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Initiating coverage
Current price Target price
Allcargo Global Logistics (ALLGLO) Rs 840 Rs 934
Potential upside Time Frame
11% 12 months
Emerging global cargo consolidator …
PERFORMER
Allcargo Global Logistics is a leading logistics service provider involved in
MTO (multimodal transport operations), CFS (container freight stations) Analyst’s Name
and handling of project cargo. The company plans to capitalise on India’s
fast-growing international trade by expanding its freight services through Siddhartha Khemka
siddhartha.khemka@icicidirect.com
multiple modes of transport. We expect a 13.67% CAGR in consolidated
revenues and 29.39% CAGR in net profit over CY07-09E.
Rs .
Rs cr
30
across the world. 1000
20
500 10
1000
Target Price
P/E (x) 28.23 26.26 20.83 17.50 900
Price/Book (x) 4.32 3.87 3.07 2.32 800
EV/EBIDTA (x) 21.75 16.12 10.80 8.36 700
Apr-07
Feb-08
Jun-06
Aug-06
Oct-06
Dec-06
Jun-07
Aug-07
Oct-07
Dec-07
(%)
40
30
20 12.6 12.7 12.8 12.4
10
0
Q1CY07 Q2CY07 Q3CY07 Q4CY07
Promoters Institutional investors
Exports Imports
CFS: Container Freight Station
ICD: Inland Container Depot
LCL LCL MTO: Multimodal Transport Operations
NVOCC: Non vessel owning container carrier
LCL: Less than container load
FCL FCL FCL: Full container load
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INVESTMENT RATIONALE
25000
Volumes handled by the
13410 domestic MTO business to grow
20000 13509 12077 from 13,410 TEUs in CY07 to
15000 11412 9662
18,818 TEUs in CY09E
9431 24442
10000 19828
15430
12481 11798
5000 7486 9388 10388
0
FY03 FY04 FY05 FY06 9MCY06 CY07 CY08E CY09E
FCL LCL
Source: Company, ICICIdirect Research
However, the MTO business, both domestic and international, is not capital
intensive. This business is working-capital neutral and very little capital
equipment is required. As a result, the return on equity and return on capital
employed are very high.
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Tie-up with Econocaribe, US-based NVOCC
Earlier, ECU Line had a tie-up with OTS Logistics for the US-EU corridor.
Allcargo had no presence in the US. In order to increase its presence, it tied up
with Econocaribe to provide services in the US, Latin America and other parts Allcargo has taken several
of the world. Econocaribe is the third largest MTO player in the US. We initiatives to increase ECU
believe, this cooperation will create synergies for both companies in terms of Line’s operational efficiency
wider reach both into and out of US to regions like Europe, Asia and Middle and improve margins
East. This tie-up is likely to increase the volumes handled by ECU and Allcargo.
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CFS at India’s largest container handling port
Allcargo offers integrated logistics and port related support services through
its CFSs. The CFS' main role is to facilitate temporary storage, stuffing and de-
stuffing of containers, Customs clearance of cargo and maintenance of
container units. The two primary revenue streams under this business are
ground rent and handling & storage charges. CFS revenues are driven
primarily by imports; hence shipping lines are the main customers in this
business.
Allcargo has an established CFS at JNPT, India’s largest container port, which
Allcargo has established CFSs
handles almost 60% of the total container traffic. It began operations in April at JNPT, Chennai and Mundra
2003 and currently has a capacity to handle 120,000 TEUs per annum. Besides with a total capacity to handle
JNPT, the company entered new locations in May 2007. It has a CFS at 220,000 TEUs per annum
Chennai and Mundra, each having an annual capacity of handling 50,000 TEUs.
14
12
10
TEUs in million
0
FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY12E
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Expanding the CFS/ICDs to create a pan-India network
Allcargo plans to create a pan-India network of CFSs and ICDs to tap high
volumes as well as provide better logistic services.
The company has already acquired land at Pithampur (near Indore) and
Bangalore. It has also taken land in Nagpur and Hyderabad on a lease basis,
while it is still looking for a suitable land at Ahmedabad. The Indore ICD would
be the first to be developed and is expected to be operational by July 2008.
The company has also entered into a joint venture with Container Corporation
of India (Concor) to share its ICD at Dadri, Greater Noida. It is also expanding
its CFS at Chennai, by developing the surplus land to increase the capacity
from 50,000 TEUs to 85,000 TEUs.
The diversification will help Allcargo to cater to the increasing trade from other
ports locations, while reducing its dependence on JNPT. We expect revenues
from CFS / ICD business to show 18.29% CAGR over CY07-09E from Rs 94.28
crore to Rs 131.93 crore. This is on back of the growth is volumes handled
from 142,025 TEUs to 220,600 TEUs in CY09E.
