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ALLCARGO GLOBAL LOGISTICS LTD
PRICE: RS.121 RECOMMENDATION: BUY
TARGET PRICE: RS.190 CY12E P/E: 7.4
We met the management of Allcargo Global Logistics (AGL) to get an insight
on the latest developments in the company.
Multimodal Transport Operations (MTO) showing signs of slowing
Allcargo generated its ~10% MTO volume (25,875 TEUs in CY10) from Indian market
and it generates remaining 90% MTO volume (~211,700 TEUs in CY10) through
ECU Line which has its presence in over 59 countries. MTO business largely depends
upon the performance of the container shipping segment. However, the global container
freight rates has fallen across routes by more than 40% in the last 10 months
with no signs of immediate recovery. For instance India - UK per TEU rate has fallen
from $ 1300 per TEU in January 2011 to $700 per TEU currently. But AGL being a
Less than Container Load (LCL) consolidator won't be much impacted by the weakness
in the container shipping market. Hence we are not bearish for MTO volume
growth for AGL. Increasing containerization especially in India supports our argument.
In Q3CY11, domestic MTO volumes grew by 13.2% YoY to 7,367 TEUs and
ECU Line volumes grew by 12.3 % YoY to 63,010 TEUs. We estimate domestic
volume to increase at a CAGR of 13% CY10 - CY12E to 32.894 TEUs in CY12E with
Indian economy is expected to grow ~7% for the next two years. While remaining
cautious, we estimate ECU Line's volume to increase at a CAGR of 4.5% over CY10
- CY12E to 234,477 TEUs in CY12E.
Aggressive capacity expansion in CFS and ICD segment
Allcargo has planned to spend ~Rs 3 bn over CY11E and CY12E out of which it has
allocated ~ Rs 1.5 bn for doubling its capacity at JNPT CFS to ~288,000 TEUs
(Twenty-Foot Equivalent Unit) and expansion of other CFS. The company currently is
in the process of adding capacity at JNPT. The company has allocated Rs 400 mn for
setting up ICDs at Dadri and Hyderabad with capacities of 52,000 TEUs and 36,000
TEUs respectively. The company is also planning to spend Rs 200 mn for expanding
its fleet size for project and engineering solution segment. We believe capacity expansion
at JNPT CFS (current utilisation rate above 95%) & new capacity at ICDs as
well as order book position (Rs 4.5 bn) of project and engineering solution segment
would drive top-line growth.
Project cargo & Engineering solution segment showing high potential
for revenue growth
The current total order book of the segment is ~Rs 4.5 bn. We believe the company
would execute all the order by CY12E end. Though the orderbook is full for the next
15 months the division may face slowdown in orderbook addition in case of capex
cycle slowdown. We estimate Project & Engineering Solution revenues would increase
at a CAGR of 14% to Rs 4.5 bn over CY09 and CY12E.
No plans to diversify the business further
Company has no plans to diversify the business further. The company also has no
intentions to enter into the much talked about FTWZ business. However we expect
ECU line to continue its strategy of expanding inorganically
EBIDTA margins to improve by 120 bps over CY10 to 10.6% in
CY12E
As the company is increasing its capacities at Hyderabad ICD, Dadri ICDs and JNPT
CFS (high EBIDTA margin business of 52% in CY10), we believe the contribution in
total revenue from CFS business would increase to 9.3% in CY12E compared to
7.0% in CY10. Going ahead, we expect change in revenue mix toward high margin
CFS business coupled with strong performance of the MTO business would expand
consolidated EBIDTA margin by 190 bps over CY10 to 11.3% in CY12E
Economic slowdown may have an adverse impact on company
The Logistics industry has witnessed strong traffic growth due to robust economic
growth in India. However, India may face the risk of economic slowdown in future.
Since the country's growth has positive correlation with the Logistics industry. AGL's
performance would be affected if India's growth will slow down going forward. Similarly,
as the company generates its majority revenues from other countries through
ECU Line, its growth is subject to overall performance of world economy.
Outlook and Valuation
AGLL has a strong presence in the MTO business through wide network of ECU Line
and also has a strong hold on domestic MTO business. MTO volumes and realizations
may come under pressure in near term due to the weakness in the container
shipping market and economic problems in Europe and US. We are cautious on the
business and expect total MTO volumes to grow at a small 5.5 % CAGR over CY10
to CY12E.
The indigenous CFS segment would deliver better growth with increasing containerization
in the country and +7% estimated GDP growth for the next two financial
years for India.
Overall we believe the stock would be somewhat resilient to weakness in global
trade. At CMP of Rs.121, the stock is trading at 7.4 x to CY12 earnings estimates
and available at ~30% discount to its peer group average of 11 x for the last 3
years. We have valued the stock at par with peers. We reiterate BUY target price of
Rs.190 per share based on CY12E multiple. The target price implies a potential upside
of ~55% for an investment horizon of 12 months
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
ALLCARGO GLOBAL LOGISTICS LTD
PRICE: RS.121 RECOMMENDATION: BUY
TARGET PRICE: RS.190 CY12E P/E: 7.4
We met the management of Allcargo Global Logistics (AGL) to get an insight
on the latest developments in the company.
