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Allcargo Global Logistics (AGL) reported its consolidated 4QCY2010 results,
which were in line with our expectations. ECU line continued its strong
performance and registered yoy revenue growth of 35%, while reporting profit of
`17.2cr v/s a loss of `2.3cr in 4QCY2009. Further, management has indicated
that it has planned a capex of ~`250cr for CY2011. On the bourses, the stock
has grossly underperformed since the last one year owing to subdued
performance by ECU Line; however, the subsidiary has been gaining traction
since the last two-three quarters. Hence, we maintain a Buy on the stock.
ECU Line drives profitability: AGL reported broadly in-line consolidated revenues
on the back of strong performance across segments. ECU line continued its robust
performance and registered yoy revenue growth of 35% and net profit of `17.2cr
(up 18.6% qoq) as against loss of `2.3cr in 4QCY2009, justifying our call of
sustainable recovery in margins. The Indian MTO and CFS business grew 12.7%
and 37.1% yoy respectively, on strong volumes owing to improving Exim visibility.
Further, Hindustan Cargo reported 18% yoy growth in revenues. Overall, OPM
stood at 10.9% (up 338bp yoy and flat qoq), while ECU Line recorded OPM of
5.9% (up 100bp yoy and down 27bp qoq). Consequently, consolidated operating
profit grew 82% yoy to `77cr. During the last quarter, the company re-assessed
useful life of its cranes, which resulted in lower depreciation by `2cr during
4QCY10. Consequently, PAT came in at `41.9cr, up 133.6% yoy though
marginally below our estimate of `45.8cr.
Outlook and Valuation: We believe AGL is well positioned in the container
segment through its MTO and CFS divisions. We expect the company to register
28.7% CAGR in profit over CY2010-12. At `143, the stock is trading at 6.6x
CY2012E EPS. We maintain a Buy on the stock, with a Target Price of `217,
based on10.0x CY2012E EPS.
Strong revenue growth across segments; EBIT margins fell for
Indian operations on rising freight rates
AGL reported 33.2% yoy revenue growth in PES segment on account of addition of
new cranes and strong order book in project cargo business. However, EBIT
margins declined 378bp yoy during the quarter despite a revision of useful life of
cranes, which resulted in lower depreciation. We expect project cargo to register
25% CAGR in revenues over CY2010-12. Overall, we expect both these highmargin
segments to contribute 20% to consolidated revenues from current levels of
10% in CY2012. CFS EBIT margins however, fell by 605bp yoy but increased by
104bp qoq owing to reduction in dwell time. ECU line continued to show an
improvement in OPM by 398bp yoy (marginal decline of 30bp qoq) to 5.9% with
increasing benefits of outsourcing. MTO margins for Indian operations fell down
by 412bp yoy on account of increasing freight rates as company pass on the
absolute hike to customers.
Investment Arguments
High infra spend to boost project cargo, equipment hire
businesses
The Eleventh Five-Year Plan has earmarked a substantial US $500bn for the
infrastructure sector, which will lend a boost to the logistics segment and in
particular to the project cargo and cranes business. We believe that AGL's
high-margin project cargo and equipment hire divisions are well placed to
capitalise on the emerging opportunities and post 25% CAGR in revenues over
CY2010-12 taking its share to consolidated revenues to 20.0% in CY2012E from
current levels of 10%.
Steady performance by MTO and CFS/ICD segments to sustain
AGL is the leader in the MTO segment offering services of full container load (FCL)
and less than container load (LCL). It has three operational CFS near the vital ports
of JNPT, Chennai and Mumbai, and an ICD at Indore (Pithampur). We expect
container traffic to register 15% CAGR over the next five years following addition of
new container terminals and improvement in Exim visibility. Management has
indicated doubling of capacity at its JNPT CFS by the end of CY2011, which will
enhance profitability in the longer term. Recently, AGL commissioned its first
road-linked ICD at Pithampur with annual capacity of 30,000 TEU. It also acquired
land at Nagpur, Hyderabad, Hosur and Goa for further expansion. The company
has also entered into a joint venture (JV) with Hind Terminal for setting up,
commissioning, operating and managing the CFS’s and ICDs at Indore,
Hyderabad, Nagpur and Bangalore. With this JV, we expect AGL to garner Hind
Terminal’s captive volumes (10 rakes are operating and have plans to add another
10-12 rakes over the next two years) at its respective ICD/CFS. Thus, AGL on
account of having a pan-India presence is well-placed to benefit from the growing
container traffic.
