Allcargo Logistics - Myirisbreport.myiris.com/PRALILLA/ALLGLOLO_20151007.pdf · Exhibit 5: Stable...

Company Report Industry: MidCaps

Nishna Biyani ([email protected]) +91-22-66322239

Keyur Pandya ([email protected]) +91-22-+91-22-66322247

Allcargo Logistics

Building a Niche

October 07, 2015 2

Allcargo Logistics

Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision.

Please refer to important disclosures and disclaimers at the end of the report

Contents

Page No.

What can drive the re-rating? ...................................................................................... 4

Investment Rationale .................................................................................................... 6

Proxy play to global containerized trade with market leadership in LCL Consolidation ..................... 6

PES Segment to benefit from the cyclical recovery in economy ......................................................... 6

CFS business continue to remain a cash cow ...................................................................................... 7

Company Background ................................................................................................... 9

History of AGL ...................................................................................................................................... 9

Key Managerial Personnel ................................................................................................................... 9

Global M&A Stint begins with Ecu-Line, acquisitions value accretive ............................................... 10

New lines of business segments complementing core MTO operations .......................................... 10

Industry and Business Segments ................................................................................ 12

Multimodal transport operations ...................................................................................................... 12

Who uses LCL? ................................................................................................................................... 13

Revenues in MTO business irrelevant; focus is on EBIT/TEU ............................................................ 14

MTO continues to show robust volume growth backed by increased coverage .............................. 14

Ecu-Line is a self sustaining business model with just Rs684m invested from AGL balance sheet ... 16

MTO is an asset-light business with inherently high RoCE ................................................................ 16

Container Freight Station (CFS) and Inland Container Depot (ICD) ................................................... 17

Approximately 45% of Container traffic is handled by CFS’s and 28% by ICD’s in India ................... 18

AGL enjoys the early mover advantage in CFS business .................................................................... 18

Competition continues to be tough limiting new entrants in the CFS/ICD business ........................ 20

Strategically located CFS’s benefits AGL ............................................................................................ 20

AGL is continuously exploring opportunities to establish Pan-India ICD’s through strategic JV’s .... 21

Project Engineering and Services (PES) ............................................................................................. 21

Equipment Rental – Constitutes significant EBIT to segment results .......................................... 22

Project Logistics ........................................................................................................................... 23

Coastal Shipping – Constitutes almost 15% of Segment revenues .............................................. 23

PES is an asset-heavy business; catching the cycle right is important .............................................. 24

Assumption Sheet ....................................................................................................... 25

Financials .................................................................................................................... 26

AGL is expected to generate cash profit in excess of Rs4.8bn per annum over the next two years . 26

Strong cash flows has historically funded capex ............................................................................... 27

Domestic debt gradually inching lower over the last four years ....................................................... 27

Valuation and Outlook ................................................................................................ 28

Risks and Concerns ..................................................................................................... 30

Large acquisitions in MTO segment to enhance reach or consolidate existing position in the region .......................................................................................................................................... 30

Goodwill of Rs8.3bn poses an Impairment risk ................................................................................. 30

Currency translation Risk ................................................................................................................... 30

Liability Risk ....................................................................................................................................... 30

Allcargo Logistics

Company Report October 07, 2015

Rating BUY

Price Rs310

Target Price Rs386

Implied Upside 24.5%

Sensex 26,933

Nifty 8,153

(Prices as on October 06, 2015)

Trading data

Market Cap. (Rs bn) 39.1

Shares o/s (m) 126.2

3M Avg. Daily value (Rs m) 36

Major shareholders (As on 30 June 2015)

Promoters 69.90%

Foreign 25.40%

Domestic Inst. 0.00%

Public & Other 4.70%

Stock Performance

(%) 1M 6M 12M

Absolute 7.0 (6.1) 33.0

Relative 0.1 (0.6) 31.7

How we differ from Consensus

EPS (Rs) PL Cons. % Diff.

