Allcargo Logistics Ltd. share price target

Allcargo Logistics (AGLL) recently announced the acquisition of a 45% controlling stake in Gati (GTIC) for ~Rs 4.2bn (13.6x TTM H1FY20 EV/EBITDA).

5 December 2019 GATI is engaged in express distribution (surface, air and rail parcel), which contributes ~80% of its revenue. It has a pan-India network in the surface express industry. We, however, note that GATIs consol. Post-acquisition, AGLL will gain management control in GATI and thus an entry in express distribution, which is lacking in its portfolio. The SPA involves the acquisition of up to promoters of GATI, viz. Mr Mahendra Kumar Agarwal, Mahendra Investment Advisors, and TCI Finance. The SSA is for subscribing to the AGLL will thus acquire 19.4% of equity share capital (post preferential issue) of GATI. AGLL has also approved an open offer for the acquisition of 31.7m shares representing 26% of the paid-up equity share capital (post preferential issue and vesting of stock option) of GATI at a price of INR75/share. AGLL will acquire ~45% stake in GATI for INR4.2b.

High frequency indicators, a harbinger of the logistics industry's performance, worsened further in Oct'19, indicating a deepening slowdown.

Allcargo Logistics (AGLL) reported an in-line topline of Rs 18bn, up 12% YoY.

Stellar quarter; well placed to fend off headwinds Q4FY19 was a stellar quarter for Allcargo Logistics (AGLL) marked by a surge in adj. PAT to Rs 802mn vs. Rs 199mn in Q4FY18, led by sharp improvement in P&E; segment profitability. However, performance of the MTO and CFS segments was relatively underwhelming. While we remain cognizant of nearterm industry headwinds (escalating global trade wars, moderating container growth at key ports), we believe AGLL is well placed to withstand the...

Strong volume trend in both the key segments of Multimodal Transport Operations (MTO) and Container Freight station (CFS) with stable realisations and loss in the project engineering has been the highlights of financial performance for ALL in H1FY19. Healthy performance in H1FY19 has given us confidence of a decent performance in FY19. Also, we believe that most of negatives have got factored in the current price. Maintain estimates with an unchanged target prices of Rs 145 at 15x FY20 earnings....

Overall revenue increased 12% YoY to 22 November 2018 MTO volumes grew 22% YoY; the segment continued gaining market share in key markets across the world, despite challenging trade and freight conditions. (2) CFS volumes increased 22% YoY, driven by Kolkata operations. AGLL also increased its share in DPD volumes at JNPT. MTO is likely to perform well over the medium term, led by healthy volume growth. Volume growth in CFS should be driven by the Kolkata operations. Losses at P&E; are likely to narrow further due to an uptick in asset utilization. Valuations of 11.9x/10.6x FY19/20E earnings appear attractive, given AGLLs strong fundamentals and earnings CAGR of 17% over FY18-20. We value AGLL at 13x FY20E P/E to arrive at a target price of INR140. Maintain Buy. Allcargo Logistics World seaborne trade is projected to expand at a CAGR of ~4%. Average freight rates on major trade lanes have remained stable over the last few quarters.

Strong relationship with shipping lines, vast experience and wide network in the Multimodal Transport (MTO) segment, global presence, experienced management team and efforts taken by the company to improve operational performance have translated in strong operational performance for ALL in H1FY18 despite weak global container trade. Also with significant International operations (MTO segment), B2B clients and 100% e-payments systems would provide impetus to growth under GST. New container freight station (CFS) in Kolkata, value accretive small acquisitions in the MTO segment, improved utilization in the projects division and rational steps to bring down operational cost would enable the company to maintain margins at ~8.8% and earnings CAGR of 14.5% over FY17 to FY20E. We also estimate ALL to be the biggest beneficiary of any recovery...