ECU Line performance holds key for stock performance
The AGL stock has grossly underperformed since the last one year on account of
subdued performance by ECU Line. Post the ECU Line acquisition, AGL targeted to
improve its OPM by 100bp every year. However, while it managed to register
cumulative 150bp improvement in OPMs, net margins have languished over the
last three years. This can be attributed to the slowdown in the global economy,
which has delayed the integration of ECU with AGL. However, the subsidiary has
been gaining traction since the last two-three quarters justifying our call of
sustainable recovery. Over the next two years, we expect 100bp improvement in
ECU Line’s business each year following improvement in the global economy and
increasing outsourcing to India.
Outlook and Valuation
We believe that AGL is well positioned in the container segment through its MTO
and CFS divisions. Moreover, with the ECU Line acquisition, AGL has the
opportunity to scale up its operations globally as well as enhance profit. We
believe that going ahead the stock’s performance would depend on continued
improvement in ECU Line’s operational efficiency. We expect the company to
register 28.7% CAGR in profit over CY2010-12. At the CMP of `143, the stock is
trading at 6.6x CY2012E EPS of `21.7. We maintain a Buy on the stock, with a
Target Price of `217, based on10.0x CY2012E EPS
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Allcargo Global Logistics – 4QCY2010 Result Update
Angel Broking maintains a Buy on Allcargo Global Logistics with a Target Price of Rs. 217.
Allcargo Global Logistics (AGL) reported its consolidated 4QCY2010 results,
which were in line with our expectations. ECU line continued its strong
performance and registered yoy revenue growth of 35%, while reporting profit of
`17.2cr v/s a loss of `2.3cr in 4QCY2009. Further, management has indicated
that it has planned a capex of ~`250cr for CY2011. On the bourses, the stock
has grossly underperformed since the last one year owing to subdued
performance by ECU Line; however, the subsidiary has been gaining traction
since the last two-three quarters. Hence, we maintain a Buy on the stock.
ECU Line drives profitability: AGL reported broadly in-line consolidated revenues
on the back of strong performance across segments. ECU line continued its robust
performance and registered yoy revenue growth of 35% and net profit of `17.2cr
(up 18.6% qoq) as against loss of `2.3cr in 4QCY2009, justifying our call of
sustainable recovery in margins. The Indian MTO and CFS business grew 12.7%
and 37.1% yoy respectively, on strong volumes owing to improving Exim visibility.
Further, Hindustan Cargo reported 18% yoy growth in revenues. Overall, OPM
stood at 10.9% (up 338bp yoy and flat qoq), while ECU Line recorded OPM of
5.9% (up 100bp yoy and down 27bp qoq). Consequently, consolidated operating
profit grew 82% yoy to `77cr. During the last quarter, the company re-assessed
useful life of its cranes, which resulted in lower depreciation by `2cr during
4QCY10. Consequently, PAT came in at `41.9cr, up 133.6% yoy though
marginally below our estimate of `45.8cr.
Outlook and Valuation: We believe AGL is well positioned in the container
segment through its MTO and CFS divisions. We expect the company to register
28.7% CAGR in profit over CY2010-12. At `143, the stock is trading at 6.6x
CY2012E EPS. We maintain a Buy on the stock, with a Target Price of `217,
based on10.0x CY2012E EPS.
CFS volumes continue to show uptick
CFS volumes grew 28.0% yoy (11.7% qoq) led by strong performance at all the
three CFSs. Capacity ramp up at the Mundra port over the last two quarters has
begun to pay-off as the volume handled increased by 25.9% yoy and 74.2% qoq.
Volume growth at the JNPT CFS (up 18.1% yoy) and Chennai CFS (48.7% yoy) has
also shown traction in line with revived Exim activity at the respective ports.