2016 23.3 24.5 -4.9

2017 27.5 30.1 -8.6

Price Performance (RIC: ACLL.BO, BB: AGLL IN)

Source: Bloomberg

050

100150200250300350400

Oct

-14

De

c-1

4

Feb

-15

Ap

r-1

5

Jun

-15

Au

g-1

5

(Rs)

Allcargo logistics (AGL) is expected to generate a cash profit of Rs9.8bn over FY15-FY17E period against the current Net Debt of Rs3.2bn. These cash generations is expected from, (i) a steady 7-9% growth in the global NVOCC business, (ii) a 8-10% growth in the domestic NVOCC businesss, (iii) a steady 10% growth in the domestic CFS business and, (iv) sharp increase in the capacity utilisation of the Project and Engineering Services business catapulting AGLL into a net cash company by FY17. The stock at Rs310 trades at a one year forward multiple of 12.2x Sept 16 earnings, a significant discount to the market multiple of 16.4x one year forward multiple, offering ample scope for a re-rating. Performance in NVOCC segment has been robust with a 22% CAGR volume growth over FY13-FY15 period despite weak global growth, as AGL primarily operates in LCL segment which is lesser impacted compared to the FCL trade. Strong domestic presence across CFS and Project Engineering space is expected to bode well for AGL as it benefits from the domestic capex cycle recovery, with the current capacity utilisation at 95% against the FY15 average of 79%. AGL trades at 11.3xFY17E earnings, P/BV of 1.6x, D/E ratio of 0.11x and EV/EBITDA of 5.5x which we feel is reasonable entry point considering 20.4% CAGR PAT over FY15-FY17E period, improving return ratios and strong management bandwidth. We initiate coverage on AGL with a ‘BUY’ and a Target Price of Rs386, valuing the company on PER of 14x FY17E.

Strong turnaround in the Project Engineering and Crane Rental business: AGL is experiencing high equipment utilization (95% in Q1FY16) and improving pricing in its crane rental business, which in our opinion, can double the EBIT from 0.7bn to 1.35bn over FY15-FY17E period.

CFS Business continues to remain a cash cow: With a capacity to handle 0.5m TEUs per annum, AGL’s CFS division has delivered strong operating cash flows over FY10-FY15 period (average EBIT of ~Rs1.1bn for the last five years).

Strong cashflows with minimal capex: AGL is firmly established in the logistics part of the business chain ranging from CFS to ICD to being an aggregator. In addition, their investments in the PE business during the downturn are seeing the benefits in the recovery of the economic cycle.

Key financials (Y/e March) 2014 2015 2016E 2017E

Revenues (Rs m) 48,594 56,288 60,930 67,141

Growth (%) 23.8 15.8 8.2 10.2

EBITDA (Rs m) 3,913 4,754 5,737 6,301

PAT (Rs m) 1,493 2,399 2,945 3,476

EPS (Rs) 11.8 19.0 23.3 27.5

Growth (%) (12.0) 60.6 22.7 18.0

Net DPS (Rs) 1.5 2.0 2.5 3.0

Profitability & Valuation 2014 2015 2016E 2017E

EBITDA margin (%) 8.1 8.4 9.4 9.4

RoE (%) 8.8 13.0 14.5 15.0

RoCE (%) 9.4 13.3 16.1 18.0

EV / sales (x) 1.0 0.8 0.6 0.5

EV / EBITDA (x) 12.1 9.2 6.7 5.5

PE (x) 26.2 16.3 13.3 11.3

P / BV (x) 2.2 2.1 1.8 1.6

Net dividend yield (%) 0.5 0.6 0.8 1.0

Source: Company Data; PL Research

Allcargo Logistics

October 07, 2015 4

What can drive the re-rating?

Exhibit 1: Management bandwidth addition

AGL has appointed Prakash Tulsiani as its CEO and Martin

Mueller as the Chief Commercial and Strategy Officer.

Tulsiani, 53, was earlier the Managing Director of Gujarat

Pipapav. He was also with the A P Moeller Maersk Group in

several management positions between 1995 and 2005.

He headed Gateway Terminals in Mumbai as COO from

2005 to 2009.

Mueller, 45, is a Swiss national and a former consultant of

McKinsey & Co.

He has also been associated with companies such as DHL

Global Forwarding and Agility Global Integrated Logistics.

