Allcargo Logistics is one of the top logistics companies in India and a one-stop supply chain management solution that provides logistics solutions across 160+ countries. Allcargo's worldwide supply chain business (MTO division) is managed by ECU Worldwide. Its multi-modal transport business includes consolidation of less-than-container load (LCL), full container load (FCL), imports and exports forwarding, air freight, movement of project cargo and multi-city consolidation-exports and imports. It is one of the few logistics companies that is present in virtually every segment of the logistics industry including warehousing.
 

Quick Takes

• The five year consolidated revenue grew at a 35% CAGR and consolidated EBITDA at 42% CAGR
• During Q1FY23, LCL volume growth spiked 70% YoY while FCL (full container load) volume grew 10% YoY 
• Allcargo’s EBITDA doubled to Rs 434 crore in Q1FY23, while their margins came in as 8% in Q1FY23, up by almost 2% from 6% in Q1FY23
• Allcargo Logistics completed its second significant international acquisition last year when it bought a 65% stake in Nordic, a Swedish logistics company 
• The company has filed for a demerger to create strategic business undertakings and value unlocking
• The company has set a target of revenues of Rs 25,000-30,000 crore in FY26, with Rs 20,000-25,000 crore contributed by the international cargo business

Allcargo has witnessed strong growth in the last five years

Over the last five years, the company has seen a multifold rise in its revenues and profits. This was due to the company's domestic and international acquisitions as well as venturing into backward integration of creating logistic parks. Notable acquisitions include the takeover of Gati’s express logistics business and controlling stake in Nordicon, the market leader in LCL consolidation in the Nordic region.

The company’s revenues have grown more than three times in the last five years, while its profits grew more than five times in the same period. The company has done especially well in the pandemic period of FY21 and FY22. While its profits were down YoY in FY21, they jumped significantly in FY22.

Coming to the quarter wise performance in FY22, not all quarters performed equally well. The revenues over the last three quarters are more or less constant and net profits are lower in the last two quarters compared to revenues.

The government recently announced a new logistics policy by which it plans to bring down  average logistic costs from the current 14% to 9%. The government stated that the Unified Logistics Interface Platform ULIP will bring all digital services related to the transportation sector into a single portal, freeing exporters from a host of very long and cumbersome processes. 

One of the key beneficiaries of these changes is likely to be Allcargo. Commenting on the policy, Vice Chairman VS Parthasarthy said that this policy will connect what different ministries would be doing, and industries can come together across sectors within the supply chain. It will further integrate the overall ecosystem. He added that this policy is not an enabler but a “catalyst” whose near term benefits would be better collaboration of industry and government.

Key business segments also saw healthy YoY growth. The international supply chain business (MTO segment) operating under ECU Worldwide saw robust growth. Ocean freight rates have seen a declining trend over the last 3-4 months and there has been a sustained increase in revenues coming through the digital platform ECU360, which now accounts for over 60% of export bookings across all key markets.

Multimodal services have been the biggest segment for the company, generating roughly 90% of its overall group revenue. Allcargo’s Q3FY21 results mirror that picture as, out of the quarterly consolidated income that soared 115% to Rs 5,696 crore, multimodal’s contributions increased 143% YoY.

Asset light model and acquisitions remain strategy for the future

Allcargo continues to focus on asset light businesses and evaluate strategic acquisitions across the world to further strengthen its competitive positioning. The demerger process continues to remain on track with each demerged business to be listed separately with mirror shareholding. With the demergers the company hopes to strengthen their core with each separated unit focusing on independent growth strategies

In 2019, Allcargo took over domestic express logistics provider GATI, to tap into India’s booming parcel and e-commerce volumes. But all its asset-based logistics services, including container storage depots, are ostensibly not delivering the kind of numbers or scale that encourage further investment according to the management.

"When we look for acquisitions, we are looking for very strategic acquisitions in specific geographies," said Ravi Jakhar, Chief Strategy Officer at Allcargo Logistics. He said the acquisition of Nordic last year, which is a strategic acquisition, has been successful for the company. 

He added that in the coming quarters, they will continue to evaluate opportunities, strategic acquisitions, which can help them further consolidate their market leadership.

Allcargo has recently announced its intent to restructure express and contract logistics businesses and the company is in discussions with its JV partner in the express business to buy out their shareholding.

Allcargo also recently announced the signing of a Rs 98.64 crore definitive agreement to sell its project forwarding and logistics arm to JM Baxi Group, a Mumbai-based maritime organisation. Adarsh Hegde, joint MD of Allcargo said that this deal will be good for the industry, customers and employees and this exit is aligned with a strategy to focus on the group’s core business.

Digital strategy a key factor in growth, but risks remain

The highest bookings come from its digital platform ECU360. It is present in 52 countries globally, offering door to port services resulting in convenience for customers and higher margins. The platform has many features that give it an edge against competitors, like online insurance for freight. This has led to higher conversion of customers on the platform.

Allcargo was one of the earlier adopters of the digital strategies which got a boost due to the pandemic.  However, as with most digital initiatives, these are susceptible to disruption and with competitors the world over enhancing their digital footprint, the advantage that Allcargo enjoys via the ECU platform runs the risk of being impacted by the competition.

Another risk is the high dependence of the MTO segment of its business. The revenues from this segment have been declining and a further decline in the next quarter will have a significant impact as this segment contributes nearly 80% of revenues. 

Similarly, Allcargo has a high dependence on the LCL operations within the MTO segment, and future growth is almost entirely dependent on this.

The company has pared down its debt over the last two years. While the gross debt stood at Rs 411 crore in FY20, it reduced to Rs 290 crore in FY21 and to Rs 159 crore in FY22.

The management at its latest analyst meet also outlined its guidance for the next few years whereby it has set a target of revenues of Rs 25,000-30,000 crore in FY26, with Rs 20,000-25,000 crore contributed by the international cargo business.

While Allcargo is expanding its footprint in the logistics space, the new logistics policy would be a further catalyst. This makes Allcargo one of the companies in the logistics sector that might pique investor interest.

This analysis by Trendlyne is meant for investor education - to help understand companies and make informed investment decisions on their own. It should not be considered an investment recommendation.