Although volumes in the domestic MTO segment were down 9.4% yoy, realizations
witnessed a strong growth of 24.4% yoy as AGL has begun to pass on increase in
freight costs since last quarter. ECU Line registered volume growth of 7.3% yoy to
53,626 TEUs on the back of reviving Exim trade in EU. Management indicated
ECU Line to sustain its performance in the ensuing quarters as well.
Strong revenue growth across segments; EBIT margins fell for
Indian operations on rising freight rates
AGL reported 33.2% yoy revenue growth in PES segment on account of addition of
new cranes and strong order book in project cargo business. However, EBIT
margins declined 378bp yoy during the quarter despite a revision of useful life of
cranes, which resulted in lower depreciation. We expect project cargo to register
25% CAGR in revenues over CY2010-12. Overall, we expect both these highmargin
segments to contribute 20% to consolidated revenues from current levels of
10% in CY2012. CFS EBIT margins however, fell by 605bp yoy but increased by
104bp qoq owing to reduction in dwell time. ECU line continued to show an
improvement in OPM by 398bp yoy (marginal decline of 30bp qoq) to 5.9% with
increasing benefits of outsourcing. MTO margins for Indian operations fell down
by 412bp yoy on account of increasing freight rates as company pass on the
absolute hike to customers.
Investment Arguments
High infra spend to boost project cargo, equipment hire
businesses
The Eleventh Five-Year Plan has earmarked a substantial US $500bn for the
infrastructure sector, which will lend a boost to the logistics segment and in
particular to the project cargo and cranes business. We believe that AGL's
high-margin project cargo and equipment hire divisions are well placed to
capitalise on the emerging opportunities and post 25% CAGR in revenues over
CY2010-12 taking its share to consolidated revenues to 20.0% in CY2012E from
current levels of 10%.
Steady performance by MTO and CFS/ICD segments to sustain
AGL is the leader in the MTO segment offering services of full container load (FCL)
and less than container load (LCL). It has three operational CFS near the vital ports
of JNPT, Chennai and Mumbai, and an ICD at Indore (Pithampur). We expect
container traffic to register 15% CAGR over the next five years following addition of
new container terminals and improvement in Exim visibility. Management has
indicated doubling of capacity at its JNPT CFS by the end of CY2011, which will
enhance profitability in the longer term. Recently, AGL commissioned its first
road-linked ICD at Pithampur with annual capacity of 30,000 TEU. It also acquired
land at Nagpur, Hyderabad, Hosur and Goa for further expansion. The company
has also entered into a joint venture (JV) with Hind Terminal for setting up,
commissioning, operating and managing the CFS’s and ICDs at Indore,
Hyderabad, Nagpur and Bangalore. With this JV, we expect AGL to garner Hind
Terminal’s captive volumes (10 rakes are operating and have plans to add another
10-12 rakes over the next two years) at its respective ICD/CFS. Thus, AGL on
account of having a pan-India presence is well-placed to benefit from the growing
container traffic.
ECU Line performance holds key for stock performance
The AGL stock has grossly underperformed since the last one year on account of
subdued performance by ECU Line. Post the ECU Line acquisition, AGL targeted to
improve its OPM by 100bp every year. However, while it managed to register
cumulative 150bp improvement in OPMs, net margins have languished over the
last three years. This can be attributed to the slowdown in the global economy,
which has delayed the integration of ECU with AGL. However, the subsidiary has
been gaining traction since the last two-three quarters justifying our call of
sustainable recovery. Over the next two years, we expect 100bp improvement in
ECU Line’s business each year following improvement in the global economy and
increasing outsourcing to India.
Outlook and Valuation
We believe that AGL is well positioned in the container segment through its MTO
and CFS divisions. Moreover, with the ECU Line acquisition, AGL has the
opportunity to scale up its operations globally as well as enhance profit. We
believe that going ahead the stock’s performance would depend on continued
improvement in ECU Line’s operational efficiency. We expect the company to
register 28.7% CAGR in profit over CY2010-12. At the CMP of `143, the stock is
trading at 6.6x CY2012E EPS of `21.7. We maintain a Buy on the stock, with a
Target Price of `217, based on10.0x CY2012E EPS
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