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Published on 24/11/2020 11:47:26 AM | Source: ICICI Securities Ltd

Hold Allcargo Logistics Ltd For Target Rs.115 - ICICI Securities

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Trying to stich through an integrated offering

The total consideration for Allcargo logistics’ (AGLL) acquisition of 46.86% stake in Gati has been ~ Rs 4.29bn. Gati’s Q1FY21 operating results, though, did disappoint with ~ Rs 263mn EBITDA loss. There are multiple efforts being undertaken by the AGLL management to i) improve operational efficiency ii) invest necessary equity and iii) recover outstanding dues from all parties including earlier management for excess managerial remuneration in Gati’s subsidiaries. The deal with Blackstone for the transfer of logistics park portfolio is underway with Rs 2.37bn of money received till date and another Rs 590mn Lease rental discounting upstreamed to AGLL. We maintain HOLD with a revised target of Rs 115/share (Rs 93 earlier). AGLL’s board has received and accepted the delisting offer from ‘promoters’. Net debt stands at ~Rs 10bn, and management expects the same to increase to Rs13.5bn as Gati acquisition completes.

 

* Q1FY21 EBITDA has been helped by ground rent in CFS, government support in MTO business. CFS business has benefitted from accrual of one time ground rent as containers were parked during the time of the pandemic. While management tried to guide to the extent of benefit as the increase in topline YoY (i.e Rs 89mn), given that volumes have declined ~ 42% YoY, the accrued benefit seems to be much higher. Higher ground rent expenses have continued through Q2FY21 as well. This, along with US$1.6mn of government support received in the MTO segment accounts for majority of the EBITDA salience witnessed in the current quarter.

 

* AGLL has received ~ €10mn in dividend from the ECU lines. MTO business witnessed significant increase in realisation/teu as freight rate increased (~23.6% YoY). While currency can be attributed ~ 7% of the increase, the rest is mainly on account of increased freight rates. Volumes have declined 12% YoY. Gross profit numbers would have come down as per management, however significant effort on cost reduction, staff cost optimisation and government grants helped bottom line. EBIT/teu has increased from €42/te to €58/te YoY.

 

* Gati witnessed a weak Q1FY21, efforts are underway for a turnaround. Q1FY21 witnessed EBITDA loss for Gati; clearly traditional ecommerce players were unable to capture any benefits in traditional last mile delivery despite increase in ecommerce transactions. There are efforts to restructure operations of Gati Kausar (Coldchain subsidiary) and recover excess remuneration that has been paid out in the earlier years to the ‘erstwhile executive chairman’ of Gati Kintentsu (Express subsidiary).

 

* Maintain HOLD. AGLL has received Rs 2.37bn till date from Blackstone, along with Rs 590mn in LRD for the assets transferred to Blackstone. Management guided for Rs 2-3bn investment in the warehousing assets for FY21. Logistics parks reported revenue trajectory (at Rs 88mn for Q1FY21, up ~ 5x YoY on a low base) continue to impress.

 

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