,490 3,040 5,886 9,640 11,280 3,301 60,330 2,300 144,165 Capacity Expansion (Mn MT) 34 10 5 26 11 8 23 18 23 11 46 3 218
Source : IPA, Karvy Institutional Research
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March 22, 2012
Logistics Thematic
3.5 Coastal/ inland waterways can further ease logistics constraints

Though India's long coastline of ~7,500 km offers opportunities for development of this mode, it remains unleveraged due to lack of coastal navigation infrastructure. Compar atively, China utilizes its coastline much more effectively where 30% of total domestic freight traffic travels over water. Lack of government focus towards the sector has kept it undeveloped and is restricted only to barge and lighterage operations of bulk cargo. Recently, the Indian Government has relaxed Cabotage law to allow foreign shipping lines to o perate feeder services between Indian ports. This should encourage increased container services between the ports thereby improving logistics flow in India. India's navigable inland waterways comprise almost 14,500 km, out of which 5,200 km of major rivers and some 500 km of canals are suitable for mechanized craft. So far, I nland Waterway Transport (IWT) is limited to only 1% of total inland cargo transport in India.
3.6 Container ports new expansions at major ports key to EXIM throughput growth
JNPT, which handles ~60% of Indian container traffic at major ports, is operating at saturated levels with minimal growth of ~3%. Chennai port handles ~20% of I ndia's container traffic and is growing at ~6% and will soon operate at same u tilization levels as that of JNPT. These suggest that there is urgent need for new capacity additions across India to handle growing EXIM container traffic.
Exhibit 41: Container terminal expansions lined up to handle the rising container throughput growth
EXIM Ports JNP, Mumbai Chennai Kochi Current container Expansion Planned Time line/ Other Details capacity (mn TEUs) (mn TEUs) 4.2 (3 terminals) 3.5 (2 terminals) 1.0 (1 terminal) 4.8 To be completed by FY1516E, expansion contracted to PSA 4.0 To be completed by FY1819E, Mundra Port was the lone bidder for the project 3.0 1st phase already done in FY11, 3 mn TEUs to be added in 2nd phase by FY15 16E, Contracted to DP World
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Logistics Thematic
3.7 Growth of minor ports & private ports brightens up sectoral outlook
Gujarat has been aggressively adding port capacities led by rise in non major ports' capacity as well as by commissioning of private ports. Gujarat accounts for 73% of the total non major port capacity of 392 mn MT. It has also commissioned two private po rts - Gujarat Pipavav Port and Mundra Port. These two ports have gained traction in both container and bulk cargo movements.
Exhibit 42: Mundra port's hinterland connectivity Exhibit 43: GPPL's hinterland rail
connectivity
Exhibit 44: GPPL's hinterland road

connectivity
Exhibit 45: While major ports still handle a large chunk, the Exhibit 46: Private ports have been gaining market shares over the last six years minor ports' volume share is expanding
120% 100% 80% 60% 40% 20% 0% FY06 FY07 FY08 FY09
Non Major Ports
35% 33% 31% 25.5% 28.6% 28.1% 27.7% 32.2% 29% 27% 25% 23% 21% 19% FY10 17% 15% FY06 FY07 FY08 FY09 FY10 25.5% 28.6% 28.1% 27.7% 32.2%
Major Ports
Source: IPA, Crisil, Karvy Institutional Research
Source: GMB, Karvy Institutional Research
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March 22, 2012
Logistics Thematic
3.8 Multiple tax incentives to attract investment in the sector

The Indian Government has introduced various tax schemes to boost investments (including FDIs) in the logistics sector. These incentives are in the form of prof it linked tax benefits or capital based deductions.
Exhibit 47: Government has provided many tax incentives to attract investment in the logistics sector
Sectors Applicable sections in IT Act 80IB Type of Activity Processing, preservation & packaging of fruits & vegetables or meat & meat products, dairy products, food grains, etc Setting up & operating cold chain facilities on & after 1st April 2009; CFS & ICDs included from FY13E Setting up & operating warehouse facilities for agricultural produce Amount of Deductions 100% of profits for first 5 years, 30% of profits for next 5 years 150% deductions on capex incurred during the year on other than land acquisition/goodwill/financial instruments 100% deductions on capex incurred during the year on other than land acquisition/goodwill/financial instruments 100% profits from the business for 10 consecutive years out of the first 15 years (from start of notification by Central Govt)
Food Processing Cold Chain, CFS & ICDs Warehousing Facility
35AD
35AD
FTWZ
80IAB
Undertaking engaged in development of FTWZ
Source: Income Tax Act, KPMG, Karvy Institutional Research
4. Emergence of Private Container Train Operators have brought in Competitiveness

In its bid to augment container penetration in India and bring in efficiency in container logistics in India, the MoR (in consultation of Ministry of Shipping, Ministry of Commerce & Industry and Planning Commission) passed a policy in J an'06, whereby the private companies were invited to operate container trains alo ng with the incumbent operator Container Corp using the IR's existing rail infrastructure. Keeping the traffic concentration in perspective, the entire network of IR was classified into four categories (Category I to IV) based on the existing and ant icipated traffic volumes of ports. 15 private players bought licenses for various categories as Container Train Operators (CTOs) thereby during 20062008. While the CTOs would procure their rolling stocks and would construct or lease their Inland Cont ainer Deports (ICD), the IR would provide the locomotives to all the 16 operators (along with Container Corp) on a nondiscriminatory basis. We believe this is a move in the right direction as private participation should facilitate faster penetration of containerized trade in India, as the private players who have entered in this business are also present in other related services. Thi s paves the way for rise in integrated logistics in India in the long haul.
Exhibit 48: License Categories CTO Operators License
Category I II III Areas of Operation Registration Fee (Rs mn) JNP/Mumbai Port National Capital Region rail corridor and beyond. This category will also 500 (automatically includes all include all domestic traffic. four categories) Rail corridors serving JNP/Mumbai Port and its hinterland in other than National Capital Region 100 and beyond. This category will also include all domestic traffic except on category I routes. Rail corridors serving the ports of Pipavav, Mundra, Chennai/Ennore, Vizag and Kochi and their hinterland. This category will also include all 100 domestic traffic except on category I routes. Rail corridors serving other ports like Kandla, New Mangalore, Tuticorin, Haldia/Kolkata, Par adip and Mormugao and their hinterland and all domestic traffic routes. This category will 100 also include all domestic traffic except on category I routes.
IV
Source: Indian Railways, Karvy Institutional Research
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March 22, 2012
Logistics Thematic
4.1 Private CTOs reduce Container Corp's monopoly while improving competitiveness
Promoters' profile and their other business segments suggest that most of the private entrants are serious players. Their presence in related businesses cont ainer shipping, container terminal operations, CFS operations and the presence o f international companies suggest these CTOs would continue to invest in the sector and would further ramp up their operations.
Exhibit 49: Container Train Operators' Profile - Promoters' profile and their other businesses imply most of them are serious long term investors
Category I 1 2 3 4 Container Corporation Gateway Rail Freight Ltd Arshiya International Hind Terminals India Infrastructure Logistics Pvt Ltd (APL) Container Rail Road Services Rakes 240 21 18 12 Other Details (210 old rakes 30 high speed wagons), 61 terminals (18 EXIM, 13 Domestic, 30 both) Three ICDs Garhi (Delhi), Sanewal (Ludhiana), Kalamboli (Mumbai) Primarily domestic (EXIM route Chennai Bangalore) Links four ICDs in North to JN PT, Mundra and Pipavav Links four ICDs in North to Mumbai, Mundra and Pipavav Tie ups with various CFS/ ICD operators Links four ICDs in NorthWest regions to Mumbai, Mundra and Pipavav Has Three CFS (Chennai, Tuticorin & Vizag); Tie up with CFS/ICD operators & private sidings Service from NCR & Rajasthan to Mundra and JNPT Has several ICDs and CFSs of its own NA NA Other Details Kalamboli (JNPT); Tie ups with CFS/ ICD operators Connects Vizag, Jaipur, Loni, Kolkata, Guwahati, Gujarat ports; Tie ups with CFS/ ICD operators Domestic Mumbai Kolkata mainly Surat, Silvasa and Haldia Does not own trains, has built rail tracks in JV with WR and shares 50% of the revenues with WR MSC Group - a major container shipping line APL India (Subsidiary of NOL Singapore) - Container Shipping Line DP World - Container Terminal Operator, Ports ETA (Dubai); Multimodal transport, Shipping, Port services Sical Logistics, CFS, Container terminals Adani Group of Industries Container Terminal, Ports PSU, Warehousing Reliance (ADAG) PSU, Commodity manufacturer Promoter Details Cat IV License, Agency Cat III, JM Baxi & Co - Container terminal, CFS, Stevedoring Delhi Assam Roadways Corp Trucking JV between Gujarat Pipavav Port Ltd & Indian Railways Promoter Details Indian Railways, PSU Gateway Distriparks; Blackstone major share holder, CFS
ETA Freightstar
SMART Adani Logistics Central Warehousing Corp (CWC) Reliance Infrastructure Leasing Kribco Category IIIV
7 6 0 0 0 Rakes 15 12 2
9 10 11 12
13 14 15
Innovative (B2B) Logistics Solution Boxtrans
TransRail Logistics Pipavav Rail Corporation (PRCL)
16
Source: Industry, Karvy Institutional Research
4.2 Growth opportunities abound for CTOs even on a conservative basis

Our base case analysis suggests that the demand for container trains sho uld grow by 10% CAGR in FY1217E period. This implies addition of >220 container t rains by FY17E. Our bear case assumptions forecast need for >120 contai ner trains. We have based demand projections at lower rates than that envisage d by IPA, as we see port and rail infrastructure growth to remain constrained. Further, w e have only factored in EXIM container traffic for major ports. Additional dem and should come in from private ports that have come in Gujarat and Vishakhapatnam.
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March 22, 2012
Logistics Thematic
Exhibit 50: Container train demand projections - even the bear case scenario projects additional demand for >120 rakes by FY17E
Bull Case EXIM Container CAGR assumptions for FY1217E FY12E throughput (mn TEUs) EXIM Container TEUs in FY17E (mn TEUs) Rail share of EXIM Container movement EXIM Container moved by Rail (mn TEUs) Annual rakes' capacity in TEUs Trips per month (nos.) To and Fro capacity per trip (TEUs) Rakes required to handle FY17E EXIM Targets EXIM trains (% of total) Total Rakes demand in FY17E (nos.) Current Fleet Size (nos.) Rakes Additions required (nos.) Rakes Demand CAGR 356 356 356 560 80% 700 467 80% 583 386 80% 483 Even the bear case scenario projects demand for additional 120+ rakes over the next five years As of FY12E, 80% of ~350 rakes are servicing EXIM traffic 12% 7.84 13.8 35% 4.84 8,640 4.0 180 Base Case 8% 7.84 11.5 35% 4.03 8,640 4.0 180 Bear Case 4% 7.84 9.5 35% 3.34 8,640 4.0 180 Assumed 7.5 days for one round trip each month, 100% utilisation Comments FY0612 CAGR 10%, FY0106 CAGR 14%, Lower growth factored in to factor in port capacity and rail capacity expansion (Bull case CAGR =IPAs projected CAGR for FY0826E) Railways carried ~44% EXIM throughput in FY05 before private CTOs came in since 2006; Hence our estimates are conservative
344 14%
227 10%
127 6%
4.3 Economics of a CTO/ICD operator

As shown below, we have worked out the profitability of a model CTO operator, which owns four ICDs and 40 rakes. At 80% utilisation, RoCE stands at 10%. With a pick up in container services, the utilisation levels are expected to remain > 80% and the op erators would be able to sweat the assets effectively on both uphaul and down hauls. The sector being capital intensive, as utilisation and demand pick up, higher leverage should result in large expansion in the return ratio.
Exhibit 51: Model Profitability of a CTO with four ICDs and 40 rakes
Rakes (nos) Cost/ rake Cost all rakes Setting cost for 1 ICD Setting cost for 4 ICD Equip costs & FA Registration cost Capital Employed (Rs mn) Gearing (X) Debt Interest Cost (%) Depreciation rate (%) 1,000 500 12,300 1.5 7,380 11.0 5.0 6,000 1,500 40 120 4,800 Average time per trip (days) Average trip/year/rake (nos) Rake capacity (to & fro) Capacity (TEUs) Utilisation Volume handled (TEUs) Realisation (Rs/TEU) Revenue (Rs mn) Opex (%) EBITDA (Rs mn) Interest cost (Rs mn) Depreciation (Rs mn) PBT (Rs mn) Tax @20% PAT (Rs mn) RoE (%) RoCE (%) Source: Company, Karvy Institutional Research 348 7% 10% 7.0 52.1 180 375,429 80% 300,343 24,790 7,445 75% 1,861 (812) (615) 435 (87)
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March 22, 2012
Logistics Thematic
4.4 Operational issues impacting CTOs need to be addressed

The entrants CTOs have incurred high capital costs towards license fees and infrastructure building making the business highly capital intensive and with a l ong gestation period. Amongst the operational cost for a CTO, haulage charges by the IR accounts for 7075% of the operational cost. The IR has increased the haulage charges by at least five times since Jan '06. Haulage charges by Indian Railways: While the haulage revenue accounts fo r ~3% of IR total revenues, it is a significant cost for the CTOs. When the wagons/ contai ners have to be moved empty on their return journey, the CTOs margins are further com pressed. Empty container movement is charged at 65% and empty container wagon at 60% of the loaded container haulage charge.
Exhibit 52: Indian Railways raised the haulage charges by >15% with three year of operations by private CTOs. In 2010, it further raised haulage charges for select commodities by ~100%200% thereby impacting operators' growth & profitability
Distance Haulage in 2006 (Rs) % Rise in Haulage (2006 10) Distance Cement Stone other (kms) < 20 MT 2026 MT > 26 MT < 20 MT 2026 MT > 26 MT (Rs) (Kms) marble than (Rs) 10011050 15011550 20012050 25012550 30013050 9,734 13,796 18,089 22,405 26,720 12,222 17,267 22,304 27,362 32,391 13,556 19,236 24,908 30,600 36,265 11 14 14 14 13 14 16 18 19 20 15 17 19 20 20 9511000 14511500 19512000 29513000 34513500 23,174 34,209 42,923 54,912 60,706 27,809 41,050 51,510 65,894 72,848 30,897 45,612 57,232 73,217 80,942 (Rs) Iron & Steel POL
Source: IIMA Research Paper, Industry Data, Karvy Institutional Research
4.5 Haulage charge hike impacted domestic handling for rail operators
The hikes in commodity specific haulage charge by the IR severely impacted th e demand for container rails in the domestic segment. The IR lost its market share to the truck operators over the next few quarters.
Exhibit 53: Container Corporations' domestic container handling growth got impacted after Indian Railways increased commodity specific haulage charges in Dec2010
Dec09 Dec10 Mar10 200 150 143 100 50 Mar11 Dec11 Sep10 Sep11 Jun10 Jun11 40 30 111 113 120 20 10 (10) (20)
152
127
132
145
139
Domestic Throughput (000 TEUs)
YoY Growth (%) RHS
Source: Container Corporation of India, Karvy Institutional Research
However, in the long run, the railways will continue to be the preferred mode for long ha ul cargo movements as it costs ~one third (Rs. 1.25 per KM per MT) compared to road transportation.
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March 22, 2012
Logistics Thematic Additional railway surcharge, rising empty rake parking charges, restricting com modity basket for CTOs have further compounded the cost pressure on the CTOs. Other issues which need to be handled include better and efficient maintenance facility by IR to CTOs, better clarity on development and use of private sidings to increas e penetration. Further, while the IR has leased out land to Container Corp at low rates, the private CTOs have to incur high costs to set up its ICD/ CFS. This contradicts the levelplaying field suggested by the policy.
5. FDI Policy related to Logistics Sector has Encouraged Foreign Players/ PEs to invest in the Sector
In India, 100% FDI is allowed in the logistics sector. Almost all major global logistics players have their presence in India. 100% FDI under the automatic route is permitted for all logistics services except in services mentioned in points II and III FDI up to 100% subject to FIPB approval is permitted for courier services FDI up to 49% under the automatic route is permitted for air transport services, including air cargo services.
Exhibit 54: M&A deals have been a popular route of entry in India
Segment Express cargo Freight Fwddg Express cargo T ransportation Fr eight Fwddg Fre ight Fwddg Ports P orts Po rts Shipping Bulk Cargo Handling Transportation T ransportation Fr eight Fwddg Ports Transportation T ransportation Warehousing F reght Fwddg T ransportation E xpress cargo E xpress cargo Acquirer/ Investor Brekman Grp CH Robinson FedEx TNT Kerry Logisitcs Phoenix International Freight Services Sembcorp Marine Tropical Dimension DP World Oxbow Corporation Louis Dreyfus Armateurs Toll Group Bl ackstone Blac kstone PSA International Hitachi Transportation System NYK Line Warburg Pincus India Fidelity Growth Partners India Coffee Day Resorts FedEx Kintetsu World Express Target Courcan Cargo Triune Freight Prakash Air Freight Associated Road Carriers Reliable Freight Forwarders Eastern Logisitcs Gujarat Pipavav Port Kakinada Seaports Chennai Container Terminal United Shippers ABG LDA Bulk Handling BIC Logistics Gateway Rail Freight Allcargo Logistics Chennai Container Terminal Flyjac Tata Martrade International Logisitcs Continental Warehousing Corporation Transpole Group Sical Logistics AFL Gat i Year 2006 2006 2006 2006 2006 2006 2007 2007 2008 2009 2009 2009 2009 2009 2010 2010 2010 2011 2011 2010 2010 2012
Source: KPMG, Industry, Karvy Institutional Research
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March 22, 2012
Logistics Thematic
Exhibit 55: PE investors interest in India's logistics has risen by Exhibit 56: PE Investment profile during Mar'06 - Oct'10 a sharp drop in 2009 periods
1000 800 25 600 400 200 0 2007 2008 (US$ mn) 2009 No. of Deals 2010 20 15 10 5 0 Aviation 8% Warehousin g 7% Shipyard 11% Logisitcs S ervices 47% 35 30 Railway CFS Logistics 10% 4% Others 1%
Port 12%
Source: Venture Intelligence, Karvy Institutional Research (2010 data is for Jan Oct2010 period)
Source: Venture Intelligence, Karvy Institutional Research (Data is for Jan'07 to Oct'10 period)
6. Impending GST - Another Booster for the Industry