Outlook :Indian logistics industry is moving towards a phase of major transformation Government's plans to cut logistics costs from the current 14-15% of GDP to 910%,through a modal shift towards water and railway and efficiency improvement, the sector is all set to experience a positive growth trajectory. Government also announced Sagarmala project for port modernization and augmentation, development of multimodal logistics parks, smart cities project and dedicated freight corridors. Successful and timely completion of these proposed projects will ensure cost effectiveness and operational efficiencies in the transport and logistics sector. With the effect of GST, instead of maintaining smaller warehouses in each and every...

We expect AGLL to create value in the medium term from strong growth in contract logistics through its subsidiary, ACCI. Monetization of land parcels by roping in strategic partners would add further value to the company. The MTO segment should continue to see growth in profits, led by strong revenue growth due to rising proportion of FCL shipments coupled with stable margins. Also, the management has taken multiple initiatives, which should result in an improvement of the company's overall return ratios. AGLL trades at 11x FY20E EPS, which is attractive, given improving return ratio profile...

Allcargo, a leading integrated logistics players spread across 90 countries and shipments across 4,000 port pairs, is the largest player in asset light LCL consolidation. Its synergized business model provides cost effective logistic solutions and it is ready to exploit attractive opportunities in new businesses with entry into costal shipping and 3PL.

Top takeaways from Q1FY17 : Lower than estimates due to impact of one?time cost and increase in depreciation.MTO volumes grew and the business maintained margins. However, lower shipping freight rates affected revenue negatively.CFS business outperformed the industry in terms of volume growth.Project business disappointed on revenue and margin with reduction in asset base and dry?docking of one ship.Acquisition of controlling stake in CCI Integrated Logistics to strengthen contract logistics and ecommerce.

Valuation: At its CMP, the stock trades at 13x our FY18 expected earnings of Rs 14.1, 1.8x FY18 P/BV, and 7.5x EV/EBITDA. We have cut our FY17/18 earnings by 9%/14%, considering weakness in freight rates in MTO and lower?than?expected growth in projects. The stock has traded at a significant discount of ~35% to other players while it is doing relatively better than other logistics players – with good volume growth; we expect this valuation discount to narrow to ~15%. We have revised our target valuations to 15x FY18 EPS (from 12x earlier) to arrive at a new target price of Rs 215 (Rs 200 earlier).

Better than estimates, mainly due to strong performance in MTO business. MTO business reported volume growth as well as margin improvement. CFS business outperformed industry in volume growth....

Below estimates, mainly due to weakness in MTO business. MTO revenue declined 9% due to significant fall in container freight rates. CFS maintained healthy performance in a challenging environment....

AGLL's revenue declined 7% YoY and 9% QoQ to INR13.4b in 3QFY16 primarily impacted by decline in MTO business. Reported EBITDA stood at INR1.2b (-13% YoY, -14% QoQ); margins declined to 8.9% in 3QFY16 from 9.5% in 3QFY15. PAT...

Second largest player in the global LCL consolidator: The company hasbecome the second largest LCL consolidator by acquiring ECU line in 2006. Since then, the company has been expanding its foot prints in different geographies and has set up 200 plus offices across 90 countries covering over 4000 port pairs.

Marginally below estimates, impact of currency and decline in freight rates Improvement in margins in all divisions. Strong operating performance in CFS and MTO MTO volume growth of 8% in Q2 and 10% in H1FY16...

We visited Allcargo's two container freight stations near JNPT port, Mumbai, and it strengthened our comfort about the company's competitive strength in container handling, evident from its efficient service, customer focus, and modern facilities. Both...

Allcargo's Q1FY16 adjusted profits grew 53% yoy to Rs 751mn (7% higher than estimates) with: (1) 11% yoy volume growth in MTO, (2) improved capacity utilization in the P&E; segment to 94%, and (3) operating leverage in CFS with volume growth. EBITDA margins...

Allcargo's Q4FY15 adjusted profit grew 22% yoy to Rs 555mn with: (1) 13% yoy volume in CFS, (2) improved capacity utilization in the P&E; segment, and (3) steady operating performance in the MTO business with 10% yoy volume growth. FY15 revenue grew 16%...