200000
150000
(TEUs)
6|Page
JV with Concor to set up ICD at NCR
As part of its expansion plan, Allcargo has entered into a joint venture with ICD at Dadri, Greater Noida to
Concor for setting up an inland container depot (ICD) at Dadri, Greater Noida in be operational by Jan 2009 in
Uttar Pradesh. Allcargo will own 51% of the joint venture, while the rest would joint venture with Concor
be owned by Concor. The facility to be set up on a 10 acre land belonging to
Concor is likely to be operational by Jan 2009 and would have a capacity to
handle 84,000 TEUs pa. The ICD will have a rail sliding connecting it to the
western ports.
Apart from the capex (Rs 250 – 300 crore) for expanding its CFS and ICD
business, Allcargo plans to invest up to Rs 100 crore for the purchase of
cranes under TansIndia, its newly acquired infrastructure equipment handling
business.
While this stake sale will result in a dilution of up to 10.39% of the equity post
conversion, we believe that this equity infusion will help Allcargo fund its
growth plans. The company is also likely to benefit from the vast management
experience the global fund will bring on board.
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Merger of TransIndia to enhance infrastructure support services
To expand its business under the infrastructure support services, Allcargo
acquired the projects and equipment division of promoter-owned company,
TransIndia Freight Services Private Ltd, in October 2007. The project and
equipment division, which accounted for 95% of TransIndia’s business, was Merger of TransIndia is likely
merged with Allcargo Global with retrospective effect from January 1, 2007. to enhance Allcargo’s
infrastructure services and
project cargo business
TransIndia owns and operates a diverse mix of assets providing support
services to the logistics and infrastructure space. The division is primarily
engaged in the business of contracting transportation of containers and project
related cargo; hiring out cranes, trailers & other infrastructure equipments as
well as port handling (general cargo & containerised cargo).
The company has a fleet of 18 cranes with capacities ranging from 25 – 750
tonnes. These cranes are used in industrial manufacturing and infrastructure
sectors such as power, oil and gas refineries, wind energy, steel and cement.
The fleet is fairly diversified and includes multiple crane types like all terrain
cranes, crawler cranes, telescopic cranes and lattice boom cranes from well
known manufacturers.
Air Freight Transport is usually used for high value items and perishable goods
for increased safety and faster delivery. Around 10% of India's EXIM trade is
through air. Going ahead, this segment will not only diversify but also add to
overall revenues.
8|Page
RISK & CONCERNS
20
15 17.64 12.14
9.81
(%)
9|Page
FINANCIALS
127.73
2000 98.26 57.38
131.93 Consolidated revenue to
50.34
103.12
94.28 45.76 grow at 12.59% CAGR over
1500 CY07-09E on back of the
(Rs cr)
500
ECU business is expected to see a stable CAGR of 8.5% over the same period
as it operates in the mature European markets. However, standalone MTO
operation is likely to witness a 15.7% CAGR on back of robust domestic trade
and economic growth. Revenues from CFS/ICD operations are likely to witness
a 18.29% CAGR on the back of increasing volumes handled from the new
CFSs, apart from and expanded capacities at Chennai.
120 45
Net profit to show a 29.39%
100
40 CAGR over CY07-09E
(Rs crore)
80
(Rs)
35
60
40 30
20 25
FY06 9MCY06 CY07 CY08E CY09E
Adj Net Profit (Rs cr) EPS (Rs) (RHS)
Source; Company, ICICIdirect Research
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VALUATIONS
Allcargo is India’s largest MTO and the world’s second largest NVOCC. It has
aggressive growth plans to expand its CFS/ICD network. It has already
acquired land at five locations including Pithampur, which will be operational Current valuations factor in
by July 2008. The other facilities are expected to be fully operational only by the near term growth
CY10. We believe that over the long term, restructuring at ECU will bring in opportunities
operational efficiency and result in margin expansion, while commencement of
new CFS/ICDs will drive volume growth. The infrastructure support services
and air cargo business are still in the nascent stages, and would take time to
contribute significantly to the revenues.
Blackstone has valued the company at Rs 934 at the lower side and Rs 1284 on
the higher side on the basis of the company’s CY08E EBIDTA earnings (see
Exhibit 8). We estimate the company’s CY08E EBIDTA at Rs 186.51 crore. On
the basis of Blackstone’s valuation table, we arrive at a target price of Rs 934,
valuing the company at 12x its CY08E earnings on an EV/EBIDTA basis. We
rate the stock a PERFORMER.