In the absence of a unified tax structure, the companies have to invest in warehousing operations in every state to avoid multiple taxations. This raises the total fi xed costs for the operators, while preventing the implantation of latest technologies as fragmentation prohibits economies of scale. The recent move by the Government to implement GST in FY13 would address
this issue to a large extent. Unified taxation should reduce ambiguity and costs for various service providers. This in turn will boost the modern warehouse industry and also help in crease penetration of integrated logistics concepts of 3PL, 4PL and 7PL.
Modern warehousing segment to be a large beneficiary of GST

The Indian warehousing industry is highly fragmented with only ~10% with organised players. Again, the size of the warehouses is mostly less than 10,000 square feet and these warehouses lack modern infrastructure capabilities. As per industry estimates, the warehousing segment (including CFS, ICD, cold storage, modern warehousing, etc) comprises 20% of the logistics industry and is valued at ~US$3 0 bn in FY10. GST implementation would lead to significant reorganization of warehous ing in India, as the companies move towards unified and large warehouses at centralized locations coupled with modern infrastructure. The demand for modern warehousing would increase, as these are critical elements in evolution of the logistic supply chain.
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March 22, 2012
Logistics Thematic
7. Value Added Services 3PL & above - to Provide the Next Level of Growth for Logistics Industry
As discussed earlier in the report, logistics in India is at the nascent stages. Market share of 3PL logistics in India is ~10% vs. 40% in Europe, ~60% in the USA and 80% in Japan. Hence, there remains strong growth potential for logistics service providers in the segment.
Exhibit 57: Various classes of logistics service providers
Source: Industry, Karvy Institutional Research
As the companies increasingly focus on their operational efficiencies through bet ter cost controls and on asset returns, the management focus would shift to core business. Hence, noncore business of handling logistics supply chain would move to 3PL (and a bove) service providers. However, the success of these providers would require lon g term relationships with customers as well as asset providers, customized industry specif ic solutions, highly qualified manpower and enhanced usage of technology etc.
Third Party logistics (3PL) is an outsourcing concept in which a compan y outsources its logistics needs to some third party player who takes cares of all their l ogistics needs. The general functions which are outsourced under the concept are transportation, warehousing, crossdocking, inventory management, packaging and freight forwarding. Fourth Party Logistics (4PL) can be defined as a service of designing sup ply chain solutions for its clients. The service providers under the category are basically non asset based, who organize the logistics needs of their clients. The main distinguishing factor between a 3PL and 4PL is the ability of 4PL to gener ate revenues from nonasset base. 4PL player is a consultant, whereas 3PL i s the actual operator, who executes the logistics functions. 4PL in some cases also coordinates the functions of 3PL. Seven Party Logistics (7PL = 4PL + 3PL) is a recent concept and it combi nes the consulting and cocoordinating functions of 4PL with operational functions of 3P L, thus offering a total outsourcing of logistics division. 7PL concept is yet to take its grounds in India.
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March 22, 2012
Logistics Thematic
Key Risks
As discussed, the growth of Indian logistics sector is very much dependant on government willingness to relax logistics infrastructure constraints. Ther e have been inadvertent delays in developing rail, road, ports and coastal s hipping capabilities. Whilst we expect things to move in the positive direc tions, further delays will distract serious investors in the segment, who have been investing in transportation assets and in developing high end logistics services. Delay in streamlining taxation policy is another key risk that will impact the sectors' profitability and the future capex capability. Land acquisition in India has become complex recently due to various socio political issues. Any delay in streamlining the land acquisition process would severel y impact the profitability of the incumbent as well as the and new entrants.
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Logistics Thematic
Companies Section
ALLCARGO GLOBAL ARSHIYA INTERNATIONAL CONCOR GATEWAY DISTRIPARKS
31
Logistics
Institutional Equities India Research
March 22, 2012
Allcargo Logistics
Bloomberg: AGLL IN Reuters: ALGL.BO
Recommendation
CMP: Target Price: Upside (%)
INITIATION REPORT
BUY
Rs138 Rs213 54%
A Global Player on Growth Path

MTO segment buoyed by ECU Line growth: Globally, AGLL is the 2nd largest LCL consolidator (Multimodal Transport Operations) post acquisition of ECU Line. This segment accounts for 80% of total revenues. With EC U Line's increasing presence in the high growth Asian countries, we expect the MTO revenues to grow at 14% CAGR in FY1214E period. Expanding CFS/ ICD Capacities to Boost Profitability: AGLL has three CFS at three major EXIM hubs JNPT, Mundra and Chennai. It is the number one opera tor at Chennai and Mundra ports with major concentration towards high r ealisation import cargo handling. Currently, this segment contributes ~7% to AGLL total sales and ~30% of consolidated EBIT as this is the highest margin segment for AGLL (~4857% OPM during the last eight quarters). AGLL is incurring capex of Rs. 1.3 bn to double its JNPT capacity to 28 8K TEUs and Chennai capacity by ~10% in FY13E. Further, AGLL is augmenting its ICDs' and Warehouses' capacities by incurring a capex of Rs. 0.7 bn. Rising presence in another niche business - Project logistics and Equipment hiring: AGLL has increased its fleet of cranes and engineeri ng equipment to capitalise on strong demand related to infrastructure dev elopment activities. With a strong capex of Rs. 4 bn during FY1213E, we expect revenues to grow at 18% CAGR during FY1214E. Capex results in doubling of gross debt but within control: The ongo ing expansions have doubled AGLL's gross debt in FY12E to Rs. 7.9 bn and we expect the same to increase further to Rs. 8.6 bn by FY14E. However, in our view AGLL's balance sheet does not appear stretched as net DER stands in the range of 0.260.37x during FY1214E. Initiate coverage with "BUY" recommendation: We expect AGLL net profits to grow by 20% CAGR during FY1214E period led by expansions across all the th ree business segments AGLL is present in MTO, CFS/ICD and Project & Engineering. We value AGLL at 10.5x (25% discount to five year median P/E 13.8x) it's mid FY13FY14E EPS of Rs. 2 0.2. We initiate coverage on the stock with "BUY" recommendation with a target price of Rs. 213 per share. Key Financials
Year to Dec/ Mar (Rs mn) Net Sales EBITDA EBITDA (%) PAT EPS (Rs) R oE (%) RoCE (%) P/E (x) EV/EBITDA (x) CY09 20,609 2,185 10.6 1,327 10.6 16.4 14.8 12.7 8.1 CY10 28,613 2,698 9.4 1,656 12.7 15.1 13.4 10.7 7.1 FY12E 43,325 4,927 11.4 2,765 16.9 16.6 14.2 8.0 5.7 FY13E 40,391 4,667 11.6 2,446 18.7 15.5 12.9 7.2 4.7 FY14E 43,169 5,320 12.3 2,845 21.8 15.6 12.9 6.2 4.1
Stock Information
Market Cap. (Rs bn / US$ mn) 52week High/Low (Rs) 3m ADV (Rs mn /US$ mn) Beta Sensex/ Nifty Share outstanding (mn) 18/350 190/115 02/0.0 0.8 17,316/5,275 131
Stock Performance (%)

1M (5) 0.3 3M 9.7 (3.9) 12M (14) (11.2) YTD 5.1 (6.2)
Absolute Rel. to Sensex
Performance
21,500 19,500 17,500 15,500 200 180 160 140 120
Sensex (LHS)
1 Year Forward EV/EBITDA

25 20 1 5 10 5 0 Jul07 Jul08 Jan08 Dec06 Jan09 Jul09 Feb10 Feb11 Jun06 Aug10 Aug11 Mar12
Analysts Contact Rajesh Kumar Ravi

022 6184 4313 rajesh.ravi@karvy.com Prasun Kumar 022 6184 4325 prasun.kumar@karvy.com
Source: Company, Karvy Institutional Research *FY12 EPS is annualized, Change of accounting year
Mar1 1 May1 1 Jun1 1 Jul1 1 Aug1 1 Oct1 1 Nov1 1 Dec1 1 Feb1 2 Mar1 2
Allcargo Logistics (RHS)
March 22, 2012
Allcargo Logistics
Company Financial Snapshot

Profit & loss
Rs mn Net sales EBIDTA Depreciation Interest Expense PBT Tax Adj. PAT EPS (Rs)* DPS (Rs) Profit and Loss Ratios EBIDTA Margin % Adj Net Margin % Valuation Multiples P/E (X) EV/EBIDTA (X) P/BV (X) *FY12 EPS is annualized FY12E 43,325 4,927 1,160 740 3,637 727 2,765 16.9 1.0 FY13E 40,391 4,667 1,015 705 3,246 649 2,446 18.7 1.9 11.6 6.1 7.2 4.7 1.0 FY14E 43,169 5,320 1,223 673 3,755 751 2,845 21.8 2.2 12.3 6.6 6.2 4.1 0.9
Company Background Allcargo Logistics (AGLL) is the second largest LCL (Les s than Container Load) consolidator globally. Its business segments include Multimodal Transport Operations (MTO), Container Freight Stations, Project Logistics, Equipment Hiring &, Coastal Shipping. Incorporated on August 18, 1993 as a private limited company under the leadership of Shashi Kiran Shetty, AGLL has taken a long stride growing organically as well as inorganically since then. In 2006, it acquired the Belgiumbased ECU Hold NV thereby becoming the 2nd largest LCL operator globally. Its CFSs are located at major cargo hubs such as JNPT, Chennai & Mundra and has ICDs at Pithampur and Indore.
11.4 6.4 8.0 5.7 1.2
Balance Sheet
Rs mn Total Assets Net Fixed Assets Current Assets Other Assets Total Liabilities Networth Debt Current Liabilities Other Liabilities Balance Sheet Ratios RoE % RoCE % Net DER (x) Asset Turnover (x) 16.6 14.2 0.3 1.4 15.5 12.9 0.3 1.4 15.6 12.9 0.2 1.3 FY12E 27,755 16,413 10,786 557 27,755 14,384 7,817 4,646 908 FY13E 31,496 18,897 12,042 557 31,496 16,543 8,208 5,586 1,159 FY14E 35,360 20,675 14,129 557 35,360 19,055 8,618 6,269 1,418
Cash Flow
Rs mn PBT Depreciation Interest Tax Change in Wkg Cap CF from Operations Capex Investments CF from Investing Change in Equity Change in Debt Dividends & others CF from Financing Change in Cash FY12E 3,637 1,160 740 (727) (1,470) 3,339 (5,100) 177 (4,923) 0 4,040 (840) 3,199 1,615 FY13E 3,246 1,015 705 (649) 327 4,644 (3,500) (7) (3,507) 391 (892) (501) 636 FY14E 3,755 1,223 673 (751) (755) 4,144 (3,000) (7) (3,007) 410 (906) (496) 641
Shareholding pattern (%)

Public & Others, 18.23
Consolidated Revenue breakup (%)

Others 9% Project & Engg. 9%
FII, 11.15 DII, 0.81 Promoters, 69.81
CFS / ICD 7% Domestic MTO 6%
ECU Line 69%
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March 22, 2012
Allcargo Logistics
Valuation & Recommendation

We expect AGLL net profits to grow at 20% CAGR during FY1214E period led by expansions across all the three business segments AGLL is present in MTO, CFS/ICD and Project & Engineering. While debt levels will increase to fund this growth, AGLL balance sheet remains fairly stable in our view (Net DE R of ~0.3x during FY1314E). We value AGLL at 10.5x (25% discount to its five year me dian P/E 13.8x) it's mid FY13FY14E EPS of Rs20.2 per share. The 25% discount to its long term average factors in risks to earnings growth that may emanate from delays in infrastructure commissioning which in turn will impact growth f or all the logistics providers. We initiate coverage on the stock with "BUY" recommendation with a target price of Rs. 213 per share. Exhibit 1: AGLL is trading at the lower end of its long AGLL's long term median EV/EBITDA (1 yr fwd) of 8x (1 term 1 yr fwd P/E median of 13.8x (1SD 7x) SD 2.9x)
40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0. Jul07 Jan08 Jan09 Jul08 Jul09 Jul07 Jul08 Jan08 Dec06 Jan09 Feb10 Feb11 Dec06 Jul09 Feb10 Mar12 Feb11 Jun06 Jun06 Aug10 Aug10 0 Aug11 0 Aug11 15.5 14.8 12 10 CY06 CY07 CY08 RoCE CY09 CY10 FY12E FY13E FY14E RoE RoIC 13.4 14.2 12.9 Mar12 15.6 12.9 10 5 20 15 25
Exhibit 2: Long term P/B median at 1.9x (1SD 1.1x)

7.0 6.0 5.0
Exhibit 3: Return Ratios to stabilise during FY1314E

24 22 23.5 20.2 17.0 18.2 17.3 16.6 16.4 15.1
4.0 3.0 2.0 1.0 Jul07 Jul08 Jan08 Dec06 Jan09 Jul09 Feb10 Feb11 Jun06 Aug10 Aug11 Mar12 0.0
20 18 16 14
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March 22, 2012
Allcargo Logistics
Investment Rationale
Our investment thesis is based on following premises: 1. 2. 3. 4. 5. 6. 7. LCL / MTO segment buoyed by ECU Line's growth CFS capacity expansion to boost profitability ICDs and Warehouses would further boost earnings in longrun Project Logistics and Equipment hiring to gain from growing demand from infrastructure space We expect 15% revenue CAGR during FY1214E Expect EBITDA CAGR of 26% during FY1214E as margins expand PAT CAGR to moderate to 20% on account of high interest costs
1. LCL / MTO segment buoyed by ECU Line's growth