Multimodal Transport Operations (MTO) showing signs of slowing
Allcargo generated its ~10% MTO volume (25,875 TEUs in CY10) from Indian market
and it generates remaining 90% MTO volume (~211,700 TEUs in CY10) through
ECU Line which has its presence in over 59 countries. MTO business largely depends
upon the performance of the container shipping segment. However, the global container
freight rates has fallen across routes by more than 40% in the last 10 months
with no signs of immediate recovery. For instance India - UK per TEU rate has fallen
from $ 1300 per TEU in January 2011 to $700 per TEU currently. But AGL being a
Less than Container Load (LCL) consolidator won't be much impacted by the weakness
in the container shipping market. Hence we are not bearish for MTO volume
growth for AGL. Increasing containerization especially in India supports our argument.
In Q3CY11, domestic MTO volumes grew by 13.2% YoY to 7,367 TEUs and
ECU Line volumes grew by 12.3 % YoY to 63,010 TEUs. We estimate domestic
volume to increase at a CAGR of 13% CY10 - CY12E to 32.894 TEUs in CY12E with
Indian economy is expected to grow ~7% for the next two years. While remaining
cautious, we estimate ECU Line's volume to increase at a CAGR of 4.5% over CY10
- CY12E to 234,477 TEUs in CY12E.
Aggressive capacity expansion in CFS and ICD segment
Allcargo has planned to spend ~Rs 3 bn over CY11E and CY12E out of which it has
allocated ~ Rs 1.5 bn for doubling its capacity at JNPT CFS to ~288,000 TEUs
(Twenty-Foot Equivalent Unit) and expansion of other CFS. The company currently is
in the process of adding capacity at JNPT. The company has allocated Rs 400 mn for
setting up ICDs at Dadri and Hyderabad with capacities of 52,000 TEUs and 36,000
TEUs respectively. The company is also planning to spend Rs 200 mn for expanding
its fleet size for project and engineering solution segment. We believe capacity expansion
at JNPT CFS (current utilisation rate above 95%) & new capacity at ICDs as
well as order book position (Rs 4.5 bn) of project and engineering solution segment
would drive top-line growth.
Project cargo & Engineering solution segment showing high potential
for revenue growth
The current total order book of the segment is ~Rs 4.5 bn. We believe the company
would execute all the order by CY12E end. Though the orderbook is full for the next
15 months the division may face slowdown in orderbook addition in case of capex
cycle slowdown. We estimate Project & Engineering Solution revenues would increase
at a CAGR of 14% to Rs 4.5 bn over CY09 and CY12E.
No plans to diversify the business further
Company has no plans to diversify the business further. The company also has no
intentions to enter into the much talked about FTWZ business. However we expect
ECU line to continue its strategy of expanding inorganically
EBIDTA margins to improve by 120 bps over CY10 to 10.6% in
CY12E
As the company is increasing its capacities at Hyderabad ICD, Dadri ICDs and JNPT
CFS (high EBIDTA margin business of 52% in CY10), we believe the contribution in
total revenue from CFS business would increase to 9.3% in CY12E compared to
7.0% in CY10. Going ahead, we expect change in revenue mix toward high margin
CFS business coupled with strong performance of the MTO business would expand
consolidated EBIDTA margin by 190 bps over CY10 to 11.3% in CY12E
Economic slowdown may have an adverse impact on company
The Logistics industry has witnessed strong traffic growth due to robust economic
growth in India. However, India may face the risk of economic slowdown in future.
Since the country's growth has positive correlation with the Logistics industry. AGL's
performance would be affected if India's growth will slow down going forward. Similarly,
as the company generates its majority revenues from other countries through
ECU Line, its growth is subject to overall performance of world economy.
Outlook and Valuation
AGLL has a strong presence in the MTO business through wide network of ECU Line
and also has a strong hold on domestic MTO business. MTO volumes and realizations
may come under pressure in near term due to the weakness in the container
shipping market and economic problems in Europe and US. We are cautious on the
business and expect total MTO volumes to grow at a small 5.5 % CAGR over CY10
to CY12E.
The indigenous CFS segment would deliver better growth with increasing containerization
in the country and +7% estimated GDP growth for the next two financial
years for India.
Overall we believe the stock would be somewhat resilient to weakness in global
trade. At CMP of Rs.121, the stock is trading at 7.4 x to CY12 earnings estimates
and available at ~30% discount to its peer group average of 11 x for the last 3
years. We have valued the stock at par with peers. We reiterate BUY target price of
Rs.190 per share based on CY12E multiple. The target price implies a potential upside
of ~55% for an investment horizon of 12 months
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