Allcargo Logistics

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About the Company

Allcargo Logistics is engaged in providing integrated logistics solutions and offers specialized logistics services across multimodal transport operations, inland container depot, container freight station operations, contract logistics operations and project and engineering solutions.

Q3FY20 Updates

Financial Results & Highlights

Detailed Results

1. 1. Consolidated revenues showed a mild decline of 1.35% YoY while consolidated PAT fell 2.84% YoY.
   2. 89% of revenues were from the MTO division.
   3. EBITDA for Q3 grew 12% YoY. While EBITDA margins were at 7.07% up 81 bps YoY.
   4. In 9MFY20, consolidated revenues grew 5.9% YoY while EBITDA grew 6.61% YoY and PAT grew 7.6% YoY.
   5. In the MTO division, volumes showed a growth of 10.3% YoY. The company has reported a rise in market share in this division.
   6. Total revenues from this division were flat YoY while ROCE in this division was at 26%.
   7. In the CFS/ICD division, volumes fell 7.7% YoY while total revenues were flat. Volumes in Mundra and Kolkata rose 14% and 27% YoY respectively.
   8. In the Project & Engineering Solutions division, Total revenue declined 12.6% YoY and current executable order book was at Rs 166.25 Cr along with visible pipelines of Rs 526 Cr.
   9. In the Logistics Park division, the total revenues rose to Rs 11.8 Cr from Rs 1.1 Cr a year ago.
   10. The company entered into a transaction to sell its warehousing subsidiaries in Telangana, Tamil Nadu, Karnataka, Gujarat, Goa and Maharashtra for Rs 380 Cr to Blackstone Group. Post the sale, the company will maintain a minority stake of 10% in these entities. The proceeds of this sale will be used to reduce consolidated debt.

Investor Conference Call Highlights

1. In the project & engineering segment, the decline in revenues was due to lower utilization of high yielding assets.
2. In the equipment segment, there was an EBIT loss of Rs 8 Cr which was mainly due to accelerated depreciation. The company is looking to free up capital from this segment and to sell underutilized assets.
3. The timeline of the deal with Blackstone is expected to be 12 months.
4. The company has acquired 20.83% in Gati Ltd becoming the largest shareholder. The company aims to hold open market operations to raise its stake in Gati to 45%. The company has also pumped growth capital of Rs 100 Cr into Gati.
5. The management does not think that Indian exports will be affected by the problems of coronavirus.
6. The management has stated that the current ROCE is 10.7% including all the incubating businesses. By the end of the year when the warehousing segment is sold off, the ROCE will rise much higher.
7. The company aims to stabilize ROCE levels of 30% for Gati in the next few years.
8. The company expects margins and performance to remain at current levels for the near future due to a drop in global shipping and coronavirus impact.
9. The management has stated that it expects to spend a Capex of Rs 200-300 Cr in FY21. It will be able to give a definitive number in the next quarter.
10. The management believes that the B2B service quality for new entrants like Rivigo is still not at the same level as established players like Gati and this is where the edge for Gati lies. Another advantage for established players like Gati is that entrants like Rivigo are bleeding investor cash through deep discounting which is unsustainable in the long term.
11. The management believes that the Gati still has a good brand recall and market presence and it just needs to get more efficient and enhance profitability and this is where Allcargo comes in.
12. The company aims to provide a whole host of logistics options and Gati helps Allcargo cover all bases. The company also believes that for large clients, vendor consolidation is preferable as it reduces costs and also simplifies their supply chains considerably.
13. The market share of the company in the MTO segment is around 11%.
14. The company has an overall market share of 10% in CSS business.
15. The Jhajjar logistics park is not included in the Blackstone deal.
16. The losses from associates in Q3 was due to goodwill impairment in CCI logistics.
17. The management believes that the project’s business should turn EBIT positive in FY21.
18. The management has mentioned that the margin expansion in CFS business is mainly on the back of cost reduction.
19. Of the Rs 872 Cr debt taken to build warehouses, Rs 450-500 Cr will be going into the SPV’s books which Blackstone is purchasing. The Jhajjar warehouse has not been sold as it is required for the operations of Avvshya CCI in that region.
20. In addition to the 10% share in profits of the sold warehouse division, the company will also earn AMC revenues from these sites from maintenance and construction activities.
21. In Avvshya CCI, the company does not have a last-mile delivery option in-house which the company will now be able to address with the help of Gati. Thus the acquisition of Gati should also be beneficial for the contract logistics business.
22. The company has spent Rs 400 Cr in capex in FY20. The management doesn’t expect any major capex in the coming year in its existing businesses.
23. 30% of the identified cranes have already been sold and in the next 6 months the rest are expected to sold off.
24. The management expect net debt to be around Rs 500 Cr in FY21 where Rs 400 Cr is expected to be for Gati.