AGLL became the 2nd largest LCL consolidator globally after it acquired ECU Line. This subsidiary along with Indian MTO operations contributes ~80% of consol idated revenues of AGLL (India ~10%). With its strong presence across the globe, ECU L ine MTO volume throughput has been growing by 18% CAGR over the last two years. E CU Line has slowly diversified into non European countries into the Far East nations to continue its growth momentum. It recently acquire d companies in Hong Kong and China to mark its presence in growing Asian economies. Additionally, as container trade increases amongst the Asian countries, AGLL should benefit from its rising presence in Asia. Going forward, we expect total MTO revenues to grow by 13% CAGR during FY1214E periods. Exhibit 4: ECU Line volume has grown at 18% CAGR Exhibit 5: ECU Line's revenue trend during the last two during the last two years
70 60 50 40 30 Dec09 Dec10 Mar10 Mar11 Dec11 Sep09 Sep10 Sep11 Jun09 Jun10 Jun11 20 10 0 0 10 20 40 30 20 10 8000 7000 6000 5000 4000 3000 2000 1000 0
years
100 80 60 40 20 Dec10 Mar10 Mar11 Dec11 Sep10 Jun10 Jun11 Sep11 0 20 40
ECU Line Volumes (K TEUs) Source: Company, Karvy Institutional Research
Growth YoY (%) RHS
Revenue (Rs mn)
Growth YoY (%) RHS
2. CFS capacity expansion to boost profitability

AGLL has three CFS at three major EXIM hubs JNPT, Mundra and Chennai. It is the number one operator at Chennai and Mundra ports with major concentration towards high realisation import cargo handling. Currently, this segment contributes ~7% t o AGLL total sales and ~30% of consolidated EBIT as this is the highest margin segment for AGLL (~4857% OPM during the last eight quarters). Going forward, the CFS' contribution to topline and EBIT should increase as AGLL is about to double its CFS capacity at JNPT by 1HFY12 to 288K TEUs. This will be a major revenue driver as currently, JNPT CFS is operating at >90% utilis ation. The management plans to increase its export handling on the incrementa l capacities in its bid to gain overall EXIM market share at JNPT. Similarly, to maintain its leadership position at Chennai where utilisation has
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March 22, 2012
Allcargo Logistics moved up to 80% levels, AGLL is planning to augment its capacity through introduction of better stacking facilities using Rubber Tyre Gantry Cranes (RTGs). Going forward, we expect moderate fall in EBIDTA margins as new capacities in JNPT pickup mainly on account of change in EXIM mix. However, we expect the ad ditional revenue generated from added capacities to more than compensate for the margin decline. Total capex of Rs. 1.3 bn is being spent towards CFS segment during FY1213E period. Exhibit 6: AGLL's JNPT CFS volumes
have declined recently
40,000 30,000 20,000 10,000 Mar09 Jun09 Sep09 Dec09 Mar10 Jun10 Sep10 Dec10 Mar11 Jun11 Sep11 Dec11 60% 40% 20% 0% 20% 40% Mar09 Jun09 Sep09 Dec09 Mar10 Jun10 Sep10 Dec10 Mar11 Jun11 Sep11 Dec11 50% 20,000 10,000 50% 0% 10,000 5,000 Mar09 Jun09 Sep09 Dec09 Mar10 Jun10 Sep10 Dec10 Mar11 Jun11 Sep11 Dec11
Mundra Vol. Growth YoY%
Exhibit 7: While it continues to grow Exhibit 8:

at its Chennai CFS
30,000 100% 15,000
and at its Mundra CFS
150% 100% 50% 0% 50%
JNPT Vol
Growth YoY%
Chennai Vol.
Growth YoY%
3. ICDs and Warehouses would further boost earnings in longrun

It also has two ICDs operational at Dadri and Pithampura. Currently, these are small units and AGLL is infusing capex to increase throughput at these units as well as is investing in another ICD at Hyderabad. Additionally, AGLL is also investing into warehousing capacity at Goa and Hosur. AGLL is spending ~Rs. 0.7 bn towards these expansions.
4. Project Logistics and Equipment hiring to gain from growi ng demand from Infrastructure space
AGLL offers project integrated projects, engineering and equipment logistics solutions. The growth in this business is closely related with infrastructure deve lopment activities in India. The industry is currently facing acute demand suppl y gap for availability of equipments as well as one stop solution provider to meet the industry demand. Exhibit 9: AGLL's Cranes fleet growth
trends
200 145 150 101 100 74 50 Dec10 Dec11 Sep10 Jun10 Jun11 Sep11 Mar10 Mar11 0 600 500 400 300 200 Dec10 Mar10 0 Mar11 Dec11 Sep10 Jun10 Jun11 Sep11 100 365 423
Exhibit 10: AGLL's Trailers fleet growth Exhibit 11: Segmentwise deployment of
trends
488 Port & CFS , 2% Oil & Gas , 8% Cement Steel , 2% Power, 20%
AGLL's cranes
Engg & Infra. , 30% Ship buildin g, 3% Logistic s , 3%
Wind Energy , 33%
AGLL currently has a strong fleet of 62 forklifts, 36 reach stackers, 488 trailers and 145 cranes. It added 44 cranes (~40% increase YoY) during CY11 which is the main
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March 22, 2012
Allcargo Logistics revenue driver for the equipment hiring division. With strong EBIT margins of ~25%, growth in the segment should boost PAT growth. Current project order b ook stands at Rs 2.3 bn, out of which company expects to execute Rs~1.31.4 bn in FY13 E, which should help the segmental revenue growth 20% in FY13. The manag ement is incurring capex of Rs 4 bn during FY1213E to augment fleet strength in the segment.
5. We expect 15% revenue CAGR during FY1214E

We have factored in 14%, 26% 18% revenue CAGR in the MTO division, CFS division and Project & Equipment division respectively during FY1214E periods. This should lead to 15% revenue CAGR during FY1214E period. Exhibit 12: Key volumes and realisation assumptions
CY09 ECU Line MTO Vol (TEUs) YoY Growth (%) ECU Line MTO Realisation (Rs/ TEU) YoY Growth (%) 175,051 20.9 86,717 12.4 24,882 YoY Growth (%) Indian MTO Realisation (Rs/ TEU) YoY Growth (%) (16.7) 95,003 (14.2) 173,851 YoY Growth (%) Realisation (Rs/TEU) YoY Growth (%)
CY10 211,678 15.7 5.8 97,459 0.3 5.0 25,875 4.0 9.0 86,232 (9.2) (1.7) 226,797 30.5 8,609 (1.2)
FY12E 306,221 3.2 97,743
FY13E 259,179
FY14E 267,590
102,619
103,853
1.2 Indian MTO Vol (TEUs) 35,261 6.5 7.1 84,807 86,462 87,429 30,047 32,187
2.0 1.1 CFS Volumes (TEUs) 314,431 10.9 11,149 35.6 286,283 13.8 11,671 4.7 2.7 325,459 13.7 11,984
(2.7) 8,717 5.0
Exhibit 13: Revenue share increasing from the high margins Exhibit 14:
CFS and Project & Engineering divisions
100% 80% 60% 40% 20% CY0 8 CY0 9 CY1 0 FY12 E FY13 E FY14 E 0%
50,000 40,000 30,000 20,000 10,000
We expect AGLL to deliver 15% revenue CAGR during FY1214E

50 40 30 20 10 0 FY12E FY13E FY14E CY08 CY09 CY10 10 20
CFS
Project Engg.
MTO
Revenues (Rs mn) Source: Company, Karvy Institutional Research
YoY growth (%)
6. Expect EBITDA CAGR of 26% during FY1214E as margi ns expand

Aided by higher realisation and increased operational efficiencies, we expect OPM to expand by >200bps YoY during FY12E and to further improve by 90bps during FY1314E. This should result in EBITDA CAGR of 26% during FY1214E period.
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March 22, 2012
Allcargo Logistics Exhibit 15: We expect OPM to expand by 300bps over FY1214 Exhibit 16:
periods
14 12 10 86 42 0
6,000 5,000 4,000 3,000 2,000 1,000 FY12E FY13E FY14E CY08 CY09 CY10
Thereby boosting EBITDA CAGR to 26% during FY1214E

60 50 40 30 20 10 0 10
CY0 8
CY0 9
CY1 0
FY12 E
FY13 E
FY14 E
OPM (%)
NPM (%)
EBIDTA (Rs mn) Source: Company, Karvy Institutional Research
YoY Growth (%)
7. PAT CAGR to moderate to 20% on account of high interest costs

The ongoing expansions have doubled AGLL's gross debt in FY12E to Rs. 7.9 bn and we expect the same to increase further to Rs. 8.6 bn by FY14E. These wi ll increase interest outgo in subsequent years thereby moderating PAT CAGR to 20% du ring FY1214E. However, in our view AGLL's balance sheet does not appear stretched as net DER stands in the range of 0.260.37x during FY1214E. Exhibit 17: Higher capital charges to moderate PAT CAGR Exhibit 18: We expect return ratios to stabilise by FY14E to 20% during FY1214E
3,000 2,500 2,000 1,500 1,000 500 CY08 CY09 CY10 FY12E FY13E FY14E 60 50 40 30 20 10 0 16 14 14.8 12 10 CY06 Adj PAT (Rs mn) Source: Company, Karvy Institutional Research YoY Growth (%) CY07 CY08 RoCE CY09 CY10 FY12E FY13E FY14E RoE RoIC 13.4 14.2 12.9 12.9 17.3 24 22 20 18 17.0 18.2 23.5 20.2 16.6 16.4 15.1 15.5 15.6
Key Risks
ECU Line revenues: ECU Line growth assumes its continued penetration in th e farEast Asian countries and in the USA. Hence, revenue growth and profitability can get impacted if these expansions do not go as per plans. Delays in JNPT CFS expansion: AGLL's CFS capacity expansion by 144 K TEUs at JNPT is scheduled to be commissioned in Q2FY13. If the same gets delayed significantly, overall profitability will get impacted.
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March 22, 2012
Allcargo Logistics
Exhibit 19: AGLL Impact of changes in volumes & realization across CFS and NVOCC (ECU Line) verticals on the earnings metrics and target price estimates (FY14E)
EPS (%)
10% lower CFS realization 10% lower CFS volumes 1% lower ECU Line realization 10% lower ECU Line volumes Source: Karvy Institutional Research (11) (5) (10) (6)
RoE (bps) RoCE (bps)

(160) (74) (142) (90) (108) (50) (96) (60)
TP (%)
(6) (3) (5) (3)
Karvy vs. Consensus

In Feb'12, AGLL announced and moved to March ending (FY) accounting from its current practice of December ending (CY), our FY12E estimates include five quarters of financials. Hence, our estimates are not comparable to consensus estimates which are yet to adopt it.
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March 22, 2012
Allcargo Logistics
Financials
Exhibit 20: Profit and Loss (Consolidated)
Year to December / March (Rs mn) Net Sales % growth Operating expenditure CY09 20,609 (11) 18,424 CY10 28,613 39 25,915 FY12E 43,325 21 38,398 FY13E 40,391 17 35,724 FY14E 43,169 7
37,849 EBITDA 2,185 % growth Depreciation O ther Income EBIT Interest expenditure PBT Ta x Minority Interest PAT / Net profit reported Adjusted PAT / Net profit % growth (1) 545 286 1,926 232 1,695 260 108 1,327 1,327 19 2,698 23 550 286 2,434 194 2,240 484 100 1,656 1,656 25 4,927 46 1,160 610 4,377 740 3,637 727 144 2,765 2,765 34 0 51 705 ,246 649 151 2,446 2,446 11
4,667 18 1,015 30 3,9 8 3 73 755
5,320 14 1,223 330 4,42 6 3,
751 159 2,845 2,845 16
Exhibit 21: Balance Sheet (Consolidated)

Year to December/ March (Rs mn) Cash & liquid investments Debtors CY09 2,075 CY10 2,192 FY12E 3,183 FY13E 3,827 FY14E 4,475 4,914 70 70 13,871
2,354 2,528 3,571 Loans & advances
3,231 3,454 Inventory 2,164 3,172 3,891 29 72 140
6,130 Other Current Assets Long term investments 510 557 18,971 15,423 557 557
557 Gross block 9,241 25,471 Net block
22,471 17,907
7,189 11,483 990 27,755
19,685 CWIP 750 543 15,070 20,546
990 990 Total assets 31,496 Current liabilities & provisions Debt Other liabilities Total liabilities Minority Interest Shareholders equity Reserves & surpluses Total networth Total equity and liabilities
35,360 4,308 3,778 408 8,494 262 261 11,528 11,789 20,546 4,646 7,817 652 13,115 256 261 14,122 14,384 27,755 5,586 8,208 752 14,546 408 261 16,282 16,543 31,496 6,269 8,618 852 15,739 566 261 18,794 19,055 35,360
2,900 2,044 179 5,124 135 250 9,561 9,811 15,070
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March 22, 2012
Allcargo Logistics Exhibit 22: Cash Flow Statement (Consolidated)

Year to December/ March (Rs mn) PBT Depreciation Interest (Incr) / decr in net working capital CY09 1,695 545 193 (653) 10 291 (0) 2,668 (Incr) / decr in capital expenditure (Incr) / decr in investments (1,707) (636) (4,923) Incr / (decr) in borrowings Issuance of equity (386) 1,120 (62) (194) (646) Cash Flow from Financing Net change in Cash
CY10 2,240 550 117 (727) (1,470) 3,339 (4,913) 380 177 (3,507) 1,707 1,047 (286) (605) 3,199 1,615
FY12E 3,637 1,160 740 705 (649)
FY13E 3,246 1,015 673 Tax (751) (144)
FY14E 3,755 1,223 (424) 123 1,874 (3,000) (0) (0) (4,448)
327 (755) Others 4,644 (5,100) (7) (7) Others (3,007) 4,040 391 (333) Others (573) (501) (496) 636 641 410 0 Dividend paid
Cash Flow from Operations 4,144 (3,500) 47 85 (2,296)
0Cash Flow from Investments
(56) (331)
(332)
346 2,361 (76) 581
Exhibit 23: Ratio Analysis

Year to December / March (%) EBITDA margin EBIT margin Net profit margin Dividend payout ratio Net debt: equity (x) Working capital turnover (x) RoCE RoIC RoE
CY09 10.6 9.3 6.4 11.0 0.0 0.1 14.8 18.6 16.4
CY10 9.4 8.5 5.8 27.7 0.2 0.1 13.4 16.5 15.1
FY12E 11.4 10.1 6.4 7.0 0.37 0.1 14.2 17.1 16.6
FY13E 11.6 9.8 6.1 11.7 0.31 0.1 12.9 15.5 15.5
FY14E 12.3 10.3 6.6 11.7 0.26 0.1 12.9 15.5 15.6
Exhibit 24: Valuation Parameters

Year to December / March Adjusted EPS (Rs) Annulised Non Annulised EPS (Rs) DPS (Rs) Book value per share (Rs) P/E (x) P/BV (x) EV/EBITDA (x) EV/Sales (x)
CY09 10.6 10.6 1.0 79.6 12.7 1.7 8.1 0.9
CY10 12.7 12.7 3.0 92.2 10.7 1.5 7.1 0.7
FY12E 16.9 21.2 1.0 111.9 8.0 1.2 5.7 0.6
FY13E 18.7 18.7 1.9 129.6 7.2 1.0 4.7 0.5
FY14E 21.8 21.8 2.2 150.1 6.2 0.9 4.1 0.5
41
Logistics
March 22, 2012
Arshiya International
Bloomberg: ARST IN Reuters: ARST.BO
Recommendation
CMP: Rs140 Rs227 62% Target Price: Upside (%)
INITIATION REPORT
BUY
FTWZ Expansion to Lead Growth