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FINANCIAL SUMMARY (Consolidated)
Profit and Loss Account (Rs Crore)
Year to Dec 31 9MCY06* CY07* CY08E CY09E
Net Sales 895.41 1643.05 1901.05 2122.93 13.67% CAGR in revenue over
% Growth 230.2% 83.5% 15.7% 11.7% CY07-09E
Employee cost 107.87 252.16 284.95 313.44
Operating Expenses 612.48 1119.60 1258.49 1367.17
Others 95.23 150.54 171.09 184.69
Total expenditure 815.58 1522.31 1714.53 1865.30
EBIDTA 79.83 120.74 186.51 257.63
Other income 4.98 8.04 0.00 0.00
Depreciation 7.88 18.88 45.75 65.29
Interest 5.26 5.64 18.70 24.29
PBT 71.68 104.27 122.07 168.04
Taxation 17.50 24.66 29.30 43.69
PAT 54.18 79.61 92.77 124.35
Extra ordinary items 7.82 0.38 0.00 0.00
Minority interest 1.65 8.38 2.47 4.46 29.39% CAGR in net profit
Adjusted Net Profit 60.35 71.61 90.30 119.89 over CY07-09E
EBIDTA margin (%) 8.92 7.35 9.81 12.14
NPM % 6.70 4.34 4.75 5.65
Shares O/S (crore) 2.03 2.24 2.24 2.50
EPS (Rs) 29.75 31.98 40.33 47.99
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Cash Flow Statement (Rs Crore)
Year to March 31 9MCY06 CY07E CY08E CY09E
Opening Cash Balance 41.24 45.03 58.91 87.05
Adj Profit after Tax 60.35 71.61 90.30 119.89
Misc Expenditure w/off 1.05 0.00 0.00 0.00
Dividend Paid 0.00 (12.25) (15.44) (20.51)
Depreciation 7.88 18.88 45.75 65.29
Provision for deferred tax 6.74 4.08 3.00 3.00
Cash Flow before WC Changes 76.02 82.32 123.60 167.68
Net Increase in Current Liabilities 176.26 40.44 39.31 36.12
Net Increase in Current Assets 226.07 47.46 85.13 39.45
Cash Flow after WC Changes 26.21 75.29 77.78 164.34
Capex on expanding CFS/ICD
Purchase of Fixed Assets (568.95) (135.00) (202.00) (266.00)
network and purchase of
(Increase) / Decrease in Investments 375.90 (5.25) 6.06 (11.24) cranes under TransIndia
Increase / (Decrease) in Loan Funds 55.05 46.52 95.87 65.80 business
Increase / (Decrease) in Equity Capital 115.58 32.31 50.43 192.00
Net Change in Cash 3.79 13.88 28.14 144.90
Closing Cash Balance 45.03 58.91 87.05 231.95
Ratio Analysis
Year to March 31 9MCY06 CY07 CY08E CY09E
EPS (Rs) 29.75 31.98 40.33 47.99
Book Value (Rs) 194.61 217.27 273.22 361.47
Enterprise Value (Rs Crore) 1736.56 1945.86 2013.68 2152.52
Market Cap (Rs crore) 1704.01 1880.67 1880.75 2098.70
EV/Sales (x) 1.94 1.18 1.06 1.01
EV/EBIDTA (x) 21.75 16.12 10.80 8.36
Market Cap to sales (x) 1.90 1.14 0.99 0.99
Price to Book Value (x) 4.32 3.87 3.07 2.32 Margin to recover on account
Operating Margin (%) 8.92 7.35 9.81 12.14 of initiatives under ECU Line,
expansion of high margin
Net Profit Margin (%) 6.70 4.34 4.75 5.65
CFS and infrastructure
RoE (%) 15.29 14.72 14.76 13.28 support service
RoCE (%) 16.29 18.00 16.93 16.18
Debt/ Equity (x) 0.20 0.26 0.36 0.32
Current Ratio 1.55 1.54 1.73 2.11
Debtors Turnover Ratio 4.81 5.41 5.12 5.21
Fixed Assets Turnover Ratio 2.91 3.88 3.28 2.72
Du Pont Analysis
PAT / PBT 0.84 0.69 0.74 0.71
PBT / EBIDTA 0.90 0.86 0.65 0.65
EBIDTA / Sales 0.09 0.07 0.10 0.12
Sales / Assets 1.32 1.91 1.69 1.40
Assets / Equity 1.72 1.77 1.84 1.68
RoE (%) 15.29 14.72 14.76 13.28
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RATING RATIONALE
ICICIdirect endeavours to provide objective opinions and recommendations. ICICIdirect assigns ratings to its
stocks according to their notional target price vs. current market price and then categorises them as
Outperformer, Performer, Hold, and Underperformer. The performance horizon is 2 years unless specified and
the notional target price is defined as the analysts' valuation for a stock.
research@icicidirect.com
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