Analyst’s View

Allcargo has cemented its place as one of the top 10 shipping and logistics companies in the world. The last quarter was modest with modest revenue and PBT drop. The company has done well to mobilize the transaction to sell its warehouse division to Blackstone and use the proceeds to reduce consolidated debt. The company has also entered into the acquisition of Gati Ltd which should help enhance the company’s portfolio of offerings and help it offer end to end solutions that no existing player is doing currently in India. It remains to be seen what the actual impact of the coronavirus situation will be on the company’s operations. Nonetheless, given its market position and its enhanced portfolio of offerings, Allcargo remains a good stock to watch out for in the logistics space.

Q2 2020 Updates

Financial Results & Highlights

Detailed Results

1. 1. Consolidated revenues showed a growth of 8% YoY while consolidated PAT grew 6% YoY.
   2. 90% of revenues were from the MTO division.
   3. EBITDA for Q2 grew 3.2% YoY.
   4. Net debt to equity ratio was at 0.23 on 30^th September 2019.
   5. In H1FY20, consolidated revenues grew 9.9% YoY while EBITDA grew 18.9% YoY and PAT grew 12% YoY.
   6. The net debt to equity ratio was at 0.27 times.
   7. In the MTO division, volumes showed a growth of 5.9% YoY. The company has reported a rise in market share in this division.
   8. Total revenues from this division grew 10% YoY while ROCE in this division was at 26.9%.
   9. In the CFS/ICD division, volumes grew 0.6% YoY while total revenues grew 1% YoY. A rise in volumes was mainly driven by Mundra, Kolkata and Chennai operations.
   10. EBIT for this division grew 23.1% YoY while ROCE came in at 30.2%.
   11. In the Project & Engineering Solutions division, Total revenue declined 19.1% YoY and current executable order book was at Rs 90 Cr along with visible pipelines of Rs 486 Cr.
   12. In the Logistics Park division, the total revenues rose to Rs 2 Cr from Rs 1 Cr previously.
   13. The company reaffirmed its commitment to build a nationwide warehousing footprint of 6 million square feet by 2021.
   14. Investment into this division in Q2 was at Rs 115 Cr.