FTWZ expansion boost earnings growth in FY1214E period: Arshiya International (ARST) is the pioneer of Free Trade Warehousing Zones (FTWZ) concept in India. Currently, it has an operational FTWZ at Panvel Mumbai and its Khurja (UP) FTWZ is expected to be operational in Q4FY12. Furth er, ARST plans to ramp up its warehouses at both the FTWZ by tenfold to 35 wareh ouses by FY14E. Based on these expansions, we expect revenues of this high ma rgin (EBIT margins of >55%) segment to grow by >100% CAGR during FY1214E. Rail Business (Third largest operator) on expansion spree: ARST is the third largest container train operator in India with 16 operational rakes and plans to add another eight rakes during FY1314E. It has major concentration in the domestic segment where it works on longterm contract basis. We expect t hese additions to boost the segmental revenues by 38% CAGR and EBITDA CAGR of 28% during FY1214E. 3PL Business's revenue share to decline: ARST specializes in providin g integrated logistics solutions. It offers supply chain management solutions, p roject logistics and freight forwarding under its 3PL business. In FY12E, the segme ntal revenue would decline by 3.5% YoY after the sale of the Qatar and Oman units to increase focus on India focus. However, we expect the same to grow at 6% CAGR during FY1314E. High debt to stretch balance sheet in nearterm; return ratios to improve in longterm: The ongoing expansion plan across FTWZ and rail divisions would require a capex of Rs. 32.5 bn with a DER of 70%. This would stretch ARST 's net DER to 2.1 in FY13E vs. 0.7 in FY10. However, as these expans ions get commissioned and ramp up, return ratios should expand by >700 bps during FY1114E. Initiate coverage with "BUY" recommendation: We value ARST at 7x (35% discount to five year median EV/EBITDA of 11x) its FY1314E average EBITDA of Rs. 4.87 bn. We initiate coverage on the stock with "BUY" recommendation with a target price of Rs. 227 per share. Our fair value multiple is at 40% discount to ARST five year average P/E of 10x and 1 0% discount to its five year average P/B of 1.38x. Key Financials
Year to Mar (Rs mn) Net Sales EBITDA EBITDA (%) PAT EPS (Rs) RoE (%) RoCE (%) EV/EBITDA (x) FY10 5,259 861 16.4 980 16.7 15.4 10.7 15.4 FY11 8,215 1,592 19.4 815 13.8 11.7 7.1 13.3 FY12E 10,326 2,497 24.2 1,079 18.3 14.0 7.7 9.9 FY13E 13,886 3,686 26.5 1,378 23.4 15.7 9.0 7.7 FY14E 19,404 6,045 31.2 2,988 50.8 27.8 13.3 4.9
Stock Information

Absolute Rel. to Sensex 1M (12.7) (7.8) 3M 17.9 3.3 12M (33.1) (31) YTD 11.5 (0.5)
Performance
21,500 19,500 17,500 15,500 250 200 150 100

30 20 10 Sep07 Sep08 Sep09 Sep10 Mar08 Mar09 Mar10 Mar11 Sep11 0 (10) Mar12 Apr07
Analysts Contact
Sensex (LHS) Arshiya International (RHS)
March 22, 2012

Profit & loss
Rs mn Net sales EBIDTA Depreciation Interest Expense PBT T ax Adj. PAT EPS (Rs) DPS (Rs) Profit and Loss Ratios EBIDTA Margin % Adj Net Margin % Valuation Multiples P/E (X) EV/EBIDTA (X) P/BV (X) FY12E 10,326 2,497 332 1,001 1,306 227 1,079 18.3 1.5 24.2 10.4 6.0 7.7 7.7 9.9 1.0 0.9 4.9 0.7 2.8 FY13E 13,886 3,686 668 1,514 1,660 282 1,378 23.4 2.0 26.5 9.9 FY14E 19,404 6,045 989 1,626 3,600 612 2,988 50.8 5.0 31.2 15.4
Company Background Arshiya International (ARST) was incorporated in the year 1981 as IID Forgings, and in Sept'07, it changes its name to Arshiya International. ARST has been the pioneer in introducing concept of FTWZ with its Panvel FTWZ spanning 165 acres. It is in process of commissioning another at Khurja in UP. ARST currently operates in Free Trade Warehousing Zones, Container rail, 3PL, 4PL, Trucking, Warehousing & IT enabling services. It has a fleet of 16 container rakes serving primarily in the domestic segment ARST has been adding several value added services (VAS ) in the FTWZ segment, which should be amongst the key drivers for ARST's profitability.
Balance Sheet
Rs mn Total Assets Net Fixed Assets Current Assets Other Assets Total Liabilities Networth Debt Current Liabilities Other Liabilities Balance Sheet Ratios RoE % RoCE % Net DER (x) Asset Turnover (x) FY12E 30,157 23,138 6,868 150 30,157 8,167 19,421 2,522 47 FY13E 34,253 27,471 6,633 150 34,253 9,409 21,421 3,377 47 FY14E 39,365 31,482 7,734 150 39,365 12,055 22,421 4,842 47
Cash Flow
(Rs mn) PBT Depreciation Tax Change in Wkg Cap Interest cost Others CF from Operations Capex Others 27.8 13.3 1.8 0.5 CF from Investing Change in Debt Dividends & others CF from Financing Change in Cash FY12E 1,306 332 (231) (452) (141) 1,001 1,814 (4,440) 136 (4,304) 5,000 (1,086) 3,914 1,424 FY13E 1,660 668 (280) (530) (155) 1,514 2,877 (5,000) 155 (4,845) 2,000 (1,621) 379 (1,589) FY14E 3,600 989 (598) (241) (171) 1,626 5,206 (5,000) 171 (4,829) 1,000 (1,791) (791) (415)
14.0 7.7 2.0 0.4
15.7 9.0 2.1 0.4
Shareholding pattern
Consolidated Revenue breakup (%)

Logistics and related Services, 59.3 Rail Transport Operations , 25.2
Promoters, 43.23
Others/ Software, 0.2
FII, 16.17 DII, 2.23
CFS/FTW Operation , 15.3
Source: Company
Source: Company
43
March 22, 2012

ARST's expansion in the high margin FTWZ business along with increased pen etration in the container rail operations should drive ARST's 56% EBITDA CAGR and 59% PAT CAGR during FY1214E period. We value ARST at 7x (35% discount to five year median EV/EBITDA of 11x) its FY1314E average EBITDA of Rs 4.87 bn. We initiate coverage on the stock wi th "BUY" recommendation with a target price of Rs. 227 per share. Our fair v alue multiple is at 40% discount to ARST five year average P/E of 10x and 10% discount to its five year average P/B of 1.38x. The valuation discount of 35% to its long term EV/EBITDA and 40% to its l ong term P/E multiples is to factor in the risks to earnings emanating from the delays in infrast ructure commissioning thereby impact overall revenue growth for logistics operators. Th e 40% valuation discount to ARST is higher compared to 25% discount we ha ve ascribed to AGLL and GDPL. This is account for takeoff risks associated w ith the FTWZ business. Despite these discounts, the stock looks attractive and is poised for further rererating as execution picks up in this segment. Exhibit 1: 1 Yr fwd P/E trend - trading at the lower end of Exhibit 2: 1 Yr Fwd EV/EBITDA trend - five year median its five year median of 11x (1SD 7.1x) of 11x (1SD 6x)
45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 25.0 20.0 15.0 Jan06 Jul06 Jan07 Feb08 Feb09 Feb10 Feb11 Sep07 Sep08 Sep09 Sep10 Mar08 Mar09 Mar10 Mar11 Sep11 FY14E Mar12 Aug07 Aug08 Aug09 Aug10 Aug11 10.0 5.0 0.0 Mar12 Apr07
Exhibit 3: 1 Yr Fwd P/B trend - Five year median of 1.38x (1SD 0.7x)
4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Jan06 Jul06 Jan07 Feb08 Feb09 Feb10 Feb11 Aug07 Aug08 Aug09 Aug10 Aug11 Mar12
Exhibit 4: Return ratios to benefit as FTWZ earnings grow during FY1214E

30.0 25.0 20.0 15.0 10.0 5.0 FY08 FY09 FY10 FY11 RoIC (%) FY12E FY13E
RoE (%) Source: Capitaline, Karvy Institutional Research
RoCE (%)
44
March 22, 2012
Our investment thesis is based on following premises: 1. 2. 3. 4. 5. 6. 7. 8. FTWZ expansion to boost earnings growth in FY1214E period FTWZ revenues & EBIT to grow >100% CAGR during FY1214E Rail Business (Third largest operator) on expansion spree 3PL Business should continue to deliver strong margins even though we expect its share to profits to decline Ongoing capex will strain balance sheet in near term Return Ratios to surge on commissioning of ongoing capex Revenue CAGR of ~39% during FY1114E as ARST expands in FTWZ and Rail Businesses Higher EBITDA CAGR of 56% led by high margin FTWZ business expansion
1. FTWZ expansion to boost earnings growth in FY1214E period

ARST is the pioneer of Free Trade Warehousing Zones (FTWZ) concept in India. An FTWZ (treated as foreign land) helps reduce working capital requirements for the imp orter as the cargo can be kept at FTWZ and the duty is payable only when the cargo mo ves out of the FTWZ. Additionally, lot of Value Added Services (VAS) can be accomplished at an FTWZ thereby adding to the normal rental earnings. ARST's first FTWZ became operational at Panvel, Mumbai (PhaseI) in Q3FY11. It started off with three warehouses and subsequently added one more warehouse d uring Q2FY12. It also launched another FTWZ at Khurja in Uttar Pradesh, which is expe cted to be operational in Q4FY12 with one warehouse each for its Khurja FTWZ and Khurja Domestic Distripark. So far it has achieved financial closures to add four warehouses each at Panvel and Khurja during FY13E as part of its expansion plans. In FY14E, ARST expects to add five FTWZ at Panvel. Subsequently, it is awaiting financial closures for additional 14 wareho uses at Khurja facility. These expansions will increase its total warehousing ca pacity tenfold to 35 units by the end of FY14E, as against 3 warehouses by end of FY11. Exhibit 5: ARST's cumulative warehouses at Mumbai and Exhibit 6: The FTWZ share in total profitability has Khurja as planned swelled during FY12
45 40 35 30 25 20 15 10 5 0 0 0 3 FY11 FY12E FY13E Khurja FTWZ FY14E FY15E 1 5 1 6 5 9 14 14 10 14 11 14
60.0 50.0 50.0 40.0 30.0 20.0 9.8 10.0 (10.0) (0.4) FY10 Revenue Share
15.3 3.1 FY11 EBIT Share 9MFY12
Mumbai FTWZ
Khurja Distriparks
45
March 22, 2012
2. FTWZ revenues & EBIT to grow >100% CAGR during FY1214E

We have factored in expansion delays in the warehouse capacities as financial closures for most of the expansions have not been achieved. Nonetheless, we expect segmental revenues to grow by >100% CAGR during FY1213E. Exhibit 7: Key assumptions for the FTWZ segment
(Rs mn) Avg Warehouse available (Nos.) VAS Ratio (x) FY11 4.7 1.2 1,582 514.8 140 % YoY Growth EBIT margins (%)
FY12E 11.0 3,853 143.5 998 124.1 63.0%
FY13E 20.0
FY14E 257
1.5 2.0 FTWZ Revenues
8,190 % YoY Growth 112.6 FTWZ EBIT 2,236 105.5 58.0% 56.1% 4,595
610.6 54.5%
3. Rail Business (Third largest operator) on expansion spree

ARST holds CategoryI license to operate container rails in India. It is the third largest Container Train Operator (CTO) with 16 rakes in operations after Container Corp and Gateway Distriparks. ARST generally operates in the domestic segment with only on e rake operational in the EXIM route (ChennaiBangalore). It plans to further expand its p resence in the segment as it plans to add another eight rakes during FY1314E. ARST o perates mostly on longterm contract basis with clients and hence its revenues and margins are fairly insulated, as the Company does not have to scout for cargo on its own. We have factored in rising competitions in the segment and have also accounte d for further haulage charges hikes by Indian Railways. Exhibit 8: Key assumptions for the Rail segment
FY11 No of Rakes Nos. of loadings per month 3.5 672 816 Revenue per loading per month (Rs mn) % YoY EBITDA margins (%) Rail EBITDA (Rs mn) 4 4.5 1,692 250.4 23% 382 564 17.1 20
FY12E 16
FY13E 20
FY14E 24
3.4 3.4 Total trips per annum 979.2 4.5 Rail Revenues (Rs mn) 2,688 58.8 21% 3,672 36.6 18% 4,406 20 18% 47.8
661 793 % YoY 220.8
4. 3PL Business should continue to deliver strong margins ev en though we expect its share to profits to decline
ARST specializes in providing integrated logistics solutions. It has strong relationship with many international logistics companies, which help ARST to d eliver 3PL solutions to its customers. It offers supply chain management soluti ons, project logistics and freight forwarding under its 3PL business. During FY0711, th e 3PL revenues grew by ~38% CAGR. During these periods, the segment has c ontributed 7590% of ARST's topline and >70% of its EBIT profits. At the end of FY11 , ARST sold off its 3PL overseas segment at Qatar and Oman to increase the m anagement's focus on the India's 3PL operations. In the absence of
46
March 22, 2012
Arshiya International business from Qatar and Oman, the 3PL revenues should decline by 3% YoY i n our view. Going forward, we expect the segment's revenues to grow at 6% CAGR during FY1314E. Exhibit 9: While revenue growth has slowed down, 3PL's EBIT margins have stabilized at higher levels
7,000 6,000 5,000 4,000 3,000 2,000 1,000 1,694 FY07 FY08 FY09 FY10 175 387 643 825 1,385 FY11 9MFY12 929 3,642 4,603 4,598 4,411 6,207 25.0 20.0 15.0 10.0 5.0
Revenues (Rs mn) Source: Company, Karvy Institutional Research
EBIT (Rs mn)
EBIT margins (%)
5. Ongoing capex will strain balance sheet in nearterm

ARST has a capex target of Rs. 32.5 bn to be achieved until FY13E to raise its capacity across both the FTWZ segment and rail business. ~80% of the total capex is to b e deployed in the FTWZ segment. Out of the total capex of Rs. 32.5 bn, ~70% would be fu nded through debt and the remaining would be from internal accruals. High debt levels w ould strain the balance sheet over the next two years and as the capacities gets commissi oned, interest costs should increase thereby moderating the profitability. Timely c ommissioning of these projects would however reduce the balance sheet strain in the longrun.
6. Return ratios to surge on commissioning of the ongoing capex

With the commissioning of the FTWZ warehouses (high margin business) and of the new rakes in the rail division, we expect return ratios should improve further. Exhibit 10: OPM growth led by increasing share of FTWZ; Exhibit 11: Subsequently, we expect profitability metrics NPM growth moderated by rising debt levels to expand
35.0 30.0 25.0 20.0 15.0 10.0 5.0 FY08 FY09 FY10 OPM (%) Source: Company, Karvy Institutional Research FY11 FY12E FY13E FY14E 12.9 11.4 14.7 13.1 9.9 18.6 19.4 16.4 10.4 9.9 24.2 15.4 26.5 31.2 30.0 25.0 20.0 15.0 10.0 5.0 FY08 FY09 FY10 FY11 RoIC (%) FY12E FY13E FY14E
NPM (%)
RoE (%)
RoCE (%)
47
March 22, 2012
7. Revenue CAGR of ~39% during FY1114E as ARST expands in FTWZ and rail businesses
We estimate revenues to grow at a 39% CAGR during FY1114E led by expansion of the FTWZ business and the rail business during FY1214E periods. Going f orward, the FTWZ business share will expand, while the 3PL business' shar e should shrink. Exhibit 12: ARST's Net sales Breakup (Rs mn) trend
100% 80% 60% 40% 20% 0% FY08 FY09 FY10 FY11 FY12E FY13E FY14E Others 3,642 4,608 4,591 6,203 6,014 6,315 6,757 370 405 21 186 482 63 1,692 256 1,582 3,853 8,190 42 2,688 46 3,672 51 4,406 20,000 100 15,000 10,326 10,000 5,000 FY08 FY09 Net Sales Source: Company, Karvy Institutional Research FY10 FY11 FY12E FY13E FY14E YoY Growth (%) 4,012 5,034 5,259 8,215 13,886 80 60 40 20 0
Exhibit 13: Revenue CAGR of ~39% during FY1114E

25,000 140 19,404 120
3PL Logistics Services
FTWZ Operations
Rail Business
8. Higher EBITDA CAGR of 56% led by high margin FT WZ business expansion