Source: Company Data, PL Research

Exhibit 2: MTO business remains a cash cow with EBITDA generation of ~1.9bn for FY15, projected to grow 10% over next two years through organic growth alone

37

5

73

8

10

83

57

6

10

01

16

93

14

84

15

58

18

968

15

21

17

22

34 32 4147

0

10

20

30

40

50

0

500

1000

1500

2000

CY

06

CY

07

CY

08

CY

09

CY

10

FY

12

*

FY

13

FY

14

FY

15

EBIT (Rs m) Revenues (Rs bn) (RHS)

Source: Company Data, PL Research *for 15 months period

Exhibit 3: Early signs of domestic capex cycle revival bodes well for the Project Engineering Services (PES) division

Sectors like Power, Oil & Gas, Cement etc. to lead demand

growth for specialized transportation solutions

Government Allocation of Rs700bn for Infrastructure in

Budget 2015

Government plans to increase wind energy generation to

60,000 MW in the next five years

India's cement capacity expected to go up to 550MT by 2020

from current 370MT

53 Indian cities above 1m population & plan to build Metro

rail in all State Capitals

US$45bn is expected to be spent in Oil & Gas Sector in India

in the next few years

Equipment utilization for AGL has improved significantly

from 70% in FY14 to 95% as at Q1FY16


Exhibit 4: In a sweet spot currently since major investments caught the wrong cycle during FY10-FY13 period

5,163

7,890

2,779

911 353

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

CY10 FY12* FY13 FY14 FY15

(Rs

m)

Capex


Allcargo Logistics

October 07, 2015 5

Exhibit 5: Stable EXIM trade will help CFS business improve utilization over next 2-3 years

8.8 9.4 9.710.5

11.312.1

13.2

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

FY11 FY12 FY13 FY14 FY15E FY16E FY17E

Container Traffic (m TEUs)

29 31 29 30 34 37 40

9 11 14 1515

1719

0

20

40

60

80

FY11 FY12 FY13 FY14 FY15E FY16E FY17E

(Rs

bn

)

Size of Indian CFS/ICD Industry

CFS ICD

Source: Navkar Corporation RHP, PL Research

Exhibit 6: Cash profit of Rs9.8bn over next 2 years

3,171 3,248

3,973

4,566

5,216

-

1,000

2,000

3,000

4,000

5,000

6,000

FY13 FY14 FY15 FY16E FY17E

(Rs

m)


Exhibit 7: Return ratios inching higher

0.0

5.0

10.0

15.0

20.0

25.0

FY12* FY13 FY14 FY15 FY16E FY17E

RoAE (%) RoACE (%)


Exhibit 8: Capex mostly funded through cash flows and current debt stands at Rs3.2bn

5,853

4,914

6,882

4,165

3,210

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

FY12* FY13 FY14 FY15 Q1FY16

(Rs

m)

Net Debt

0.510.46

0.55

0.32

0.00

0.10

0.20

0.30

0.40

0.50

0.60

FY12* FY13 FY14 FY15

(x)

Debt/Equity


Allcargo Logistics

October 07, 2015 6

Investment Rationale

Proxy play to global containerized trade with market leadership in LCL Consolidation

AGL is amongst the fastest growing LCL operators currently with network spanning

over 90 countries and 200 offices worldwide. The company currently covers 82% of

world with a comprehensive network of 4000 port pairs connecting all continents

and trade hubs. The learning curve in MTO and the continuous business expansions

through the inorganic route funded by internal cash accruals have provided AGL not

only with strong financial credentials but exceptional management bandwidth over

the years.

AGL had invested EUR22m (Equity value) for the acquisition of Ecu-Line in Europe in

2005. Post that, all subsequent acquisitions were funded by internal accruals. The

MTO business has generated Rs1.5-1.9bn EBIT per year with negligible incremental

capex. With such strong franchise and a recurring cash flow visibility, AGL offers a

self-sustaining growth model.

