Stock Review: Allcargo Global Logistics

 

Co's Belgium-Based Subsidiary ECU Posted 15% Growth In The June Quarter

 

THE stock of Allcargo Global Logistics has taken a hit in the past three months following uncertainty over the pick-up in global trade. However, its June 2010 quarterly performance indicates that the company witnessed higher demand from the global market.

   Allcargo Global benefited from a strong growth in external trade between Europe and emerging markets. The development helped its Belgium-based subsidiary ECU, which reported a robust 15% year-on-year growth in its segment revenues during the quarter. ECU accounts for over 70% of its consolidated quarterly income from operations.

   Allcargo is one of the leading global players in the less than container load (LCL) space. The company receives goods from various customers at its offices across the globe. It then books shipping lines to transport    goods to their final destinations.

   ECU has been reporting high growth since the March 2010 quarter, which is also the first financial quarter for Allcargo. Senior company officials highlighted that shipping companies hiked freight rates in the December 2009 quarter and again in the March 2010 quarter, but the company passed on the rate hike to customers immediately. As a result, the June quarter growth of ECU's operations has been much faster than the previous quarter.

   In the domestic market, Allcargo once again benefited from strong demand driven by an upturn in the industrial and capital expenditure cycle. As a result, its consolidated income from operations grew a robust 22.2% y-o-y to Rs 639.5 crore in the quarter. But the inability to fully pass on higher costs led to a 150 basis points drop in its operating margin at 10.4% from the yearago level. A reduction of 64.4 % in its other income caused a 19% drop in net profit at Rs 37.9 crore.

   Going forward, the performance of Allcargo will be closely linked to the pick-up in global trade. However, the company officials highlight that they are better positioned visà-vis their competitors to deal with any potential slowdown in global market. Further, the robust domestic economy should support its array of logistics solutions.

   Over the past three months, Allcargo's stock has declined 6.5% compared to a 7.2% rise in the Sensex. At the Tuesday's closing price of Rs 170, Allcargo trades at nearly 15 times its consolidated trailing four-quarter earnings. This is at a discount when compared with its larger domestic peer Container Corporation of India, which attracts a P/E of over 23.