We expect EBITDA and PAT to grow at 56% and 59%, respectively during FY12 14E period. The profitability growth leads revenue growth on account of rising share of FTWZ business which should boost OPM expansion by >1,000 bps an d NPM expansion by >550 bps during FY1214E period. Exhibit 14: EBITDA CAGR of 56% during FY1214E
7,000 6,000 5,000 4,000 3,000 2,000 1,000 517 740 861 1,592 2,497 3,686 6,045 160 140 120 100 80 60 40 20 0
Exhibit 15: PAT CAGR of 59% during FY1214E

3,500 3,000 2,500 1,378 2,000 1,500 1,000 500 980 455 660 815 1,079 50 0 50 2,988 200 150 100
FY08
FY09
FY10
FY11
FY12E FY13E FY14E Growth YoY (%)
FY08 FY09 FY10 FY11 FY12E FY13E FY14E PAT (Rs mn)
EBITDA (Rs mn) Source: Company, Karvy Institutional Research
Growth YoY (%)
Key Risks
Delays in commissioning of the FTWZs: The aggressive expansion in FTW Z segment would get impacted if ARST is not able to achieve financial closures
as per schedule. We have already factored in 20% lower capacities in the warehouse expansion for FY14E thereby minimizing impact on topline. VAS multiple expansion: We have factored in VAS multiple of 1.5x and 2.0x for FY1314E, respectively. While these are significantly lower than global average of 89x, ARST's multiple expansion can remain lower than these if its customers do
48
March 22, 2012
Arshiya International not subscribe for these services in additions to the normal rental usage at the FTWZ. Rail business expansion: Delays in ramping up rakes capacity by another 8 rakes during FY1314E can reduce the profit growth subsequently.
Exhibit 16: Impact of changes in VAS multiple (FTWZ), volumes & realisation across FTWZ and Rail verticals on the earnings metrics and ta rget price estimates (FY14E)
EPS (%)
10% lower VAS multiple (FTWZ) 10% lower FTWZ volumes 10% lower FTWZ realisation 10% lower Rail volumes 10% lower Rail realisation Source: Karvy Institutional Research (6) (11) (17) (2) (12)

(148) (279) (427) (40) (285) (53) (98) (150) (14) (100)
TP (%)
(6) (12) (18) (2) (12)
Karvy vs. Consensus

Exhibit 17: Our estimates v/s consensus estimates
(Rs mn) Revenue FY12E FY13 E EBITDA FY12E FY13 E Net Profit FY12E FY13 E
Source: Bloomberg, Karvy Institutional Research
Karvy 10,326 13,886
Consensus 10,209 14,751
Diff (%) 1.2 (5.9)
2,497 3,686
2,664 4,499
(6.3) (18.1)
1,079 1,378
1,209 1,616
(10.8) (14.7)
49
March 22, 2012
Financials
Year to March (Rs mn) Net Sales % growth FY10
5,259 4 56 6,623 1,592 85 57 989 EBIT
FY11
8,215 26 34 7,829 2,497
FY12E
10,326
FY13E
13,886
FY14E
19,404
40 Operating expenditure 4,398 10,199 3,686 13,360 EBITDA 861 6,045 % growth 16 96 180 2,307 3,174 1,626 967 1,306 612 2,988 2,988 % growth 48 1,660 332 668 5,226
48 64 Depreciation 1,184 1,001 PBT 74 152 1,079 1,079 32 28 1,441 1,514 1,053 227 282 1,378 1,378 117
Interest expenditure Exceptional items PAT / Net profit reported Adjusted PAT / Net profit
131 474 367 (6) 3,600 Tax 612 821 980 815 (17)

Year to March (Rs mn) Cash & liquid investments Debtors FY10
718 2,714
FY11
1,518 2,291 2,891
FY12E
2,943
FY13E
1,354
FY14E
939 01 2 2 1,940 6,757 6,470 12,560 28 0
3,888 4,851 Inventory 547 708 1,033 1,389 2,657 2,532
3Loans & advances
Long term investments
5 150 18,757 18,138 5,000 00 0
150
150
150 Gross block 30,757 Net block 28,482 CWIP
25,757 24,471
7,292
3,000 3,000 Other Current Assets
Total assets Current liabilities & provisions Debt Other liabilities Total liabilities Shareholders equity Reserves & surpluses Total networth
13,780 1,378 5,715 12 7,081 118 6,582
23,699 2,035 14,421 47 47 16,503 118 7,078
30,157 2,522 19,421 47 47 21,990 118 8,049
34,253 3,377 21,421
39,365 4,842 22,421
24,845 118 9,291
27,310 118 11,937
6,699
7,196 23,699
8,167 30,157
9,409 34,253
12,055 To 39,365
tal equity and liabilities

13,780
50
March 22, 2012
Arshiya International Exhibit 20: Cash Flow Statement (Consolidated)

Year to March (Rs mn) PBT Depreciation FY10 1,053 108 176 FY11 962 332 668 FY12E 1,306 FY13E 1,660 451 FY14E 3,600 (141)
989 Interest 121 (81)
(155) (171) Tax (111) (Incr) / decr in net working capital (774) 868 11 1,001 CF from operating activities (Incr) / decr in capital expenditure (Incr) / decr in investments CF from investing activities Incr / (decr) in borrowings 213 2,387 (4,399) (5) (145) (4,385) (452) 1,514 1,814 (9,387) Others (9,511)
(231) (280) (598) (185)
(530) (241) Others 1,626 2,877 5,206 (4,440) 19 21 136 (4,304) (5,000) 155 171
(5,000)
(4,845)
(4,829)
4,405 8,720 5,000 16 Dividend paid
2,000 1,000 Issuance of equity (55) (69) (85) (107) (165)
Others CF from financing activities

Net change in cash Source: Company, Karvy Institutional Research
(118) (743) (1,001) 4,232 7,924 3,914

61 800
(1,514) 379
1,424
(1,626)
(1,589) (415)
(791)

Year to March (%) EBITDA margin EBIT margin Net profit margin Dividend payout ratio Net debt: equity Working capital turnover RoCE RoIC RoE
FY10
16.4 22.5 18.6 7.0 0.7 0.4 10.7 11.5 15.4
FY11
19.4 17.5 9.9 10.1 1.8 0.1 7.1 7.7 11.7
FY12E
24.2 22.3 10.4 9.5 2.0 0.1 7.7 8.6 14.0
FY13E
26.5 22.9 9.9 9.9 2.1 0.1 9.0 9.8 15.7
FY14E
31.2 26.9 15.4 11.4 1.8 0.1 13.3 13.8 27.8

Year to March EPS (Rs) DPS (Rs) Book value per share (Rs) P/E (x)
8.5 10.2 7.7 6.0 2.8 P/B
FY10
16.7 1.0 115
FY11
13.8 1.2 122
FY12E
18.3 1.5 139
FY13E
23.4 2.0 160
FY14E
50.8 5.0 205
V (x)
1.2 1.2 1.0 0.9 0.7 EV
/EBITDA (x)
15.4 13.3 2.6 9.9 2.4 7.7 2.0 4.9 EV 1.5
/Sales (x)
2.5
51
Logistics
March 22, 2012
Container Corporation
Bloomberg: CCRI IN Reuters: CCRI.BO
Recommendation
CMP: Target Price: Upside (%) Rs879 Rs1,115 27%
INITIATION REPORT
BUY
Strong pricing power to outsmart competition

Largest container train operator in India: Container Corporation of Ind ia (CCRI) is India's largest Container Train Operator (CTO) with container train fleet strength of 240 container trains and 61 terminals spread across India. Currently, CCRI has ~68% of total container fleet operational in India. Strategic tieups with competitors and customers to support revenu e growth: CCRI has formed various JVs across India partnering with its cu stomers as well as competing CTOs to support its revenue growth. This is a strategi c move as expansions by private CTOs have impacted CCRI's EXIM volume growt h. In the domestic train handling, CCRI's FY1112E volume growth got i mpact after the IR announced hike in commodityspecific haulage charges in Dec'10 for domestic cargoes. However, the quarterly volume trends suggest a bottomout situation in FY12E. Subsequently, we expect revenues to grow at 12% CAGR during FY1214E. Depreciated asset book and no debt provides pricing power: CCRI being in operations since 1988 has assets that were acquired at significantly lower c osts compared to its competitors and most of these assets are fully depre ciated. Further, with a net cash of Rs. 28 bn (22% of its market cap) C CRI enjoys higher pricing power in case of aggressive competition from the private counterparts. Greater focus on increasing VAS to insulate margin pressure: CCRI is increasing VAS in addition to rail transportation to attract customers as well as to protect its margins against competition and haulage charge increases. The management expects its VAS to sales ratio to increase by 200bps to 27% durin g FY1314E after increasing it by 200bps during FY12E. These initiatives should lead to PAT CAGR of 11% during FY1214E period. Initiate coverage with "BUY" recommendation: While CCRI has been th e pioneer in container rail operations in India, amidst rising competition from private operators, we expect CCRI's PAT to grow at modest 11% CAGR. We value CCRI at 13.2x its FY1314E average EPS of Rs. 84.6. Our target multiple is at 15% discount to its longterm median P/E of 15.5x. We initiate coverage on the stock with "BUY " recommendation with a target price of Rs. 1,115 per share. Our fair value estimate for CCRI implies 25% discount to CCRI's long term EV/EBITDA median multiple of 10.6x. Key Financials
Year to Dec (Rs mn) Net Sales EBITDA EBITDA (%) PAT EPS (Rs) RoE (%) RoCE (%) P/E (x) EV/EBITDA (x) FY10 37,057 9,616 26.0 7,872 60.6 19.4 18.5 14.4 9.8 FY11 38,281 10,014 26.2 8,785 67.6 18.9 18.0 12.9 9.1 FY12E 41,471 10,821 26.1 8,878 68.3 16.6 16.0 12.8 7.8 FY13E 47,374 12,321 26.0 10,185 78.4 16.6 16.0 11.2 6.3 FY14E 54,129 14,077 26.0 11,813 90.9 16.8 16.2 9.6 5.0
Stock Information
Market Cap. (Rs bn / US$ mn) 52week High/Low (Rs) 3m ADV (Rs mn /US$ mn) Beta Sensex/ Nifty Share outstanding (mn) 113/2,251 1,332/801 73/1.5 0.7 17,316/5,275 130
1M (10.6) (5.6)
3M 5.6 (7.5)
12M (26.5) (24.1)
YTD 4.0 (7.2)
Performance
21,500 19,500 17,500 15,500 1,400 1,300 1,200 1,100 1,000 900 800
Sensex (LHS)

20 15 10 5 Jul10 May08 Dec09 Oct07 Jun09 Jan11 0 Nov08 Aug11 Mar12 Apr07
Analysts Contact
Container Corp. (RHS)
March 22, 2012

Profit & loss
Rsmn Net sales EBIDTA Depreciation PBT T ax Adj. PAT EPS (Rs) DPS (Rs) Profit and Loss Ratios EBIDTA Margin % Adj Net Margin % Valuation Multiples P/E (X) EV/EBIDTA (X) P/BV (X) FY12E 41,471 10,821 1,597 11,759 2,881 8,878 68.3 10.0 10.0 26.0 26.1 21.5 21.4 12.8 7.8 2.0 FY12E 65,710 26,973 35,001 3,736 65,710 56,943 11.2 6.3 1.7 FY13E 74,647 28,522 41,775 9.6 5.0 1.5 FY14E 85,269 29,920 50,370 21.8 26.0 10.0 FY13E 47,374 12,321 1,750 13,580 3,395 10,185 78.4 FY14E 54,129 14,077 1,903 15,751 3,938 11,813 90.9
Company Background CCRI commenced operations after it acquired seven ICDs from the Indian Railways in 1988. Over the years, CCRI has emerged as leader in the CTO space with its vast network of 61 ICDs/CFS' connected by its railway network enriched by its fleet of 240 rakes. CCRI is accredited with introducing mass containerization in India, and has been the on the forefront for promoting container trade in India. CCRI introduced Asias biggest ICD at Dadri in 2003. Through its numerous JVs and strategic alliances it has been enriching the logistics sector in India. While privatization of container haulage by rail since 2006 has exposed it to competition, CCRI maintains its market dominance by way of its vast network of CFS/ICDs and extensive rail infrastructure.
Balance Sheet
Rsmn Total Assets Net Fixed Assets Current Assets Other Assets Total Liabilities Networth Debt Current Liabilities Other Liabilities Balance Sheet Ratios RoE % RoCE % Net DER (x) Asset Turnover (x)
Cash Flow
Rsmn PBT Depreciation Interest Income FY12E 11,759 1,597 (2,535) (2,843) 200 8,178 (2,109) (500) 3,576 (73) (1,453) (1,453) 6,652 FY13E 13,580 1,750 (3,010) (3,395) (416) 8,509 (3,300) (500) FY14E 15,751 1,903 (3,576) (3,938) (486) 9,654 (3,300) (500)
4,349 4,979 Tax 74,647 85,269 Change in Wkg Cap 65,415 75,515 CF from Operations 7,468 2,286 2,535 16.8 16.2 (0.6) 0.7 Capex Investments 3,010 CF from Investing Dividends & others CF from Financing Change in Cash
6,481 6,946 2,286 2,286 Int Income & Others 16.6 16.6 16.0 16.0 (0.5) (0.5) 0.7 0. 7
(790) (1,713) (1,713) 6,006
(224) (1,713) (1,713) 7,717
Segmental Revenue (%)
Public & Others, 3.43 FII, 26.31
Promoters, 63.09
Others, 1.7 Exim, 76.9 Domestic, 21.5
DII, 7.17
Source: BSE, Karvy Institutional Research Source: Company, Karvy Institutional Research
53
March 22, 2012

CCRI has been the pioneer in container rail operations in India. However, with rising competition from private operators, we expect CCRI's PAT CAGR at a m odest 11%. We value CCRI at 13.2x its FY1314E average EPS of Rs. 84.6. O ur target multiple is at 15% discount to its long term median P/E of 15.5x. We initiate co verage on the stock with "BUY" recommendation with a target price of Rs. 1,115 per share. The 15% valuation discount to its longterm average P/E is to factor in the risks to earnings emanating from the delays in infrastructure commissioning thereby impa cting overall revenue growth for the logistics operators. However, we have factor ed in lower discount compared to other companies (AGLL & GDPL 25% disco unt, ARST 40% discount), as CCRI is better positioned due to its panIndia presence and its strong balance sheet. Exhibit 1: CCRI's 1 yr Fwd P/E trends - long term median Exhibit 2: CCRI's 1 yr Fwd EV/EBITDA trends long P/E of 15.5x with a +/ 2.9x one std deviation
25.0 20.0 15.0 10.0 Jul09 Jan10 Dec07 Dec08 Feb11 Oct05 Jun08 May07 Mar12 Apr05 Apr06 Nov06 Aug10 Aug11 5.0 0.0 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0
term median of 10.6x with a +/ 2.6x one s td deviation
Jul09
Dec07
Dec08
Jan10
May07
Feb11
Oct05
Jun08
Nov06
Aug10
Exhibit 3: CCRI's 1 yr Fwd P/B trends - long term median P/B of 3.2x with a +/ 0.7x one std deviation
6.0 5.0 4.0 3.0 Jul09 Dec07 Dec08 Jan10 May07 Feb11 Oct05 Jun08 Aug10 Nov06 Aug11 Mar12 Apr05 Apr06 2.0 1.0 0.0
Exhibit 4: Return Ratios trends

35.0 30.0 25.0 20.0 15.0 10.0 5.0 RoCE RoE RoIC (RHS) FY0 6 FY0 7 FY0 8 FY0 9 FY1 0 FY1 1 FY1 2 FY1 3 FY1 4 (% ) 50.0 40.0 30.0 20.0 10.0
Aug11
Mar12
Apr05
Apr06
54
March 22, 2012
Our investment thesis is based on following premises: 1. 2. 3. 4. 5. 6. 7. 8. 9. Largest container train operator in India Loss in EXIM market share as competition intensifies Domestic volume growth decline in FY12E on haulage increase Strategic tieups with competitors and customers support revenue growth Revenue CAGR of 12% during FY1214E Depreciated asset book and no debt provides pricing power Greate r focus on increasing VAS to insulate margin pressure EBITDA CAGR of 12% led by stable margins and revenue growth PAT CAGR of 11% during FY1214E
1. Largest container train operator in India

