Aqua Logistics

 

Company's Hong Kong Acquisitions Will Help It Tap India-China Trade Route

 

THE stock of Aqua Logistics, a recently listed Mumbai-based logistics player, shot up sharply on Tuesday in response to the announcement of its inorganic expansion. The company has acquired three Hong Kong-based companies including CIT Logistics, TAG Logistics and AGI Logistics. It has taken a 60% stake in each of these players for an aggregate amount of $7.09 million (nearly Rs 32 crore).

   Aqua Logistics had earlier raised approximately Rs 150 crore through its IPO. The management had earmarked Rs 35 crore of the total funds raised for acquisitions.

   Senior management of Aqua Logistics pointed out that the combined turnover of these entities was between $13-15 million (nearly Rs 60- 68 crore), during the year ended December 2009.

   And with growing two-way trade between India and China, coupled with other East Asian countries, the current acquisitions will provide Aqua Logistics opportunities in logistics and allied services in both geographies. Aqua Logistics in its domestic operations follows an asset light model whereby it largely relies on third-party providers for equipment like cranes and allied assets.

   This acquisition was announced after the close of trade on Monday, and on Tuesday, the stock surged nearly 7.2% to Rs 272.8. Also, since the listing of the stock on February 23, this stock has gained 11.7% as compared to the 8 % rise in the Sensex. In addition, strong growth in the domestic economy over the past two quarters has helped improve investor sentiment towards the broader logistics sector. The sector has witnessed improved demand conditions from key user industries like auto, power and pharma sector.

   However, operating margins of these three HK-based entities are understood to be lower than the Indian operations. During the first six months of FY10, Aqua Logistics' operating margin was 12.2%, while its income from operations was Rs 154 crore.

   The focus of the Aqua management over the medium term will be on improving the operating margins of these three Hong Kong-based entities and at the same time ensuring synergies with their existing Indian operations.

   The December 2009 quarter results of Aqua Logistics are not yet available. Considering its annualised half-yearly net profit till September 2009 and the current BSE market capitalisation of Rs 560 crore, the stock commands a P/E of around 33.5. Given its latest acquisitions, its valuations are expected to change in near term.

GROWTH ENGINE

Strong growth in
the domestic economy over the past two quarters has helped improve sentiment towards the broader logistics sector.
The sector has
witnessed improved demand conditions from key user industries like auto, power and pharma sector.