Arshiya International: On Fast Track; Growth Triggers Abound :: Karvy

On Fast Track; Growth Triggers Abound
Arshiya International (ARST) Q1FY13 consolidated PAT grew 47% YoY
(+13% QoQ) to Rs346bn (10% ahead of our estimates). Revenues grew 54%
YoY (+9% QoQ) to Rs3.4bn driven by strong growth across all three
business segments. Rise in high margin FTWZ business and better asset
utilization across all the verticals boosted EBITDA growth to 72% YoY
(10% ahead our est) and 15% QoQ. However, PAT growth got moderated
on account of high capital charges on capacity commissioning and capex
related debt levels.

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Revenue growth of 9% QoQ during the quarter gained from the additions of
three warehouses at Khurja FTWZ as well as from the business integration
benefits boosting 3PL revenues. Rail revenue remained flat QoQ on account
of maintenance downtime of ~6 weeks for four of its 20 rakes.
Capital charges firm up both QoQ as well as YoY on account of
commissioning of Khurja warehouses and related interest charges.
Lower tax rate of ~10% during the quarter on account of MAT credit
entitlement helped moderate impact of capital charges and the company
expects the same to continue for the next two years.
Triggers abound going forward: Over the preceding 10 quarters, ARST
delivered 15% EBITDA and 7% Cumulative Qtrly Growth Rate (CQGR).
Going forward, we remain confident of ARST growth driven by (1)
commissioning of more warehouses across the two FTWZ locations in Panvel
and Khurja, (2) the upcoming rail terminal at Khurja should reduce Rail
maintenance downtime as well as increase revenue for the domestic
distriparks, (3) Rail rake expansion through acquiring on lease from GATX
should drive revenue and profit growth without straining balance sheet (4)
Better utilisation and ramp up should help ARST stabilize its debt levels.
We re‐iterate our ‘BUY’ recommendation on the stock valuing ARST at 40%
discount to the average of its long term median P/E (9.3x) and EV/EBITDA
(10.8) multiples thereby arriving at a TP of Rs227 (at average of 6.5x FY14E
EBITDA and 5.5x FY14E EPS). We believe the lower multiples factor in
business risk arising out of high debt exposure and weak economic activities
impacting profits growth.