CCRI is India's first and the largest Container Train Operator (CTO). The government owned PSU started operations in 1988 and today has a fleet strength of 240 container trains and 61 terminals (spread across India out of which 18 handle E XIM cargoes and 13 domestic cargoes and remaining 30 handle both EXIM an d domestic cargoes. Until 2006, it was the only container train operator and had complete monopoly in the containerized cargo rail movement. Even since the government opened up the segment for private players, CCRI's market share has reduced. Currently, it owns ~68% of total container fleet operational in India. Exhibit 5: Largest CTO in India - it owns and operated ~68% of total container train in India
India Infra Logistics (APL) Hind Terminals Inlogistics (B2B) Arshiya international Gateway Distriparks Concor (CCRI) 0
Exhibit 6: 80% of its rail handling is dedicated to EXIM trade

100% 351 80% 60% 374 390 470 453 539 544 343
9 12 15
40%
1,377
1,557
1,716
1,977
1,855
16
20% FY05 FY06 FY07 FY08 FY09
1,882
2,019
1,600
FY10
FY11
0%
240 100 200 300
2. Loss in EXIM market share as competition intensifies

With the arrival of private train operators after the IR opened up the segment for private players, CCRI has faced competition and its EXIM market share has de clined. Even on the domestic container handling, it is facing competition from t he private players, as Arshiya operates 15 out of its 16 rakes in the domestic route and other CTOs also operate some of their rakes in the domestic segment.
9MFY12
21
55
March 22, 2012
Container Corporation Exhibit 7: CCRI EXIM growth has been lagging Industry growth since the sector opened up for private operators thereby intensifying competition
30.0 20.0 10.0 FY02 (10.0) CCRI Exim Growth (%)
Source: Company, IPA, Karvy Institutional Research
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
EXIM Traffic Growth (%)
Going forward, we have factored in 6% EXIM throughput CAGR for CCRI during FY12 14E. The CCRI management expects trade volumes should pick up in FY13E, as against ~4% EXIM throughput growth expected in FY12E.
3. Domestic volume growth decline in FY12E on haulage increase; quarterly data suggest it has bottomed out
In the domestic train handling, volume growth got impact after the IR announced commodityspecific haulage charges hike for domestic cargoes in Dec'10, which i mpacted cargo volumes of all train operators both CCRI and others. This resulted in CCRI's domestic volume to decline by ~917 % YoY during the last four quarters. This led to higher availability of rakes in the EXIM t rade thereby muting EXIM realisation growth YoY during the last four quarters. However, the domestic handling has improved sequentially over the last two quarters and we expect a 10% volume growth to kick in during FY1314E thereby restori ng domestic throughput closer to FY11 levels. Domestic growth in turn should reduce competition on the EXIM route. Exhibit 8: Domestic throughput growth impacted after IR Exhibit 9: We have factored in 6% & 10% volume growth hiked commodity specific haulage charges in the EXIM & domestic segment respectively
200 150 100 50 Dec09 Sep10 Dec10 Sep11 Dec11 Jun10 Jun11 Mar10 Mar11 40 30 20 10 (10) (20) (5) (10) (15) FY08 Domestic Throughput (Mn TEUs) Source: Company, Karvy Institutional Research YoY Growth (%) RHS FY09 FY10 FY11 (4) (6) 11 FY12E FY13E FY14E 25 20 15 10 5 1 7 1 5 6 15 10 6 10 21 19
EXIM Growth YoY (%) Source: Company, Karvy Institutional Research
Domestic Growth YoY (%)
56
March 22, 2012
4. Strategic tieups with competitors, customers support revenue growth

CCRI has formed JVs in the CFS and ICDs segments with its competitors as well as its customers in the shipping line to ensure steady volumes. Further, it has t erminals across India and it has allowed its competitors to use its facilities for their rakes operations. This helps CCRI increase utilisation for its infrastructure assets. Exhibit 10: CCRI has formed various JVs with its competitors as well as its customers
JV companies Star Track Terminals Pvt. Ltd Trident Terminals Pvt. Ltd. Albatross CFS Pvt. Ltd. Gateway Terminals India Pvt. Ltd. India Gateway Terminal Pvt. Ltd. Integrated Infra Log Pvt. Ltd. JV Partners Maersk India Transworld group Transworld group Maersk A/S Dubai Port International Operations CFS at Dadri UP CFS at Dadri UP CFS at Dadri UP JN Port, Mumbai CFS at Dadri, UP Container Terminals at Cochin CFS at Dadri UP Logistics freight terminals & integrated logistics Container terminal at Garhi Harsaru, Gurgaon CFS at Dadri UP CCRI Stake 49% 49% 49% 26% 49% 15% 50% 49% 49% 49% 49%
CMACGM Logistics Park (Dadri) Pvt. Ltd Ameya Logistics Pvt. Ltd
IL&FS Infrastructure Development Corporation Logistic Infrastructure
Hind CONCOR Terminals (Dadri) Pvt. Ltd. Hind Terminals Pvt. Ltd Infinite Logistics Solutions Pvt. Ltd. Container Gateway Ltd. Allcargo Logistics Park Pvt. Ltd.
TCI, India Gateway Rail Freight Pvt. Ltd Allcargo Global Logistics Ltd.
5. Revenues CAGR of 12% during FY1214E

Based on a 5% total throughput CAGR and net realisation CAGR of 7% durin g FY1214E, we expect net revenues to grow at 12% CAGR. Exhibit 11: Realisation growth (YoY) trends across EXIM Exhibit 12: We estimate revenue CAGR of 12% during and Domestic segments (%)
15 10 10 5 5 (5) (10) (7) FY08 FY09 FY10 FY11 FY12E FY13E FY14E (3) (2) (4) 2 3 30,000 20,000 10,000 FY08 FY09
Revenue (Rs mn)
FY1214E periods
60,000 16 14 12 40,000 10 8 6 4 2 0 FY10 FY11 FY12E FY13E
6.9 6
77
77
50,000
EXIM Growth YoY (%) Source: Company, Karvy Institutional Research
Domestic Growth (%)
YoY Growth (%)
Exhibit 13: Key assumptions across various business verticals

FY10 Exim Volumes (TEUs) Growth (%) Realisation/TEU (Rs) Growth (%) Growth (%) Growth (%) 1,882,277 1.5 15,399 4.8 (3.8) 538,970 18.9 0.9 14,977 (1.8) FY11 2,018,551 7.2 14,820 6.9 7.0 543,746 (11.0) 15,387 2.7 FY12E 2,119,479 FY13E 2,246,647 FY14E 2,381,446
5.0 6.0 6.0 15,842 16,951 18,138 7.0 Domestic Volumes (TEUs) 483,934 532,327 585,560 10.0 10.0 Realisation/TEU (Rs) 16,310 17,452 18,674 6.0 7.0 7.0
57
March 22, 2012
6. Depreciated asset book and no debt provides pricing power

CCRI is in operations since 1988. Hence, most of the assets are owned by CCRI are at significantly lower costs and are fully depreciated. These positions CCRI at st rong advantage compared to its new competitors who have to acquire assets at significantl y higher costs. Further, CCRI is sitting on net cash position of ~Rs. 28 bn (~Rs. 215 per share, 22% of its market cap) which provides the Company pricing power (in ter ms of volume discounts) in case of aggressive competition from the private operators. Exhibit 14: CCRI enjoys extremely lower capital charges compared to its competitors, thereby reducing its PAT margin volatility to realisation
CCRI
2.8
6.0
2.4 8.3
Gateway Distriparks
3.1 2.0 4.0 6.0 8.0 10.0
12.0
Int (% of Sales) Source: Company, Karvy Institutional Research
Dep (% of Sales)
7. Greater focus on increasing VAS to insulate margin pressure

In its bid to attract customers and also insulate operating cost pressure (mainly haulage charge increases) on its EBITDA margins, CCRI is focusing on increasing VAS' share to total revenues through higher rental income and through increased integrated ser vices offerings. During the 9MFY12, rail handling share to total revenues has co me down by ~200 bps to 75%. The management expects VAS share to further increase by 200 bps over the next two years to 27%. In this regard, CCRI is investing in logistics parks in Andhra Pradesh and Gujarat.
8. EBITDA CAGR of 12% led by stable margins, revenue growth

Subsequently, we estimate stable OPM at 26% during FY1214E thereby leading to 12% EBITDA CAGR. Exhibit 15: We expect stable OPM & NPM during FY12 Exhibit 16: Thereby resulting in EBITDA CAGR of 12% 14E
29 27 25 23 21 19 17 15 FY08 FY09 FY10 FY11 FY12E FY13E FY14E FY08 FY09 FY10 FY11 FY12E FY13E FY14E
YoY Growth (%) NPM (%) OPM (%)
during FY1214E
15,000 15 26.0 26.0 10,000 10
26.6
27.2 26.0 23.2 21.2 26.2 22.9 21.4 21.5 21.8 26.1
22.4
5,000
EBIDTA (Rs mn)
58
March 22, 2012
9. PAT CAGR of 11% during FY1214E

We believe that lower depreciation and no interest costs should help PAT to grow at 11% CAGR (inline with EBITDA growth) during FY1214E period. Subsequently, the return ratios should also improve going forward. Exhibit 17: PAT CAGR of 11% during FY1214E
14,000 12,000 15 10,000 8,000 6,000 4,000 2,000 FY08 FY09
PAT (Rs mn)
Exhibit 18: Return ratios to remain healthy

20 30.0 25.0 20.0 10 5 0 5 30.0 15.0 10.0 5.0 FY08 FY09 FY10 FY11 RoE FY12 FY13 FY14 20.0 10.0
(% )
50.0 40.0
FY10
FY11
FY12E FY13E FY14E

Growth YoY (%) RHS
RoCE
RoIC (RHS)
Key Risks
Increasing competition can impact revenue growth: Faster pace of rakes additions by private CTOs can further reduce CCRI's market share from 68% and hence it s volume growth across both EXIM and domestic routes. These new CTOs can also co mpete with CCRI on pricing front to gain market share, thereby impacting CCRI's revenue and PAT growth. VAS improvement: CCRI has been increasing its VAS to total sales ratio in its bid to protect revenues and margins. This strategy would require sustained capex in developing logistics parks and offering integrated solutions to its customers. Even though it is sitting with enough cash on hand, capex can be delayed in case the government does not clear its projects on time.
Exhibit 19: Impact of changes in realization and volumes on the earnings metrics and target price estimates (FY14E)
EPS (%)
10% lower volume 10% lower realization Source: Karvy Institutional Research (7) (34)

(110) (566) (107) (549)
TP (%)
(4) (18)
Karvy vs. Consensus

Exhibit 20: Our estimates v/s Bloomberg consensus data
(Rs mn) Revenue FY12E FY13E EBITDA FY12E FY13E Net Profit FY12E Karvy 41,471 47,374 10,821 12,321 8,878 10,185 10,806 11,489 9,199 0.1 7.2 (3.5) Consensus 41,107 44,557 Diff (%) 0.9 6.3
FY13E
Source: Bloomberg, Karvy Institutional Research
9,824
3.7
59
March 22, 2012
Financials
Exhibit 21: Profit and Loss (Standalone)
Year to March (Rs mn) Net Sales % growth FY10 37,057 83 8 14 30,649 10,821 Depreciation FY11 38,281 FY12E 41,471 FY13E 47,374 27,440 FY14E 54,129 28,267 10,014 814 14 10,583
14 Operating expenditure 35,053 12,321
40,052 EBITDA 9,616 14,077 % growth 3 4 10,066 PBT 15,751 Tax
1,351 1,452 1,597 1,750 1,903 EBIT 11,759 13,580 Exceptional items 10,583 11,759 526 13,580
15,751 Interest expenditure
10,066 2,194
1,798 2,881 3,395 3,938 PAT / Net profit reported 7,867 8,760 8,878 10,185 Adjusted PAT / Net profit 11,813 12 1
7,872 8,785 8,878 10,185 11,813 % growth (1) 15 16
Exhibit 22: Balance Sheet (Standalone)

Year to March (Rs mn) Cash & liquid investments Debtors FY10 19,895 176 173 FY11 22,957 187 214 FY12E 29,609 FY13E 35,615 70 63 FY14E 43,332 68 77
244 Inventory
89 Loans & advances Long term investments
4,798 4,743 5,138 5,869 6,706
2,405 2,440 2,940 3,440 3,940 Gross block 29,889 32,862 21,639 36,162 23,270 39,462 24,973 42,762 Net block 26,522 27,920 784 57,571
CWIP
2,064 3,191 2,000 2,000 2,000 Others assets 735 796 65,710 909 1,039 Total assets 74,647 85,269 51,832
Current liabilities & provisions
6,359 5,507 6,481 6,946 7,468 Debt Other liabilities
2,109 2,286 2,286 2,286 2,286
Total liabilities
8,468 7,793 8,767 9,231 9,753 Shareholders equity 1,300 1,300 1,300 1,300 1,300 Reserves & surpluses 42,064 48,478 49,778 57,571 55,643 56,943 65,710 64,116 65,415 74,647 74,216 75,515 85,269
Total networth Total equity and liabilities
43,364 51,832
60
March 22, 2012
Container Corporation Exhibit 23: Cash Flow Statement (Standalone)

Year to March (Rs mn) PBT Depreciation FY10 10,066 FY11 10,583 FY12E 11,759 FY13E 13,580 FY14E 15,751 (1,527) (2,225)
1,351 1,452 1,597 1,750 1,903 Interest (1,484) (2,535) (2,843) (3,010) (3,395) 200 (416) (3,576) Tax (3,938) (486) Others 7 16 (3,685)
(Incr) / decr in net working capital
170
(216)
CF from operating activities 6,425 8,083 8,178 8,509 9,654 (Incr) / decr in capital expenditure (3,111) (2,109) (Incr) / decr in investments (375) (34) (3,300) (3,300) (4,262)
(500) (500) (500) Others 1,428 1,624 2,535 (2,058) (1,713) (2,349)
3,010 3,576 CF from investing activities (2,672) (73) (790) Issuance of equity (2,129) (2,349)
(224) Incr / (decr) in borrowings
Dividend paid
(1,453) (2,129)
(1,713) CF from financing activities (1,453) (1,713)
(1,713) Net change in cash 2,238
3,062 6,652 6,006 7,717


Year to March (%) EBITDA margin EBIT margin Net profit margin Dividend payout ratio Net debt: equity (x) RoCE RoIC RoE
FY10 26.0 27.2 21.2 17.1 (0.5) 18.5 36.6 19.4
FY11 26.2 27.6 22.9 15.6 (0.5) 18.0 35.2 18.9
FY12E 26.1 28.4 21.4 19.3 (0.5) 16.0 33.3 16.6
FY13E 26.0 28.7 21.5 16.8 (0.5) 16.0 36.8 16.6
FY14E 26.0 29.1 21.8 14.5 (0.6) 16.2 39.9 16.8

Year to March EPS (Rs) DPS (Rs) Book value per share (Rs) P/E (x) 14.4 P/BV (x) 2.6 EV/EBITDA (x) 9.8 EV/Sales (x)
FY10 60.6 8.0 334
FY11 67.6 8.0 383
FY12E 68.3 10.0 438
FY13E 78.4 10.0 503
FY14E 90.9 10.0 581
12.9
12.8
11.2
9.6
2.3
2.0
1.7
1.5
9.1 2.4
7.8 2.0
6.3 1.6
5.0 1.3
2.5
61
Logistics
March 22, 2012
Gateway Distriparks
Bloomberg: GDPL IN Reuters: GATE.BO
Recommendation
CMP: Target Price: Upside (%) Rs149 Rs204 37%
INITIATION REPORT
BUY
Firing on All Cylinders