Exhibit 9: Barring 2009, Global containerized trade is inching upwards

-10%

-5%

0%

5%

10%

15%

0

50

100

150

200

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

Containerised Trade (m TEUs) YoY gr. (RHS)

Source: UN Maritime Report 2014 , PL Research

Exhibit 10: AGL expected to touch 0.5m TEUs by FY17 growing @10%

2,84,7263,34,870

4,22,2004,64,420

5,10,862

0.0

5.0

10.0

15.0

20.0

25.0

30.0

0

1,00,000

2,00,000

3,00,000

4,00,000

5,00,000

6,00,000


Volumes (TEU'S) (Cons) YoY gr. (%) (RHS)


PES Segment to benefit from the cyclical recovery in economy

AGL is one of the few companies in India with a fleet of over 1000 owned

equipments, which includes range of Cranes (Crawler, Telescopic, Truck Lattice and

all Terrain), Hydraulic Axles & Self Propelled Modular Transporters (SPMTs), Strand

Jacks, Trailers (Low Bed, Semi Low & High Bed), Fork Lifts, and Reach Stackers. Most

of the fleet was acquired during FY10-FY13 period which caught the down-cycle in

the economy. But with economy expected to pick-up pace with increased corporate

capex and Government spending, high equipment utilization levels and firm pricing

will help the segment to almost double the EBIT from 0.7bn to 1.35bn over

FY15-FY17 period. We have already witnessed an increase in the capacity utilization

in 1QFY16 and we expect this to translate to firmer pricing in FY17.

Allcargo Logistics

October 07, 2015 7

Exhibit 11: Equipment Bank includes a fleet of 143 heavy-duty cranes

Less than 100 T

46.9%

100-250T

32.2%

250T and 750T21.0%


CFS business continue to remain a cash cow

AGL has been amongst the very few early entrants in the CFS business who

recognized the scale of business opportunity and accordingly developed facilities

across JNPT (Mumbai), Mundra (Gujarat) & Chennai. With a capacity to handle

almost 0.5m TEUs per annum, AGL’s CFS division has delivered strong operating cash

flows over FY10-FY15 period (average EBIT of ~Rs1.1bn for last five years). However,

with significant under-utilized capacities and cut throat competition in the CFS

business, operating margins have fallen from the earlier highs. We believe that the

prices have bottomed out in FY14 and are expected to hold steady going forward

and we expect AGLL to benefit from improved utilization.

Exhibit 12: Stable EBIT in CFS despite falling margins

1.1

4

0.9

6

1.0

9

1.1

9

1.3

2

37.0

30.828.1 28.0 28.0

0.0

10.0

20.0

30.0

40.0

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40


EBIT (Rs bn) EBIT Margin (%) (RHS)


Exhibit 13: Enough lee-way for utilization to pick up

2,5

8,8

59

2,5

0,2

09

2,9

1,5

72

3,1

9,3

95

3,5

5,3

8060.3

43.750.9

55.762.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

0

1,00,000

2,00,000

3,00,000

4,00,000


TEU's Handled % Utilization (RHS)


AGL caught the PES cycle wrong with bulk

of the investments done in FY10-FY13

period

AGL depends upon shipping lines for its CFS

business and in return it gives shipping

lines container volumes of its MTO

(multimodal transport) business. This

barter has helped AGL maintain both

business volumes and strong operating

cash flows in a fiercely competitive CFS

market

Allcargo Logistics

October 07, 2015 8

Strong cash flows and healthy balance sheet makes AGL a compelling story

AGL is expected to generate cash profit of ~Rs9.8bn over the next two years from

the existing business operations. Further, with most of the capex cycle behind in PES

and CFS division, AGL is in a sweet spot with strong balance sheet (D/E ratio at 0.15x

for FY16E) and improving return ratios. Strong cash flows generated over the next

few years will further reduce debt and help AGL pursue new growth opportunities.

Exhibit 14: Return Ratios inching higher

0.0

5.0

10.0

15.0

20.0

25.0

FY12* FY13 FY14 FY15 FY16E FY17E

RoAE (%) RoACE (%)


Exhibit 15: D/E Ratio inching lower

0.510.46

0.55

0.32

0.00

0.10

0.20

0.30

0.40

0.50

0.60

FY12* FY13 FY14 FY15

(x)

Debt/Equity


Allcargo Logistics

October 07, 2015 9

Company Background

Allcargo Logistics Ltd (AGL), a port-based logistics company founded by Mr. Shashi

Kiran Shetty, is engaged in providing specialised logistics services across multimodal

transport operations, inland container depot, container freight station operations,

third-party logistics operations and project and engineering solutions.