Investor Conference Call Highlights

1. The consumption slowdown has brought down import volumes for the year.
2. The container growth rate has gone down to 3% from 8.5% a year ago for 7 months of FY20.
3. The asset utilization in the equipment business was at a low 60%. The management remains confident that this will rise to 65% in the coming quarters.
4. The company has entered into Tanzania, Kenya, and Senegal with their project and engineering business.
5. In the first phase of the logistics parks business, the company will establish facilities in Hyderabad, Bangalore, and NCR. The company has already executed prelease contracts for 4.2 million sq feet with various MNCs.
6. The company’s target is to reach 10 million sq feet in logistics space in the next 4 years.
7. In contract logistics, the company currently operating at 4 million sq feet.
8. The impact of IndAS 116 has been around Rs 1.4 Cr in PAT. It also caused EBITDA to go up by Rs 34 Cr and depreciation and finance costs to go up by 32 Cr.
9. The Chennai port was adversely impacted in the severe monsoons in the quarter which resulted in a long time in the evacuation of containers in the port.
10. The EBIT for the quarter has come down because of additional costs incurred in congestions due to the monsoons.
11. The company has a policy of converting any outstanding revenues above one year into provisions in their books. This year it had a reversal of those provisions created last year. The reversal in H1 was around Rs 3 Cr in EBIT.
12. The management expects utilization levels to be around 65% to 70% in the coming 2-3 quarters.
13. In the project and engineering business, the company expects at least a 20% conversion of its order pipeline.
14. The company made two overseas acquisitions in the quarter for almost $ 5 million. It will continue to look for other inorganic growth opportunities in all businesses except the projects & equipment business.
15. The management has guided that they expect a monthly revenue of Rs 6 Cr and a completed floor space of 3 million sq feet by the end of March in the logistics park business.
16. The management has stated that it should have another Rs 200 Cr of CAPEX for the rest of the year.
17. The management maintains that it is confident of >10% EBITDA growth quarter on quarter.
18. The main difference between logistics park business and Avvshya is that the former is an asset-heavy business where the company builds and owns the entire facilities while in the latter, they lease spaces or operate on client premises.
19. The management expects import volumes to rise 3%-4% in the coming quarter.
20. At a group level, the company will stay below a debt to equity ratio of 0.5% only.
21. The outlook for the logistics park business is for a ROCE of 14% for FY21. The management will try and bring this figure up since they believe that this business will turn profitable with a ROCE of 15%.

Analyst’s View

Allcargo has cemented its place as one of the top 10 shipping and logistics companies in the world. The last quarter was modest with moderate revenue growth and a small drop in PBT. The company is looking forward to developing its logistics park division which would yield a monthly revenue of Rs 6 Cr once fully operational. It remains to be seen how long the company shall be able to outperform the industry and whether the industry will be able to pick up from current growth levels of 2-3%. Nonetheless, given their relatively good performance in an underperforming industry and their ambitious plans to enter into and develop a new parallel business line of logistics parks, Allcargo Logistics looks like a good stock for any investor banking on the theme of increased trade and logistics in India and the world.

Q1 2020 Updates

Financial Results & Highlights

*Includes provision for impairment of Rs 28.5 Cr

**Includes a deferred tax credit of Rs 23.27 Cr

Detailed Results

1. 1. Consolidated revenues showed a growth of 12% YoY while consolidated PAT grew 19% YoY.
   2. 86% of revenues were from the MTO division.
   3. EBITDA for Q1 grew 37% YoY while EBITDA margins improved 142 bps YoY to 7.75%.
   4. Net debt to equity ratio was at 0.23 on 30^th June 2019.
   5. ROCE was at 14% as on 30^th June 2019.
   6. In the MTO division, volumes showed a growth of 6% YoY. The company has reported a rise in market share in this division.
   7. Total revenues from this division grew 10% YoY while ROCE in this division was at 30%.
   8. In the CFS/ICD division, volumes grew 3% YoY while total revenues grew 8% YoY. The rise in volumes was mainly driven by Kolkata and Chennai operations.
   9. EBIT for this division grew 18% YoY while ROCE came in at 33%.
   10. In the Project & Engineering Solutions division, Total revenue grew 62% YoY and current executable order book grew to Rs 130 Cr.
   11. The company gained its first project in Africa in this division and they are in the talk for multiple projects in East Africa.
   12. In the Logistics Park division, the total revenues rose to Rs 2 Cr from Rs 1 Cr previously.
   13. The company reaffirmed its commitment to build a nationwide warehousing footprint of 5 million square foot by 2021.
   14. Investment into this division in Q1 was at Rs 115 Cr.