CFS business is the cash cow; expanding capacities to fuel growth: We expect Gateway Distriparks' (GDPL) CFS volumes to grow at 3% and 7 % during FY1314E vs. 3% during FY12E, as new capacities get commissio ned at JNPT and Kochi. Strong relationship with shipping lines should boost the gr owth as it the shipping lines, which notify which CFS to do business with (and not t he cargo owners). Further, CFS is a cash cow for the Company as it has very high OPM of ~54% and the segment generates >80% of total PAT. Leadership position in the container train business: GDPL currently operates 21 rakes (2nd largest after Container Corp) with >85% of its capacity being deployed in the EXIM container transportation. It plans to add another 68 rakes during FY13E. We expect GDPL's rail volumes to grow by 15% and 10% during FY13E and FY14E, respectively. With its rising penetration and hig her utilisation, rail margins should expand going forward and we expect this segment to post EBITDA CAGR of > 25% during FY1314E period. Cold chain business small but niche play: This segment currently contributes 8% to net re venues and the management plans to increase its pallet strength by ~150% to 46 K pallets during FY1314E. Capex of Rs. 2.6 bn in FY1213E: We expect the Company to meet its capex requi rement of Rs. 2.6 bn mostly through its internal accruals and hence remain a net cash flow Company. Initiate coverage with "BUY" recommendation: GDPL's return ratios should exp and during FY1114E period by ~800 bps led by revenue growth and high er utilisation. We estimate PAT CAGR of 29% during FY1214E period. We value GDPL at 12x (25% discount to its six year median P/E 16x) its FY13 14E average EPS of Rs. 17. We believe that, as the return ratios expand toward the previous levels seen during FY0508, the valuation multiple will follow suit as has been the case in the past. We initiate coverage on the stock with "BUY" recommendation with a target price of Rs. 204 per share. Key Financials
Year to Mar (Rs mn) Net Sales EBITDA EBITDA (%) PAT EPS (Rs) RoE (%) RoCE (%) P/E (x) EV/EBITDA (x) FY10 5,166 1,249 24.2 791 7.3 11.2 10.7 20.6 14.0 FY11 5,991 1,597 26.7 968 9.0 10.9 10.6 16.9 9.9 FY12E 7,712 2,593 33.6 1,423 13.2 13.0 12.3 11.5 6.0 FY13E 8,813 3,051 34.6 1,652 15.3 13.6 12.7 9.9 5.0 FY14E 10,103 3,590 35.5 2,029 18.8 14.9 14.0 8.0 3.9
Stock Information

1M 4.5 10.4 3M 22.1 7.0 12M 40.5 45.1 YTD 14.4 2.1
Performance
21,500 19,500 17,500 15,500 170 150 130 110 90

30 20 Dec05 Jan08 Feb10 Sep08 Oct10 May09 Jun11 Aug06 10 0 Mar12 Apr05 Apr07
Analysts Contact Rajesh Kumar Ravi

022 6184 4313 rajesh.ravi@karvy.com Prasun Kumar 022 6184 4325 prasun.kumar@karvy.com
Sensex (LHS) Gateway Distriparks (RHS)
March 22, 2012
Gateway Distriparks

Profit & loss
FY12E Net sales EBIDTA Depreciation Interest Expense PBT T ax Adj. PAT EPS (Rs) DPS (Rs) Profit and Loss Ratios EBIDTA Margin % Adj Net Margin % Valuation Multiples P/E (X) EV/EBIDTA (X) P/BV (X) 11.5 6.0 1.4 9.9 5.0 1.3 8.0 3.9 1.1 PBT FY12E Total Assets Net Fixed Assets Current Assets Total Liabilities Networth Debt Current Liabilities Other Liabilities Balance Sheet Ratios RoE % RoCE % Net DER (x) Asset Turnover (x) 13.0 12.3 (0.1) 0.5 ) 6 13.6 12.7 (0.1 0. 14.9 14.0 (0.2) 0.6 14,585 10,048 4,537 14,585 7,875 1,900 1,063 3,748 FY13E 16,356 11,162 5,194 16,356 9,099 2,050 1,399 3,808 FY14E 18,047 11,457 6,590 18,047 10,701 2,080 1,378 3,888 Depreciation Interest Tax Change in Wkg Cap Others CF from Operations Capex Investments Others CF from Investing Change in Debt Dividends & others CF from Financing Change in Cash 33.6 18.5 34.6 18.7 35.5 20.1 7,712 2,593 585 200 1,951 488 1,423 13.2 3.5 FY13E 8,813 3,051 686 215 2,282 571 1,652 15.3 3.5 FY14E 10,103 3,590 705 218 2,812 703 2,029 18.8 3.5
Company Background Gateway Distriparks (GDPL) was incorporated on April 6, 1994. Presently, GDPL operates in three segments - CFS/ICDs, Container train operations and Cold chain logistics. In the CFS space, GDPL has a JV with Punjab Conware to operate one of their CFS at Nhava Sheva. In its rail subsidiary - Gateway Rail, Blackstone has invested Rs 3 bn through issue of CCPS in 2009. In the Cold chain business (Snowman Frozen Foods), International Finance Corp bought 20% stake in 2009 for Rs 250 mn while Mitsubishi Logistics and Nichirei Logistics owns ~26% stake and GDPL remaining 53%.
Cash Flow
FY12E 1,951 585 200 (488) (504) (182) 1,562 (801) (100) 142 (760) 746 (587) 159 961 FY13E 2,282 686 215 (571) 171 (192) 2,591 (1,800) 132 (1,668) 150 (583) (433) 491 FY14E 2,812 705 218 (703) (93) (226) 2,714 (1,000) 146 (854) 30 (566) (536) 1,324
Balance Sheet

Segmental Revenue breakup (%)

GDL & CFS Subsidiari es, 42.6 Promoters, 40.45 Snowman Frozen Foods, 7.7 Gateway Rail Segment, 49.6
FII, 27.73
DII, 15.45
63
March 22, 2012
Gateway Distriparks

We expect GDPL profitability to expand across all the three business segments it is prese nt in. As GDPL is capable to meeting its capex requirements through its inter nal accruals (a net cash flow company), we do not see any major delay in ex pansion plans across the three businesses. As these expansions get commission ed over the next two years, GDPL's return ratios should remain buoyant. We value GDPL at 12x (25% discount to six year median P/E 16x) its FY13 14E average EPS of Rs17. We believe as the return ratios expand toward the previous levels s een during FY0508, the valuation multiple will follow suit as has been the case in the past. We initiate coverage on the stock with "BUY" recommendation with a target price of Rs. 204 per share. The 25% valuation discount to its longterm P/E is to factor in the risks to earnings emanating from the delays in infrastructure commissioning thereby impact overall revenue growth for logistics operators. GDPL is trading at ~33% discount to its six year Exhibit 2: ...and at ~47% discount to its six year median median fwd (1 Yr) P/E of 16x,(+1SD 6.8x)
Exhibit 1:
40.0 35.0 30.0 25.0 20.0 15.0 Jul09 Jan10 Feb11 Oct05 Dec07 Dec08 Jun08 May07 Mar12 Aug10 Aug11 Apr05 Apr06 Nov06 10.0 5.0 0.0 20.0 15.0 10.0 Jul09 Oct05 Dec07 Dec08 Jan10 May07 Feb11 Jun08 Aug10 5.0 0. 0 Nov06 Aug11 Mar12 Apr05 Apr06 FY08 30.0 25.0
fwd (1 Yr) EV/EBITDA of 9x, (+1SD 5.8x)
Exhibit 3:
5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0
and Trading at ~7% discount to its six year Exhibit 4: While return ratios continue to be on an median fwd (One Yr) P/B of 1.8x, (+1SD 0.7x) uptrend, closer to FY07 levels
30.0 26.0 22.0 18.0 Jul09 Oct05 Dec07 Dec08 Jan10 May07 Feb11 Jun08 Aug10 Nov06 Aug11 Mar12
Apr05
Apr06
14.0 10.0 FY07 FY09 FY10 FY11 FY12E FY13E FY14E RoIC (%)
RoE (%) Source: Capitaline, Karvy Institutional Research Source: Company, Karvy Institutional Research
64
March 22, 2012
Gateway Distriparks
Our investment thesis is based on following premises: 1. 2. 3. 4. 5. 6. 7. CFS Business is the cash cow; expanding capacities to fuel growth Leadership position amongst private CTOs will further improve growth prospects The fourth ICD Faridabad to be operational in FY13E Cold Chain business - a small but niche play Sales CAGR of 19% led by traction across all the three business segments Expect EBITDA CAGR of 33% during FY1214E Return ratios to improve significantly going forward
1. CFS Biz is the cash cow; expanding capacities to fuel growth

GDPL has CFS presence at the leading container ports of India - Mumbai and Chennai. This is a high margin business, as GDPL recorded >50% OPM in the last four quarters. Currently, this segment accounts for ~40% of topline and 80% of PAT . Recently, with a decline in container volumes at JNPT, GDPL's overall volum e growth has been impacted. However, container volume handled at its other C FS i.e. Chennai & Vizag has remained stable thereby moderating the impact of volume decline at its JNPT CFS. Further, we expect GDPL's EXIM volume to pick up, as its Kochi CFS becom es operational in Q4FY12 as well as additional capacity of 60K TEUs gets com missioned at its JNPT CFS in FY13E. We have factored in CFS volume growth of 2.8%, 3% and 7%, respectively during FY1214E period.
Exhibit 5: CFS presence at all the major EXIM container hubs
CFS Mumbai Chennai Vizag Kochi Land (acres) 62 20 20 50,000 6.5 50,000 Current Capacity Capex Details (TEUs) 300,000 Adding 60,000 TEUs by end of FY13E 90,000 Activities/ Other Details 2 CFS, Adjacent to JNPT, Warehousing for Exports, Imports (LCL) & Bonded Warehousing; Has a fleet of 140+ trailers Warehousing for Exports, Imports (LCL) & Bonded Warehousing Warehousing for Exports, Imports (LCL) & Bonded Warehousing, 12km from port To be operational in Q4FY12, Warehousing for Exports & Imports, 0.5 km from port
Exhibit 6: Near term volume growth impacted due to declining throughput at JNPT
100 80 60 40 20 Dec08 Dec09 Dec10 Mar09 Mar10 Mar11 Dec11 Sep08 Sep09 Sep10 Sep11 Jun08 Jun09 Jun10 Jun11 20% 15% 10% 5% 0% 5% 10% 15% 20% 25%
JNPT
Chennai
Vizag
YoY growth (%)
65
March 22, 2012
Gateway Distriparks Despite lower volumes, the CFS segment's profitability has remained stable. This is led by higher realisation on account of higher dwell time resulting in higher rental i ncome. Also, the operational efficiency has improved which have resulted in higher EBITDA per TEU.
Exhibit 7: Profitability has improved despite lower volumes led by operational efficiency
12,000 10,000 8,000 6 300 ,000 4, 000 2,0 00 Dec08 Dec09 Dec10 Mar09 Mar10 Mar11 Dec11 5,000 4,000 3,000 20,000 2,000 10,000 Dec08 Dec09 Dec10 Mar09 Mar10 0 Mar11 Dec11 Sep08 Sep09 Sep10 Sep11 Jun08 Jun09 Jun10 Jun11 1,000 0 Sep08 Sep09 Sep10 Sep11 Jun08 Jun09 Jun10 Jun11 200 100 500 400
CFS EBITDA (Rs mn) RHS
Realisation (Rs/TEU)
EBITDA (Rs/TEU)
2. Leadership position amongst private CTOs will further improve growth prospects
GDPL's subsidiary Gateway Rail has CategoryI rail license to operate container trains. It is the second largest Container Train Operator (CTO) in India after th e largest CTO Container Corporation of India (owned by Govt of India) and hence is the largest priva te CTO in India. In 2009, Blackstone invested Rs. 3 bn in the subsidiary throu gh cumulative Convertible Preference Shares (CCPS), which helped the rail divis ion in reducing its debt levels thereby helping the division report profits (of Rs. 38 mn) in Q4FY11 for the first time in three years of its operations. GDPL currently operates 21 rakes with >85% of its capacity being deployed in the EXI M container transportation. It plans to add another 68 rakes in FY13E. We expect GDPL 's rail volumes to grow by 28%, 15% & 10%, respectively during FY1214E period.
Exhibit 8: Rail volumes growth trend
50 40 30 20 10 Sep08 Dec08 Sep09 Dec09 Sep10 Dec10 Sep11 Mar09 Mar10 0 Mar11 Dec11 Jun08 Jun09 Jun10 Jun11 160% 140% 120% 100% 80% 60% 40% 20% 0%
Exhibit 9: Stable realisation boost EBITDA growth

40,000 30,000
Rail Volumes ( 000 TEUs) Source: Company, Karvy Institutional Research
YoY growth (%)
Rail Realisation (Rs/ TEU) Source: Company, Karvy Institutional Research
Rail EBITDA (Rs/ TEU) RHS
As GDPL has been able to improve its asset sweating in the rail business, its EBITDA per TEU has increased despite rise in haulage charges by the Indian Railways. While the rail business comprises ~50% of total revenues, its PAT c ontribution is ~15% of total PAT. This is on account of lower OPM of ~17% v/s
66
March 22, 2012
Gateway Distriparks ~55% OPM in the CFS business. Additionally, rail business is capital intensive due to acq uisition of rakes, license fee and ICDs. However, with its rising penetration and higher uti lisation, GDPL's rail margins should expand going forward and we expect this segment to post EBITDA CAGR of > 25% during FY1314E periods.
3. The fourth ICD Faridabad to be operational in FY13E

GDPL has three rail linked ICDs at Kalamboli (Mumbai), Garhi (Gurgaon) and Ludhiana. These ICDs have helped GDPL connect the NorthWest hinterland and hence GDPL has been able to gather high EXIM rail handling. Going forward, the Asaoti (Farid abad) ICD is expected to be connected by road in Q4FY12 and by rail in Q2FY13, whic h will help GDPL to further increase its services on the EXIM route.
4. Cold chain business - a small but niche play

GDPL currently owns 53.1% stake in Snowman Frozen Foods, which has ~18K pallets with cold warehousing facilities across India. This is a niche segment with strong growth potential. Currently the cold chain business accounts for 8% of GDPL's total sales and 3% of total PAT. Sales grew by more than 50% YoY during the last four quarters and the management plans to raise its pallet capacity by ~150% during FY1314E to 46 K pallets.
Key Assumptions & Estimates

Exhibit 10: Key Assumptions and Estimates across the three business verticals
CFS Volumes (K TEUs) YoY growth (%) YoY growth (%) Rail Volumes (K TEUs) YoY growth (%) Rail Realisation (Rs/ TEU) YoY growth (%) Cold Chain Sales (Rs mn) YoY growth (%)
FY10 304.0 (5.7) 6,645 (12.5) 112 69.0 25,797 (6.6) 356 2.3
FY11 333.4 9.7 2.8 7,232 8.8 32.8 131 16.8 23,689 (8.2) 470 32.0
FY12E FY13E FY14E 342.9 353.2 377.9 3.0 7.0 CFS Realisation (Rs/ TEU) 9,606 10,567 11,306 10.0 7.0 168 193 213 27.9 15.0 10.0 22,646 22,646 23,779 (4.4) 5.0 614 706 777 30.7 15.0 10.0
Exhibit 11:
CFS Business Rail Business
Planned capex of Rs 3.2 bn during FY1213E

9MFY12 4QFY12 FY13E Comments 80 330 200 610 500 Koch and JNPT capacity expansions 1,300 68 New rakes additions, Faridabad ICD 800 Raising pallet capacity from 18K to 46K 2,600 Most of the capex to be met through internal accruals
Cold Chain Logistics Total capex
5. Sales CAGR of 19% led by traction across all the three business segments
We expect GDPL revenues to grow at ~19% CAGR during FY1214E periods v s. 15% CAGR during FY10 & FY11. All the three businesses are on growth tracks led by rising capacity additions and increased utilisation.
67
March 22, 2012
Gateway Distriparks
Exhibit 12:
12,000 10,000 8,000 6, 000 4,0 00 2,00 0 2,020 FY10 CFS Division 2,411 FY11 356 2,900 470 3,804 3,111 3,294 FY12E Rail Division 3,732 FY13E 4,272 4,375 614 706 777
Revenues (Rs mn) expand across all the three segments
Exhibit 13: thereby boosting revenue CAGR of 19% during FY1214E