History of AGL

Mr Shetty moved to Mumbai from Mangalore in 1978. After a brief stint in a

shipping agency, he started logistics park Trans India in 1983, which was later

merged with AGL, formed in 1993. It started operations as a shipping and freight-

forwarding agency. He decided to operate in a niche area—LCL. In 1995, Belgium-

based Ecu-Line NV, the world’s second largest LCL firm, appointed AGL as its agent

for Mumbai and New Delhi, recognizing its position as India’s first LCL operator with

growing volumes of such cargo for aggregation to destinations worldwide in those

days. This transitioned AGL to a MTO which offered consolidation of LCL (less-than-

container load) and FCL (full container load) cargoes for exporters and importer.

Exhibit 17: Promoter holding above 70% over the years

FY10 FY11 FY12 FY13 FY14 FY15

Promoter Holding (%) 73.0 69.8 69.8 72.1 72.3 69.9


Key Managerial Personnel

Mr Shashi Kiran Shetty: He has an experience of around four decades in the logistics

industry and has worked with various organisations like Inter-modal Transport and

Trading Systems, Forbes Gokak, a TATA Group Company etc. before starting his own

venture.

Mr Adarsh Hegde (Executive Director): He spearheads the CFS/ICD, project Logistics

and Warehousing business of the company. He has an experience of more than two

decades in the industry. He is also on the board of Ecu-Line and is the president of

CFS Association of India.

Mr S.Suryanarayan (Executive Director): He is a qualified Chartered Accountant and

has a rich work experience of three decades in industries like engineering, shipping

and logistics. Prior to joining AGL, he has worked in organizations like Reliance and

Great Eastern Shipping. He is also Director Finance & Joint CEO of Ecu-Line

Exhibit 16: Key Shareholders

Promoters 70%

Blackstone Capital Partners 15%

Acacia partners 6%

New Vernon PE 3%

Others 6%

Source: Bloomberg, PL Research

Blackstone has entered at an average price

of Rs188/share

Mr. Shashi Kiran Shetty sold 3m shares in

July 2014 for average price of Rs245,

aggregating Rs735m for some personal

pursuits

Allcargo Logistics

October 07, 2015 10

Global M&A Stint begins with Ecu-Line, acquisitions value accretive

Mr Shetty realized the opportunity of LCL Consolidation world-wide after operating

as Ecu-Line agent for a decade. In 2005, an opportunity arose and AGL took a 33.8%

stake in Ecu-Line and the following year, acquired the remaining stake thereby

making Ecu-line a 100% subsidiary of AGLL. The takeover of Ecu-Line, which had

almost five times the AGLL’s revenue in 2006, for an enterprise value of

approximately €45m, made AGL the world’s No. 2 LCL firm overnight, next only to

Vanguard logistics, a Private Equity supported firm based out of US.

To strengthen its domestic presence and participate in growing airfreight business,

AGL acquired Hindustan Cargo in January 2007 from Thomas Cook.

Exhibit 18: Showing M&A Stint at AGL

Year of acquisition

Cost of acquisition (EV)

Sales then* Sales Now*

MTO

ECULINE CY2005 ~EUR 50m* EUR100m EUR540m

CHINA/HONG KONG CY10 USD22m* USD 75m USD 91m

ECONOCARIBE (US) FY13 USD50m* USD128m USD140m

Source: Company Data, Media Reports, PL Research Estimates*

AGL continued to make strategic acquisitions in globla markets to connect the last

mile. It bought companies in the UK and Hong Kong to increase market share and

presence. But it still had gaps in the US, Australia, Canada and Africa. In Sept 2012,

AGL acquired US-based logistics company, Econocaribe Consolidators Inc, which had

over US$125m in revenue and happened to be the agent of Ecu-Line for its US

business. The acquisition gave AGL entry into the US and Canadian markets and a

front-runner position in the LCL business. To further consolidate its position in

Europe, it acquired 75% stake in Netherland-based FCL Marine Agencies.

New lines of business segments complementing core MTO operations

In 2003, AGL integrated forward into CFS operations in order to offer value-added

services to clients. It owns CFS (container freight station) near the Jawaharlal Nehru

Port Trust, Mumbai and also in Chennai and Mundra. The company gradually added

new lines of business verticals such as Project and Equipment Engineering solutions,

Inland Container Depot, Coastal Shipping and Air Freight.

