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Published on 11/01/2018 3:07:43 PM | Source: Kotak Securities Ltd

Buy Allcargo Logistics Ltd For Target Rs.250.00 - Kotak Sec

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 in trade and GST implementation. We introduce FY20 numbers and increased the TP to Rs 250 at 18x FY20E (from Rs 205) and maintain BUY on the stock.

Steady volume growth in the Multimodal Transport Operations (MTO)

Volumes continue to grow at a stable pace for ALL in the MTO segment despite weak global trade environment primarily due to less than Container Load (LCL) nature of business which is more immune to slowdown. Geographical expansion and inorganic growth has also contributed to the growth. Company continues to be a leader in the MTO segment.

Outlook and Valuation

We believe the MTO segment to be the main driver of revenues and earnings for the company, while the CFS segment to be a facilitator. The project engineering division would be a drag, though in a declining trend. We also estimate ALL to be the biggest beneficiary of any recovery in trade and GST implementation owed to its long presence in the logistics industry, relationships across the entire logistics chain and wide spread network - India and abroad. Fourth container terminal at JNPT and the DFC are expected to improve prospects and earnings further from FY19 for ALL. Broadly we estimate an earnings CAGR of 14.5% over FY17 to FY20E with improvement in margins and return ratios. We introduce FY20 numbers and increased the TP to Rs 250 at 18x FY20E (from Rs 205) and maintain BUY on the stock.


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