12,000 10,000 8,000 6 70.0 60.0 50.0 40.0 30.0 000 2,0 00 20.0 10.0 FY09 FY10 FY11 FY12E FY13E FY14E
5,053
,000 4,
FY14E Cold Chain
Revenues (Rs mn)
YoY growth (%)
6. Expect EBITDA CAGR of 33% during FY1214E

GDPL's operating margins bottomed out during FY10 and has been expanding thereafter led by improved performance across all the three segments. We expect OPM to expand from 26.7% in FY11 to ~35% in FY134E, and subsequently its EBITDA should grow at ~33% CAGR during FY1214E.
Exhibit 14: Higher operational efficiency to further boost EBITDA CAGR to 30%...
40.0 35.0 30.0 2,000 25.0 1,000 FY09 FY10 FY11 FY12E FY13E FY14E 20.0 15.0 1,000 500 FY09 FY10
PAT (Rs mn)
Exhibit 15: and PAT CAGR of 29% during FY1214E periods
4,000 3,000
2,500 2,000 1,500
50.0 40.0 30.0 20.0 10.0 (10.0) FY11 FY12E FY13E FY14E
EBITDA (Rs mn)
OPM (%)RHS
YoY growth (%)
7. Return ratios to improve significantly going forward

Exhibit 16: Strong sales growth, increased operational efficiencies to reflect in rising profitability ratios Exhibit 17: Net cash flow position as internal accruals sufficient to fund ongoing capex
0.20 0.10 (0.10) (0.20) FY09 FY10 FY11 FY12E FY13E FY14E
25.0 20.0 15.0 10.0 10.7 5.0 FY07 FY08 FY09 FY10 FY11 FY12E FY13E FY14E 12.5 21.3 13.0 12.8 12.1 12.5 15.4 11.4 13.6 11.2 10.9 13.0 16.6 14.9 19.0
2,000 1,500 1,000 500
RoE (%)
RoIC (%)
Capex (Rs Mn)
Net D: E (x) RHS
68
March 22, 2012
Gateway Distriparks
Key Risks
CFS revenue growth largely dependent on JNPT expansion: JNPT CFS currently accounts for ~66% total CFS handled by GDPL during the last four quarters. A s GDPL has strong client relationship at JNPT, timely expansion of 60K TEUs will result in faster volume growth as against ramping of business at Kochi (lo wer EXIM trade currently), where GDPL is adding 50K TEUs capacity in Q4F Y12. Hence, our volume growth assumptions of 3% and 7% during FY1314E c an be impacted downwards in case the expansion is delayed. Haulage charge increase by Indian Railways: GDPL's rail business is in growt h phase and is trying to gather new business. Hence, GDPL may not be able to fully pass o n the rising haulage charges to its customers thereby impacting its margin expansion and profit growth.
Exhibit 18:
Impact of changes in realisation and volumes across CFS and Rail verticals on the earnings metrics and target price estimates (FY14E)
EPS (%) 10% lower CFS realization 10% lower CFS volumes 10% lower Rail realization 10% lower Rail volumes
RoE (bps) (221) (121) (261) (53)
RoCE (bps) (185) (102) (219) (44)
TP (%) (9) (5) (10) (2)
(16) (9) (19) (4)
Karvy vs. Consensus

Exhibit 19:
(Rs mn) Revenue FY12E FY13E EBITDA FY12E FY13E Net Profit FY12E FY13E
Source: Bloomberg , Karvy Institutional Research
Our estimates v/s consensus estimates

Karvy Consensus Diff (%)
7,712 8,813
7643.6 8805
0.9 0.1
2,593 3,051
2,423 2,757
7.0 10.7
1,423 1,652
1296.7 1476
9.7 11.9
69
March 22, 2012
Gateway Distriparks
Financials
Year to March (Rs mn) Net Sales % growth FY10 5,166 14 16 3,917 EBITDA % growth 1,249 (15) 455 Other Income EBIT Interest expenditure PBT Tax Minority Interest 125 919 195 724 (79) 12 30 791 % growth
FY11 5,991 29 14 4,394 1,597 28 502 129 1,223 182 1,041 44 40 60 968 22
FY12E 7,712
FY13E 8,813
FY14E 10,103
15 Operating expenditure 5,119 2,593 62 18 585 142 2,150 200 1,951 488 5,762 3,051 6,513 3,590
18 Depreciation 686 132 2,498 215 2,282 571 705 146 3,031 218 2,812 703
80 Adjusted PAT / Net profit 1,423 47 16 1,652 23 2,029
(1)

Year to March (Rs mn) Cash & liquid investments Debtors FY10 945 682 624 FY11 1,636 925 925 FY12E 2,697 925 Inventory 503 706 FY13E 3,188 00 0 1,092 0 14,443 FY14E 4,512
Loans & advances Other Current Assets 23 45 50 55
865 1,026
61 Long term investments 12,543 9,748 10,962
00 Gross block 10,036 11,540 15,443 Net block 8,186 11,257 CWIP 517 503 10,855 Current liabilities & provisions 1,307 2,099 Total liabilities Deferred Tax liability 3,406 187 140 3,568 Shareholders equity Reserves & surpluses Total networth Total equity and liabilities
9,329 300 200 14,585 1,063 1,900 2,963 3,668 1,080 6,795 7,875 14,585
200 Total assets 16,356 18,047
12,843 1,105 1,154 2,259 140 140 3,608 1,080 5,797 6,877 12,843
1,399 1,378 Debt 2,050 2,080 3,449 3,458 625 3,748 1,080 1,080 8,019 9,621 9,099 10,701 16,356 18,047
140 Minority Interest
1,079 5,558 6,637 10,856
70
March 22, 2012
Gateway Distriparks
Exhibit 22: Cash flow statement (Consolidated)
Year to March (Rs mn) PBT Depreciation FY10 724 444 585 182 (164) (Incr) / decr in net working capital Others Cash flow from operating activities 396 34 1,628 1,562 enditure (Incr) / decr in investments Others (987) 69 35 142 g activities Incr / (decr) in borrowings Issuance of equity Dividend paid Others Cash flow from financing activities Net change in cash
FY11 1,041 360 686 200 (230) (409) 147 1,091 2,591 (1,639) (28) 65 132 (1,602) (947) 2,980 (629) (182) 1,222 711
FY12E 1,951
FY13E 2,282
FY14E 2,812
705 Interest 215 (488) (504) (182)
195 218 Tax
(571) 171 (192)
(703) (93) (226)
2,714 (Incr) / decr in capital exp (801) (100) (1,800) (1,000)
146 Cash flow from investin (760) 746 (428) (160) 159 961 (428) (155) (433) 491 (1,668) 150 (428) (138) (536) 1,324 (854) 30
(883) 61 36 (439) (200) (543) 202

Year to March (%) EBITDA margin EBIT margin Net profit margin Net debt: equity (x) Working capital turnover (x) RoCE RoI C RoE
FY10 24.2 17.8 15.3 0. 2 0) .7 2.1 11.2 (0. 10 1 2 0)
FY11 26.7 20.4 16. (0.
FY12E 33.6 27.9 18.5 (0.1) 0.1 12.3 15.4 13.0
FY13E 34.6 28.3 18.7 (0.1) 0.1 12.7 16.6 13.6
FY14E 35.5 30.0 20.1 (0.2) 0.1 14.0 19.0 14.9
0.0 10.6 12.5 10.9

Year to March EPS (Rs) DPS (Rs) Book value per share (Rs) P/E (x) P/BV (x) EV/EBITDA (x) EV/Sales (x)
FY10 7.3 2.0 67 20.6 2.2 14. 0 .4 3 6 .9
FY11 9.0 3.0 97 16.9 1. 9
FY12E 13.2 3.5 106 11.5 1.4 6.0 2.0
FY13E 15.3 3.5 118 9.9 1.3 5.0 1.7
FY14E 18.8 3.5 134 8.0 1.1 3.9 1.4
2.6
71
Institutional Equities Team

Rangachari Muralikrishnan Shridhar Iyer K. Anant Rao Uday Raval Head - Institutional Equities Head Institutional Sales Head SalesTrading & Derivatives Karvy Inc. USA +9122 61844301 +9122 61844302 + 9122 61844303 (212) 2674334 muralikrishnan@karvy.com shridhar.iyer@karvy.com k.anantrao@karvy.com udayr@karvy.com
INSTITUTIONAL RESEARCH Analysts Amit K. Ahire Di vyah Ahooja Dwaipayan Poddar Jagadishwar Pasunoori Madhavi Arora Manoj Kumar Manish Naushil Shah Nishith Sanghvi Pall av Agarwal Paresh Jain Parikshit Kandpal Prasun Kumar Raghuram Kuchi Rahul Sharma Rahul Singh Rajesh Kumar Ravi Rupesh Sankhe Sameer Pardikar Vinay Nair Yogesh Nagaonkar INSTITUTIONAL SALES Dinesh Bajaj Dipesh Jain R. Sriram Sushant Kumar Shabbir Dahodwala Tejash Gandhi Sales Sales Sal es Sales Sales (USA) Sales +9122 61844341 +9122 61844342 +9122 61844340 +9122 61844344 +12122674334 +9122 61844345 dinesh.bajaj@karvy.com dipesh.jain@karvy.com sriram.rangarajan@karvy.com sushant.kumar@karvy.com shabbir@karvy.com tejash.gandhi@karvy.com Industry / Sector Tel ecom & Media Auto & Auto Ancillaries Derviatives/Technical Research MidCap Economy Derivatives Research Technology Pharmaceuticals Met als & Mining BFSI Infra / Real Estate Cement & Logistics MidCap Pharmaceuticals MidCap Cement & Logistics Power/Capital Goods Telecom, Media and Oil & Gas Oil & Gas Auto & Auto Ancillaries Desk Phone +9122 61844316 +9122 61844322 +9122 61844372 +914044857912 +9122 61844320 +9122 61844327 +9122 61844314 +9122 61844326 +9122 61844317 +9122 61844324 +9122 61844311 +9122 61844325 +914044857911 +9122 61844310 +914044857912 +9122 61844313 +9122 61844315 +9122 61844323 +9122 61844319 +9122 61844312 Email ID amit.ahire@karvy.com divyah.ahooja@karvy.com dwaipayan.poddar@karvy.com jagadishwar.p@karvy.com ma dhavi.arora@karvy.com manoj kumar.m@karvy.com naushil.shah@karvy.com nishith.s@karvy.com agarwal.pallav@karvy.com paresh.jain@karvy.com parikshit.kandpal@karvy.com prasun.kumar@karvy.com raghuram.kuchi@karvy.com rahul.sharma@karvy.com rahulsingh@karvy.com raj esh.ravi@karvy.com rupesh.sankhe@karvy.com sameer.pardikar@karvy.com vinaynair@karvy.com yogesh.nagaonkar@karvy.com
INSTITUTIONAL SALES TRADING & DEALING Bhavesh Gandhi Prashant Oza Parag Shah Ritu Lath Sriram Jagdish PRODUCTION Asim Kumar Mohapatra Vishal Randive Vijayalaxmi Moolya Editor Database Production +9122 61844318 + 9122 61844321 +9122 61844328 asim.mohapatra@karvy.com vishal.randive@karvy.com vijayalaxmi.m@karvy.com Institutional Dealer In stitutional Dealer Sales Trader S ales Trader Sales Trader +9122 61844368 /69 + 9122 61844370 /71 +9 122 61844364 /65 +9122 61844362 +9122 61844366 /67 bhavesh.gandhi@karvy.com prashant.oza@karvy.com parag.shah@karvy.com ritu.lath@karvy.com sriram.jagdish@karvy.com
Stock Ratings Buy Hold Sell
: : :
Absolute Returns > 15% 515% < 5%
For further enquiries please contact:
research@karvy.com Tel: +91226184 4300 Disclosures Appendix
Analyst certification The following analyst(s), who is (are) primarily responsible for this report, certify (ies) that the views expressed herein accurately reflect his (their) personal view(s) about the subject security (ies) and issuer(s) and that no part of his (their) compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report. Disclaimer The information and views presented in this report are prepared by Karvy Stock Broking Limited. The information contained herein is based on our analysis and upon sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and we are not responsible for any loss incurred bas ed upon it. The investments discussed or recommended in this report may not be suitable for all investors. Investors mu st make their own investment decisions based on their specific investment objectives and financial position and using such independen t advice, as they believe necessary. While acting upon any information or analysis mentioned in this report, investors may please note t hat neither Karvy nor Karvy Stock Broking nor any person connected with any associate companies of Karvy accepts any liability arising from the use of this information and views mentioned in this document. The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above mentioned companies from time to time. Every employee of Karvy and its associate companies are required to disclose their individual stock holdings and details of trades, if any, that they undertake. The team rendering corporate analysis and investment recommendations are restricted in purchasing/selling of shares or other securities till such a time this recommendation ha s either been displayed or has been forwarded to clients of Karvy. All employees are further restricted to place orders only through Karvy Stock Broking Ltd. This report is intended for a restricted audience and we are not soliciting any action based on it. Neither the information nor any opinion expressed herein constitutes an offer or an invitation to make an offer, t o buy or sell any securities, or any options, futures nor other derivatives related to such securities.
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March 22, 2012

INSTITUTIONAL EQUITIES INDIA RESEARCH

Rajesh Kumar Ravi

+91-22-6184 4313 +91-22-6184 4325 rajesh.ravi@karvy.com prasun.kumar@karvy.com

March 22, 2012 Institutional Equities

On Growth Track, Good Times Ahead

Allcargo Logistics (AGLL IN)

52 Week High/Low (Rs) 3m ADV (Rs mn /US$ mn)

17.6 8.3 113.7 5.0 GDPL

BUY BUY BUY 16.3

16.6 14.0 16.6 BUY

15.5 15.7 16.6 13.0

15.6 27.8 16.8 13.6

14.2 7.7 16.0 14.9

12.9 9.0 16.0 12.3

12.9 13.3 16.2 12.7

8.0 7.7 12.8 14.0

7.2 6.0 11.2 11.5

6.2 2.8 9.6 9.9

5.7 9.9 7.8 8.0

4.7 7.7 6.3 6.0

4.1 4.9 5.0

March 22, 2012

March 22, 2012

Infrastructure Development Acceleration - Key to Attract Logistics Players

Sector Dynamics opened up to Private Operators

Who would be benefitted?

March 22, 2012

GST Implementation to Accelerate India's Growth on Logistics Front

We Initiate Coverage on Four Stocks

Cold chain 50% 25% 7%

Warehousing (CFS, ICD, FTWZ, FTWZ) 43% 15%

Low, 2030% Low & stable Medium 2025% Strong

Medium, 1525% Low & rising High 5065% Strong

Low, 2530% Low & stable Low 1012% Strong

Valuation Summary of Four Stocks

(Rs) 138 140 879 149 BUY BUY BUY BUY

multiple** (x) 10.5 7.0 13.2 12.0

(Rs) 213 227 1,115 204

FY12E 5. 7 9.9 7.8 6.0

FY13E 4.7 7.7 6.3 5.0

FY14E 4.1 4.9 5.0 3.9

17.6 8.3 113.7 16.3

Source: Karvy Institutional Research

** ARST target multiple (x) is EV/EBITDA

March 22, 2012

Mkt cap (Rs bn)

Absolute return (%) 3 m return 1yr return 2 yr CAGR

Rel to Sensex (%) 3 yr CAGR

(35.0) Gati Ltd (39.7)

Improved fundamentals to boost stock performance of stock s under coverage

Overall Container Corporation 3 Gateway Distriparks 3 4 4 3

3 Blue Dart Express 2 2

4 Transport Corporation of India

March 22, 2012

Summary of Companies covered in the Report

March 22, 2012

Key Financial Summary

8,878 10,185 16.0 11.2 9.6 47.1 11.5 9.9

March 22, 2012

EPS (%) (16) (9) (19) (4)

RoE (bps) (221) (121) (261) (53)