Allcargo Logistics

October 07, 2015 11

Exhibit 19: AGL Business Snapshot


Exhibit 20: Segment EBIDTA Profile for last 3 years

5.3 4.4 4.6

35.4 35.933.5

29.8 31.0 30.5

0.0

10.0

20.0

30.0

40.0

FY13 FY14 FY15

(%)

MTO CFS P&E


Exhibit 21: Segment RoCE for last 3 years (MTO includes goodwill)

20.9

15.8 16.0

30.5

23.0 25.8

4.7 1.6

9.2

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

FY13 FY14 FY15

(%)

MTO CFS P&E


.

FY15

Revenues : Rs 56.2 bn

EBIT Rs 3.71bn

MTO (ECULINE) (Multimodal Transport

Operations)

Revenues : Rs47.7bn

EBIT: Rs1.89bn

EBIT Margin: 4%

Revenue share :

83%

LCL

Less than container

load

FCL

Full container load

CFS (Container Freight Station)

Revenues : Rs4bn

EBIT: Rs1.08bn

EBIT Margin : 26.9%

Revenue share :

7%

CFS

JNPT 1

JNPT 2

Mundra

Chennai

ICD

Dadri

Pithampur

PES (Project and Engg services)

CRANE RENTAL

Revenues : Rs5.2bn

EBIT: Rs0.74bn

EBIT Margin : 14%

Revenue share : 9.2%

Project Logistics

(large turnkey projects)

Equipment Rentals

(Equipment Bank of 143

cranes)

Coastal Shipping (5 Ships)

Allcargo Logistics

October 07, 2015 12

Industry and Business Segments

Multimodal transport operations

AGL offers consolidation and freight services for export and import cargo, utilising

multiple modes of transport like sea, road and rail under a single multimodal

transport document. It receives LCL cargo from various freight forwarders which is

consolidated based on destinations into containers at bonded warehouses. These

containers are then shipped to either final destination or to hub ports from where it

is trans-shipped to final destination.

Exhibit 22: LCL consolidation explained

Source: PL Research

Allcargo Logistics

October 07, 2015 13

LCL is normally a shipment that will not fill up a container. With an LCL shipment, you

pay for your load to be shipped in a container with one or more loads from other

customers of the freight transport provider. If you know that you cannot fill even a

20-foot container (TEU), LCL is the most sensible option in terms of cost and

convenience.

Who uses LCL?

LCL is most commonly used by small as well as medium sized business units. This is

because most of the times, they don’t have enough goods to fill a full load. LCL is

even used by companies that offer services to smaller companies or are getting into

new markets. Retailers, especially apparel, are frequent LCL users, as are the

automotive, oil and gas, chemicals and e-commerce industries. As sourcing

locations diversify and demand increases, the scope of LCL services has grown

manifold over the years.

Prospects for the world economy, trade and shipping seem to be improving,

although a number of risks mostly on the downside remain. These include, in

particular, the fragile recovery in developed economies, the difficulties facing growth

in large emerging economies and geopolitical tensions that may escalate. These risks

could derail the world economy away from positive growth. AGL, as an LCL

consolidator, is less hurt by the weakness in the container market since a large part

of full container load volumes in tough times gets converted into LCL volumes.

Perhaps that's why LCL has grown over the past decade.

Getting a precise percentage of steamship cargo moving via LCL is tough because

service providers often consolidate shipments and then present them to steamship

carriers as full containers.

Exhibit 23: Containerized trade on a rise over the past 10 years

-10%

-5%

0%

5%

10%

15%

0

20

40

60

80

100

120

140

160

180

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Containerised Trade (m TEUs) YoY gr. (RHS)

Source: UN Maritime Report 2014 , PL Research

The consolidator need to offer all services

required at the destination, such as strong

local Customs and transportation

knowledge, and several partners to provide

flexible shipping options. Primary

requirement for LCL business include a

strong track record and a solid global

network.