Investor Conference Call Highlights

1. The company is happy with the performance of the MTO division as it delivered 6% volume growth despite numerous headwinds like a slowdown in global trade due to US credit restrictions on China and Iran, reduction in global container trade and oversupply in the shipping industry.
2. The management has indicated that cost reduction initiatives launched in the previous quarter of Q4FY19 were responsible for the improvement of margins in this division.
3. The expected total investment into the Logistics Park division to reach the 2021 goal of 5 million square feet space is around Rs 1100 Cr. The rental income from this division is expected to be above Rs 100 Cr per year.
4. In terms of yield return, the company is expecting in excess of 12% from this division.
5. The net debt for the company has increased Rs 143 Cr mainly for accumulating logistics inventory.
6. The management has guided that they will maintain a higher growth rate than the market and have refrained from providing any absolute figures for growth.
7. The long term goal of setting up the logistics parks is for the company to provide end to end logistics services including warehousing which shall help promote stickiness of customers and also aid in their contract logistics business.
8. At global trade level, the market is growing only 2-3% while the company’s MTO division has grown 5-6% highlighting higher growth than the market and resulting in an increase in market share.
9. The company is on the lookout for any possible acquisitions given the current low valuation environment.
10. The rise in depreciation in the current quarter for the company is purely due to Ind AS 116 coming into place which has reclassified lease rent as depreciation leading to the rise.
11. Of the total investment of Rs 1100 Cr for the logistics parks, around Rs 600 Cr is completed and Rs 500 Cr is left which is expected to be done by Q3 of FY 19-20.
12. The company expects around 4 million square feet of space to be ready for business by the end of this year.
13. The management believes that margins have stabilized and they expect margins to stay consistent at current levels in the future.
14. The company’s working capital is around Rs 150 Cr currently out of their assets of Rs 200-250 Cr.
15. The company expects the warehousing operations of the Jhajjar facility to start in the next 6-8 months. They expect the ICD part of it to start after the Haryana elections are over.

Analyst’s View

Allcargo finds its place in among the top 10 shipping and logistics companies in the world. They have achieved impressive growth in the current quarter despite the global headwinds of trade tariffs and restrictions. The company is looking forward to developing its logistics park division which would enable them to start operating end to end logistics services to any and every type of customer. It remains to be seen how long the company shall be able to outperform the industry and whether the industry will be able to pick up from current growth levels of 2-3%. Nonetheless, given their stellar performance in an underperforming industry and their ambitious plans to expand and round off their portfolio of services to cover all the functions of a complete logistics network, Allcargo Logistics looks like an interesting bet in the logistics sector in India.

Q4 2019 Updates

Financial Results & Highlights

* Includes impairment loss of Rs 28.5 Cr/ ** Includes impairment loss of Rs 54.55 Cr

***Includes tax credit of Rs 23.76 Cr

* Includes deferred tax credit of Rs 23.27 Cr

Detailed Results

1. 1. Consolidated revenues for Q4 and FY19 rose 12% and 14% YoY mainly on account of volumes and revenue growth in MTO and CFS businesses.
   2. EBITDA for Q4 and FY19 grew 42% and 19% YoY.
   3. EBITDA margin for FY19 stayed stable at 6.5%.
   4. The revenue share breakup is:
      • Multimodal Transport Operations(MTO): 88%
      • Container Freight Stations(CFS): 7%
      • Project & Engg Solutions(P&E): 5%
   5. The MTO business saw a volume growth of 5% in FY19.
   6. Revenue growth in this segment was at 12.3% YoY.
   7. ROCE for this business stands at 29.8% on an annualised basis.
   8. The CFS business saw volume growth of 6% in FY19 driven mostly by Kolkata & Chennai operations.
   9. ROCE for this business stands at 29.7% on an annualised basis.
   10. In P&E business, the segment revenue grew 24.3% YoY while current order book grew to Rs 150 Cr+.
   11. Project logistics in this segment have secured their first project in Africa.
   12. IN the Logistics park business, the revenues came at Rs 2 Cr for the quarter as compared to Rs 80 Lacs in the previous quarter.
   13. The company has invested Rs 458 Cr in this business in FY19.

