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Blackstone deal highlights from FY21 annual report

Allcargo (AGLL) has, in FY20, entered into an agreement with Blackstone real estate Asia urban (BRE) to transfer 90% stake in its portfolio of 5 mn sq.ft. (executed arrangement with 6 subsidiaries till date) on completed and leased basis, along with additional greenfield development projects. Investment made by BRE thus far is Rs3.37bn (same as FY20, with ~ Rs89.3mn as equity).

In FY21 AGLL has received Rs605mn from Madanhatti Logistics and Industrial Park (MLIP), Venktpura Logistics & Industrial Parks (VLIP) and Allcargo Logistics and Industrial Park (ALIP) towards release of its previous held equity interests. The construction cost funded by AGLL continues to be repaid by way of refinancing through lease rental discounting facilities that are well served by the rental receipts.

AGLL still holds controlling stake over Malur Logistics and Industrial Parks (MLP) and VLIP. Management believes that despite covid induced delays, they will be able to complete the deal with BRE within the (revised) agreed timelines. We downgrade AGLL to HOLD from ADD post ~80% runup in past 6 months.

* Details of the transaction with BRE. AGLL executed agreements with its six wholly owned subsidiaries – MLP, ALIP, MLIP, VLIP, Kalina Warehousing (KW) and Panvel Warehousing (PW) along with BRE. Business transfer agreements have been carried out with ALIP, MLIP, MLP and VLIP transferring ~ Rs 4.08bn of warehousing assets of AGLL through slump sale (Table 1). Total business transfer consideration converted to debentures for these four entitites is Rs 4.14bn (same as FY20).

* Update on warehousing. AGLL has already completed its first phase of warehousing developments across the country and currently has operational warehousing space in excess of 4 mn sq.ft with further lease commitments taking the total developed/under-development space to 5.7 mn. sq. ft. AGLL has additional projects that are in planning stage with a development potential of over 3 mn sq. ft.

* BRE’s put option now valued at Rs 36.4mn from Rs30.2mn YoY. If certain conditions are not satisfied within a set timeframe (initially ~12 months ending in 13th Jan 2021; FY21 annual report states it has been extended further but doesn’t specify a timeline), AGLL will have to buyback the debentures and the equity money which BRE has invested together with 16% interest. AGLL has valued BRE’s ‘put option’ valuation from an independent valuer and has assigned the appropriate probability to it as per its best estimate and arrived at a value of Rs 36.4mn, up ~ Rs6mn YoY.

* Shares of 8 subsidiaries pledged in favour of BRE presumably against the debentures that BRE has extended as per FY20 annual report; no further details shared in FY21 annual report. FY20 annual report highlighted that shares of Allcargo Inland private park, Allcargo multimodal, KW, PW, MLIP, ALIP, MLP, and VLIP has all been pledged in favour of BRE. So apart from the 6 wholly owned subsidiaries with whom agreement has been executed, two additional subsidiaries shares were pledged – Allcargo inland private park and Allcargo multimodal.

Valuation and key risks

We value AGLL on SoTP basis due to the inherent differences in capital intensity, profitability, etc. of its key businesses of MTO and CFS on one hand, and P&E business on the other.

Key upside risks are completion of the Blackstone deal followed by deleveraging of the balance sheet along with better than expected recovery in Gati operations. Key downside risks are non-consummation of the warehousing deal with Blackstone, leading to elevated net debt. Slower turnaround in Gati can also lead to lower valuations and higher stress on balance sheet.

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