Allcargo Global

Allcargo Global is expected to gain from a revival in the global logistics sector over the next few years

ALLCARGO Global Logistics, partly owned by the world’s biggest buyout fund Blackstone Group, may be a good investment option given the slowly reviving world trade, coupled with the company’s diversified businesses. Allcargo is now the world’s second-largest player in the less than container load (LCL) segment following its acquisition of Belgium based ECU Line in 2006. LCL implies goods which don’t require a full container, but only a portion of it. So, there are logistics operators such as Allcargo who receive goods from various customers at its offices across the globe and in turn, books space on shipping lines, to transport goods to its final destination.

In addition, in the domestic market, the company is present across several segments, including container freight station (CFS) and inland container depots (ICDs), equipment hiring and project cargo, and is aggressively expanding.

Allcargo trades at 18.9 times on a trailing four-quarter basis, which is lower than the largest domestic logistics player, the PSU- Container Corporation of India. Investors could consider Allcargo Global in a bid to gain from the growth opportunities in the logistics sector over the next few years, both within the country and globally.

NETWORK INFRASTRUCTURE

Allcargo acquired Belgium-based ECU Line in 2006 and revenues from its overseas operation contributed almost 76.9 % to its consolidated net sales of Rs 2314.1 crore in the financial year CY08. In the domestic logistics industry, Allcargo’s CFS are located at key container ports at Jawaharlal Lal Nehru Port Trust, near Navi Mumbai, Chennai in Tamil Nadu and Mundra in Gujarat. Its CFS have a total capacity of 2.78 lakh twenty foot equivalent units (TEUs) in November 09, helped by facilities set up at Chennai and Mundra in CY 07. However, the dominant player in the domestic containerised rail freight segment is Concor. Meanwhile, Allcargo’s equipment division currently operates 64 cranes, 72 forklifts and 363 trailers. The operations of this division have been scaled-up considerably with the acquisition of 50 cranes in January 08.

During its financial year ended December 06 and December 09, the company has invested nearly Rs 574 crore, on a consolidated basis, to expand its nfrastructure, while its cash flow during the period was just Rs 238.9 crore. As a result, the company had to borrow, pushing its total debt four and half times to Rs 344 crore at the end of December 08. Its leverage ratio was also 0.3 at the end of the previous financial year.

FINANCIALS & EXPANSION PLANS

Allcargo’s consolidated net sales declined 21.2 % yo-y to Rs 497.85 crore in the September ‘09 quarter, compared to a 3.6 % growth in the trailing four quarters. This was largely due to a 15.5 % y-o-y fall in the volume of cargo handled at its overseas operations given the falling trade. However, its operating profit margins improved 40 basis points y-o-y to 11.7 % in the second quarter of FY 10, helped by a tight check on its operational costs. Allcargo plans to set-up ICDs at Bangalore, Hyderabad, Nagpur and in addition, it has entered into a joint venture with Concor to establish an ICD at Dadri in Uttar Pradesh. The company recently got shareholder approval to raise upto $150 million (nearly Rs 700 crore) through share sales to expand existing facilities, acquisitions and working capital needs. This is in addition to nearly Rs 242.3 crore investment by Blackstone in Allcargo from recent warrant conversion.

VALUATIONS

Allcargo Global trades at 18.9 times on a trailing fourquarter basis. Industry peer Gateway Distriparks trades at 18.4 times and Concor at around 20.7 times. Investors could consider Allcargo Global to leverage the growth opportunities in logistics.