Published on 10/08/2019 9:53:59 AM | Source: Yes Securities Ltd

Update On Allcargo Logistics Ltd - Yes Securities

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Decent performance

Allcargo Logistics Ltd (AGLL) reported decent performance during Q1 FY20 considering challenging trade and freight conditions in the global market. Its volume in MTO (Multimodal Transport Operations; revenue contribution: 86%) and CFS (Container Freight Stations; contribution: 7%) segment improved 6% yoy and 3% yoy respectively, in-turn, aided company to clock ~12% yoy revenue growth at consolidated level. In addition, the operating margin improved 142bps yoy (to 7.7%) backed by better utilization in engineering solutions assets in the Project & Engineering Solutions (P&E) segment. At the net level, higher interest cost and tax outgo has impacted bottom-line performance. Going forward, better product offerings and continuous improvement in its market share is likely to translate into healthy volume growth in MTO/CFS business over medium term. Also, stabilized freight cost to translate into better realizations. However, a) sustainability in the engineering solutions assets’ utilization levels (to 60%+) and b) benefits arising from the on-going capex in the Logistics Park business are the key things to watch-out. At CMP, the stock is trading at 9.6x FY19 P/E. We currently do not have a rating on the stock.

Asset utilization in the P&E business improving steadily Slowdown in the wind and power sector has been a worrying factor for AGLL, as its asset utilization of engineering solution in the P&E segment had weakened to <50% in the recent past. However, the company has managed to revive the segment with asset utilization back to ~65% during Q1 FY20, which aided segment’s performance. During Q1 FY20, P&E segment’s revenue improved 62% yoy (to Rs.1.2bn). Also, EBIT turned positive. We expect profitability to continue in P&E division with ~Rs.1.3bn order book position and improving utilization.



*  AGLL has clocked subdued ~6% yoy volume growth in the MTO business, largely impacted by challenging trade and freight conditions in the global market pertaining to trade war, oversupply in shipping industry, and consumption slowdown. However, the management expects healthy volume growth in MTO segment (higher-than industry growth) over the medium term largely backed by its improving market share.

*  During Q1 FY20, ACLL’s Mundra, Kolkata and Chennai operations aided CFS’ volume growth. According to the management, DPD volumes are now stabilized and incremental impact on CFS operators are minimal. Currently, ~90% of the total imported container volumes are still routed via CFSs, providing large opportunities to the CFS operators.

*  In the P&E business, utilization of engineering solutions asset has improved to ~65% (during Q1 FY20) aided by improving demand from wind and power sector, there-by, aided segment to turn EBIT positive. The current order book in project logistics business stands at ~Rs.1.3bn.

*  During the quarter, AGLL’s Project Logistics business secured its first project in Africa. Also, the company is in discussion for multiple projects in East African countries.

*  AGLL’s new logistics park business has become reportable segment under IND-AS. The total revenue during Q1 FY20 under the segment stood at Rs.18mn (vis-à-vis 8mn in Q1 FY19).

* As part of the logistics park offering, Allcargo is building a nationwide warehousing space to the tune of 5 mn sq. ft. by 2021. Revenue potential after commissioning all its planned facilities would be Rs.1bn+ annually. The company is currently constructing built-to-suit warehousing space and has tied-up with various MNCs for ~4.2mn sq ft.

*  Total investment (excluding land cost) estimated in the logistics park segment is ~Rs.11bn. Till the end of Jun’19, AGLL has incurred ~Rs.6bn of capex in the logistics park business mainly for construction purpose (~Rs.1.2bn in Q1 FY20). The average capex run rate is estimated to be ~Rs.1bn per quarter over next ~1-1.5 yrs.

*  Net consolidated debt and total equity at the end of Q1 FY20 stood at Rs. 4.7bn and Rs.20.8bn respectively(0.2x D/E). The debt position of the company in the near term is likely to increase, mainly on account of ongoing capex in the logistics park business.


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