Investor Conference Call Highlights

1. In CFS business, the company has maintained strong presence in port cities of JNPT, Mundra, Chennai and Kolkata, all of which collectively account for 80% of total container traffic in India.
2. The company’s foray into logistics parks has seen good response from multinational clients.
3. The company is targeting a nationwide warehouse capacity of 5 million square feet by 2021 in the logistics parks business.
4. For the first phase, the company will construct centralized Grade A warehouses across Hyderabad and Bangalore. The company has already executed contracts for PES of about 3.5 million square feet with various multinationals.
5. In the equipment leasing business, the company has seen increased asset utilization at 65%-70% as compared to 40%-50% last year.
6. The company is also phasing out its shipping business by the end of H1FY19 in order to focus more on core business areas.
7. Through their JV Avvashya CCI, the company is managing over 3 million square feet of warehousing space.
8. The management expects the yearly volume growth of 15% to sustain for the near future.
9. The estimated capex for the new financial in the Logistics Parks business is around Rs 450 Cr. Once all facilities are operational, the segment is expected to generate revenues at the rate of Rs 8-10 Cr per month.
10. The management and the board do not expect the ROCE for the shipping business to rise and so they have decided to phase it out and focus on other business areas.
11. The company has started P&E operations in Africa and Bangladesh. The average revenue size for these projects is around Rs 20-25 Cr.
12. The management expects the realization of revenues from contract logistics with e-commerce companies to start from H2FY20 onwards.
13. The current long term debt is at Rs 332 Cr and this is expected to rise to over Rs 700 Cr as the company raises more debt to fund their investment in the Logistics Parks division.
14. The company expects to add another 1 million square feet of space under management in Avvashya CCI during the coming year.
15. The company is expected to grow faster than the market in their MTO business.
16. The provision for impairment of Rs 28 Cr taken in Q4 is expected to have already been absorbed in the consolidated basis. Thus it appears only in standalone numbers.
17. In FY19, there were no new land acquisitions done by the company.
18. In the project equipment business, the current asset utilization rate is at 70%-75% with around Rs 350 Cr of capital employed for this segment on the books.
19. The average lease tenure for assets in this segment in anywhere up to 2 years depending on the client’s requirements.
20. The company plans to fund their capex in the Logistics Parks mainly through internal accruals and will look to raise debt only when they fall short due to cash flow timing differences.
21. The management does not expect to incur more than Rs 200 Cr of debt for the capex in Logistics Parks. This is because they will be getting some cash from asset disposal of the shipping division.
22. The company maintains that the drop in EBIT margins for the CFS business in Q4 was purely cyclical as they were adversely affected in February due to the Chinese New Year.
23. The management expect the P&E division will reach ROCE levels of 17%-18% only after 2 or more years.

Analyst’s View

Allcargo has shown good performance for FY19 and hopes to continue the good form into FY20. The company has big capex plans in place to consolidate their Logistics Parks division which is largely expected to be done without incurring much debt. They are also phasing out their shipping business due to falling ROCEs in the industry. This shows that the management and board of the company is proactive. Good capital allocation policy is being demonstrated in the last year. However, it remains to be seen how the company’s new foray into logistics parks pays out. Nonetheless, Allcargo Logistics presents itself as an interesting logistic company with a proactive and forward looking management team.