Today's LCL is much improved, with end-to-

end pricing; direct routes and frequent

sailings; increased visibility and control;

streamlined processes and packaged

solutions that provide security, clarity,

speed, and certainty. Freight forwarders

continue to introduce new LCL services in

previously under-served markets and to

customize solutions to meet ocean

shippers' specific needs

Growth in GDP, merchandise trade and

seaborne shipments are interlinked and

continue to move in tandem. Trade can

generally grow faster or slower than GDP,

although since the 1990s it has tended to

grow about twice as fast

Allcargo Logistics

October 07, 2015 14

Revenues in MTO business irrelevant; focus is on EBIT/TEU

Freight rates are a function of trade routes and therefore are not controlled by AGL.

So, while the volume growth could remain strong in the near term, revenues may

not grow proportionately driven by lower freight rates due to the fall in crude prices.

AGL, however, should be able to sustain its margins since the MTO business model

allows for the pass through of the freight rates and the earnings is based on

EBIT/TEU carried.

Exhibit 24: MTO Business model

Revenues recognised 100%

Pass Through Costs mainly to shipping lines 73%

Gross profit 27%

Employees Cost 15%

Other Expenses 6%

EBIDTA Margin 5%

Leveraging factor: Volume growth in LCL Segment


Exhibit 25: EBIT per TEU is largely stable over the years

4,000

4,200

4,400

4,600

4,800

5,000

5,200

5,400


(Rs)

Rs 4536/TEU


The flip side though, is the slowing trade in developed markets impacting its fortunes

but we believe, the wide scope of its business offering would lend it the much-

needed cushion. It merits note here that the freight consolidation business had

remained relatively unscathed even in the 2008 Global Financial Crisis downturn as

well.

MTO continues to show robust volume growth backed by increased coverage

AGL has shown strong business traction in the MTO segment handling 422,000 TEUs

in FY15, a YoY growth of 26% and is expected to deliver a volume growth of 10%

CAGR to 510,862 TEUs by FY17. Most of this business is controlled by overseas

revenues forming ~92% of turnover (including Hindustan cargo-the air freight

division), while Indian operations account for 7.6%. AGL has been able to maintain

volume growth by making strategic acquisitions in different geographies and

consolidating its network of offices and third party agents. Markets of Germany, UK,

USA, Australia, Malaysia and China majorly contribute to organic volume increase

in the MTO segment over the years. Besides LCL consolidation, AGL has also forayed

into FCL freight-forwarding through acquisition of FCL Marine, a Netherlands based

FCL freight-forwarding company

Allcargo Logistics

October 07, 2015 15

Exhibit 26: Volume growth continues to be strong with stable margins

4.7%

3.8%4.0% 4.1% 4.1%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

0

1,00,000

2,00,000

3,00,000

4,00,000

5,00,000

6,00,000


Volumes (TEU'S) (Cons) EBIT Margins (RHS)


Exhibit 27: Ecu-Line dominates the MTO Business with almost 86% revenue share

0

10,000

20,000

30,000

40,000

50,000

60,000


(Rs

m)

ECULINE Hindusthan Cargo India NVOCC

82.0% 85.8% 86.2% 86.4% 86.9%

82.0% 85.8% 86.2% 86.4%

5.6%

5.9%6.2%

6.6%

8.1%

10.0%

7.6%

7.6%7.7%

7.6%


Exhibit 28: Asia Pacific and Europe accounts for almost 80% of volumes in MTO

58% 64%56% 58%

31% 24%25% 24%

9% 10%19% 17%

0%

20%

40%

60%

80%

100%

FY12 FY13 FY14 FY15

Asia Pacific Europe US & LATAM Africa


Allcargo Logistics

October 07, 2015 16

Ecu-Line is a self sustaining business model with just Rs684m invested from AGL balance sheet

AGL acquired Ecu-Line in CY05 for a consideration of ~EUR50m EV. All the

subsequent acquisitions including two Hongkong based companies (EV-US$22m) in

CY10, Econocaribe-US (EV-US$50m) in FY13 and Netherland based FCL Marine

(undisclosed amount) in FY13 have been funded by cashflows of Ecu-Line. Today,

Ecu-Line is the fastest growing LCL operators with network spanning over 90

countries and a comprehensive network of 4000 port pairs connecting all continents

and trade hubs globally.

