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Weakness across businesses
Allcargo Logistics (AGLL) reported a largely in-line Q2FY20 with consolidated revenues at Rs18.7bn (I-Sec: Rs18.2bn). While MTO and CFS operations were in line with our estimates, the project and equipment segment (PES) seems to have witnessed a weak quarter, amid slow growth in the wind sector, taking utilisation down to ~60%. Multi modal transport (MTO) segment volumes grew 6% while margins continued to trend down despite a 4% increase in realisation/teu YoY. With increasing full container load (FCL) volumes, the business is considerably more prone to external risks now. CFS operations witnessed subdued growth with 0.6% YoY increase in volumes. Capex guidance for FY20 has been slightly increased to ~Rs5bn. Maintain BUY with an unchanged target price of Rs131/share.
* MTO business witnesses third consecutive quarter of single-digit volume growth. The MTO business clocked total volumes of 184,479-teus in Q2FY20 as against 174,268-teus in Q2FY19, an increase of 5.9%. Coupled with a 4% increase in realisation/teu, MTO growth seems subdued, compared to the kind of growth it has given in the past. MTO business margins continue to feel the stress of reducing freight rates and higher FCL mix. Although the segment continued gaining global market share, increased volumes from allied businesses and FCL could make it more prone to external risks. This causes concern given the importance of cashflow from MTO to support AGLL’s proposed expansion in Logistics Park.
* CFS business too remains critical as Logistics Park ramps up, but remained weak. Volume increase in CFS segment was 0.6% YoY, driven by Mundra, Kolkata and Chennai operations. Margins shrunk by 21% YoY due to lower dwell time caused by port congestion and lower imports.
* P&E segment hit by slow growth in wind sector. Revenues from this segment in Q2FY20 stood at Rs760mn vs Rs940mn in Q2FY19 and Rs1.17bn in Q1FY20. This was on the back of extremely low volume growth in the eight core sectors (implying less government capex). Asset utilisation in the equipment business remains subdued on account of slow growth in the wind sector, with utilisation at ~60% for Q2FY20 (expected to be 65-70% for the next 2-3 quarters). The current executable orderbook in Project Equipment business is worth ~Rs900mn, with pipeline visibility of Rs4.9bn.
* Investments in Logistics Park continues. Capex in Q2FY20 for the Logistics Park was Rs1.15bn, with another Rs2bn expected to be spent in H2FY20E. Management estimates 3mn-sqft to start generating revenues incrementally in H2FY20E (1.5mnsqft each in Q3FY20 and Q4FY20). The same should lead to a revenue generating capacity of Rs60mn FY20 and Rs80mn per month in FY21E.
* Maintain BUY. We maintain our BUY rating on the stock with an unchanged target price of Rs131/share.
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