Q3 2019 Updates

Financial Results & Highlights

*Including other income of Rs 9680 Lacs/ ** including other income of Rs 14,951 Lacs

Detailed Results

1. 1. The company has got a dividend income of Rs 9680 Lacs from its foreign subsidiary which has improved the current quarter numbers. This has primarily lead to phenomenal growth in quarterly standalone revenues of almost 70% YoY. Similarly, the profit numbers for the quarter have seen a greater upswing compared to last year with almost 9 times and 11 times growth in PBT and Pat as compared to last year.
   2. The consolidated quarter revenues showed a healthy growth of 22% YoY.
   3. The consolidated PBT and PAT also rose more than 50% YoY.
   4. The consolidated PAT margin has improved significantly with a rise of 62 bps YoY for the current quarter but was down 82bps QoQ.
   5. This resulted in a 56% YoY growth in PAT with a decline of 20% QoQ.
   6. The consolidated numbers for 9M19 were modest with only 14% growth in revenues YoY.
   7. The consolidated PBT for 9M19 were up almost 20% YoY but the PAT was up only 4.1% YoY.
   8. The company revenues were divided into:
      • MTO: 90% of Total Revenues
      • CFS: 6% of Total Revenues
      • Projects & Engineering: 4% of Total Revenues
   9. In its dominant Multimodal Transport Operations segment, the company has gained in global market share.
   10. The quarterly volumes and revenues growth for this segment have been up 16% and 22% YoY.
   11. The company also saw growing market share in their Container Freight Station segment with quarterly volumes and revenues up 15% and 25% YoY.
   12. This was mainly driven by strong growth in port volumes and growth in Kolkata and Chennai operations.
   13. The Projects & Engineering segment saw 12% growth in revenues YoY with a current executable order book of more than Rs 185 Cr.

Investor Conference Call Highlights

1. The board announced a special interim dividend of Rs 1.5 and an interim dividend of Rs 3.5 to mark the 25 year of company operations.
2. The company is optimistic about their growth prospects. The volumes for the LCL and FCL segments in MTO side have grown 15% despite headwinds caused by slowing global economy and trade restrictions.
3. The company maintains that average freight rates have remained stable globally despite existing capacity exceeding demand in this industry.
4. The company has acquired 93 acres of land in Jhajjar in Harayana for the development of the warehousing segment there. This segment is expected to be operational from the second half of 2019.
5. The management is committed to building technology enabled business models to synergize better with their existing brand image. They are also looking into various digitization initiatives like blockchain, artificial intelligence and robotic process automation for the same.
6. The company is optimistic in their growth prospects in the global MTO and CFS segments.
7. The company is looking forward to growth in their contract logistics business which they operate under the JV called Avvashya CCI.
8. They are also engaging in the development of their new business line of MMLP which should take 2 to 3 years to be completely operational.
9. The company is expecting around 60% asset utilization rate in the coming quarter as compared to 55% in the current quarter.
10. The company is seeing the market for MTO to be growing at 3%-5% per year. With continuation of their current volume growth, they can reasonably expect to be gaining market share if the volume growth sustains in the future.
11. The management is expecting ROCEs for each segment to rise in the near future as they still have spare capacity to deal with higher volumes than those at present.
12. The company is developing a multimodal logistics park in Jhajjar which should add 2.4 million square feet for warehouse space.
13. For all of its expansion commitments, the company is expecting a capex figure from Rs 400 Cr to Rs 700 Cr. This capex would be taking place in FY19 and FY20 as well.
14. The management has acknowledged that the past two years were bad for the P&E business but now this segment is picking up.

Analyst’s View

Allcargo Logistics have been a global presence in the shipping for a long time now. They have just completed 25 years of operations and are still bullish about their growth prospects in the future. The company has exhibited healthy growth in domestic and international businesses and have been expanding into newer businesses as seen from their participation in the joint venture Aavashya CCI. The domestic prospects for the company look promising with warehousing partnerships with online retailers like Flipkart.

The international shipping industry on the other hand seems to have slowed down considerably with demand expected to stay stagnant and industry capacity exceeding demand. Thus the shipping business can only grow by devouring existing market shares of competitors which will prove much more difficult as compared to organic growth brought by segment expansion. Thus the future growth of the company depends on what direction the management pursues.

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