ALLCARGO Global Logistics

ALLCARGO Global Logistics, which is partly owned by the leading global buyout fund, Blackstone Group, appears well positioned to take advantage of the pick-up in the logistics sector, in both the domestic and foreign markets, given signs of strong economic growth especially in emerging markets.

    Allcargo is a global player in the less than container load (LCL) segment via its acquisition of Belgium-based ECU. In this segment, Allcargo receives cargo from various customers at its offices across the globe and in turn, books space on shipping lines, to transport goods to final destinations. In the domestic segment too, the company is well positioned to take advantage of the strong demand conditions through its presence in different segments of the logistics industry.

    We had recommended this stock in our issue dated December 14, '09 and since then the stock has fell nearly 19.8%. At Friday's close of Rs 161.1, this stock trades at a P/E of 13.8 times on a consolidated trailing four-quarter basis, which is lower than that of other leading domestic peers. However, Allcargo trades at nearly 2.5 times its book value for its year ended December '09. It follows the calendar year. Historically, this stock has traded between 0.6 and 1.5 times its trailing book value during December '06 to December '08.

NETWORK INFRASTRUCTURE

Allcargo has a presence in over 59 countries across the world. Its overseas operations revenue amounted to $320 million (approximately Rs 1,470 crore) in CY09, or nearly 71.4% of its consolidated revenues for its year ended December '09. In its domestic operations also, Allcargo is present across different segments of the logistics industry. For instance, it has three container freight stations (CFS) at JNPT, Navi Mumbai, Chennai and Mundra. Its total capacity at these facilities is nearly 278,000 TEUs, (twenty feet equivalent)as on April '10, a rise of almost 26.4% from two years earlier. Allcargo also has an inland container depot (ICD) at Indore, with a capacity of 36,000 TEUs. Allcargo, receives cargo, including LCL, from its clients at its CFS/ICD and then suitably transports the goods. However, the dominant player in the domestic containerised rail freight segment is Container Corporation. In addition, Allcargo has a fleet of more than 500 specialised vehicles and equipment, ranging from cranes to trailers for meeting the logistics needs of user industries like oil exploration, power and infrastructure. Allcargo had invested Rs 610.4 crore on a consolidated basis during the period December '07 to December '09, while its operational cash flow during this period was just Rs 398.1 crore. As a result, its total consolidated debt was Rs 204.4 crore at the end of CY09, a jump of 62.2% from two years earlier.

    The company, in late April '10, raised nearly Rs 104.6 crore via the QIP route and it is expected to use the funds for inorganic opportunities and expansion of its existing logistics network.

FINANCIALS

The company's consolidated operating profit margin fell by 180 bps to 9.8% in the fourth quarter, at a time when its consolidated income from operations rose 21.9 % to Rs 585.75 crore. Pressure on its margins was due to its operating expenses as a percentage of its consolidated income that rose 440 bps to 66.4% in the quarter under review. Meanwhile, in the
key overseas operations, ECU's revenues grew nearly 12.9% to Rs 406.4 crore in the quarter and it accounted for 69.4% of its topline. However, this division's EBITDA at Rs 14.6 crore, fell nearly 33.2%, and as per various analysts, that was largely due to its inability to fully pass on higher freight rates to customers.

    Meanwhile, in its domestic operations, the company benefited from strong demand conditions from user industries, thanks to the robust 8.6% GDP growth in the March '10 quarter.

VALUATIONS

Allcargo Global trades at 13.8 times on a consolidated trailing four-quarter basis, while rival Gateway Distriparks trades at 16.6 times on a consolidated basis. Container Corporation of India, trades at nearly 21.7 times. Investors can consider Allcargo Global to leverage the longterm growth opport