Exhibit 29: Barring 2009 and 2013, MTO operations have never seen dips in absolute EBIT

375

738

10

83

576

10

01

16

93

14

84

15

58

18

96

8

15

21

17

22

34 32 41

47

0

10

20

30

40

50

0

500

1000

1500

2000

CY06

CY07

CY08

CY09

CY10

FY

12

*

FY

13

FY

14

FY15

EBIT (Rs m) Revenues (Rs bn) (RHS)


MTO is an asset-light business with inherently high RoCE

Historically, Ecu-Line acquires a complementing LCL/FCL service provider which

either gives increased penetration or consolidation in the existing geographies with

the cash flows accumulated every 2-3 years. This has resulted in a goodwill

component of Rs8.3bn, which get reflected in the capital employed for the MTO,

thus, depressing the RoCE. Ex goodwill, AGL has deployed Rs3.85bn in the MTO

business which implies RoCE upwards of 40% for the last three financial years. Even

the global listed players enjoy RoCE upwards of 50% in the LCL business which makes

it an attractive business proposition considering the near zero interest rates

prevailing in the US and Euro Zone.

Allcargo Logistics

October 07, 2015 17

Exhibit 30: RoCE including goodwill and excluding goodwill

20.915.8 16.0

45.042.0

49.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0

FY13 FY14 FY15

(%)

Considering Goodwill Without Considering Goodwill


Container Freight Station (CFS) and Inland Container Depot (ICD)

Container volumes in India is expected to grow ~8% CAGR over 2015-2020 period,

driven by EXIM trade and an increase in containerization from the current 55% to

>65% (vs developed markets average of 70%). In the long term, the container traffic

at JNPT is expected to increase due to upcoming infrastructure projects such as the

Dedicated Freight Corridor and the Delhi Mumbai Industrial Corridor. However, until

these projects become operational, non-major ports will continue to attract

incremental traffic, albeit at a slower pace. In 2016, an additional container handling

capacity of 1.3 million TEUs is expected to become operational at Mundra.

Exhibit 31: EXIM Trade has been growing @16% over last 5 yrs

0

10,000

20,000

30,000

40,000

50,000

FY

00

FY

01

FY

02

FY

03

FY

04

FY

05

FY

06

FY

07

FY

08

FY

09

FY

10

FY

11

FY

12

FY

13

FY

14

FY

15

(Rs

bn

)

Export Import

Source: Ministry of Commerce & Industry, PL Research

Exhibit 32: Container traffic movement at major ports

4,466

2,718

1,552

560 528 365 248

0

1,000

2,000

3,000

4,000

5,000

(00

0' T

EU

s)

Container Traffic at Key Ports in FY15

Source: Indian Ports Asso, Adani Ports & SEZ, PL Research

Almost 80% of the total container traffic in

India is handled by four ports, JNPT Port,

Chennai Port, Mundra Port and Pipavav

Port

Allcargo Logistics

October 07, 2015 18

Approximately 45% of Container traffic is handled by CFS’s and 28% by ICD’s in India

Almost 55% of all imports and 35% of all exports use CFS facilities in India. The share

of export traffic handled by CFSs of total container traffic is comparatively less

because custom regulations are more facilitative for exporters. Exporters typically

stuff the containers at the factory then the containers are cleared by the custom and

excise authorities at the plant and are directly transported (~37%) to the port

without employing the services of a CFS. ICDs are employed by some exporters and

handle ~ 28% of the total export traffic.

Exhibit 33: Import handled split at major ports

CFS55%ICD

29%

Ports16%


Exhibit 34: Exports handled split at major ports

CFS35%

ICD28%

Ports

37%


AGL enjoys the early mover advantage in CFS business

AGL has been amongst the very few early entrants in the CFS business who

recognized the scale of business opportunity and accordingly developed facilities

across JNPT (Mumbai), Mundra (Gujarat) & Chennai. AGL is the only company having

significant presence at all 3 major container ports of India. With a capacity to handle

almost 0.5m TEUs per annum, AGL’s CFS division has delivered strong operating cash

flows over FY10-FY15 period (average EBIT of ~Rs 1.1bn for last 5 yrs).

Allcargo Logistics

October 07, 2015 19

Exhibit 35: CFS Segment has significant operations across 3 major container ports of India


In FY15, AGL, in terms of volume, was the leading CFS operator at Chennai port and

amongst the top five operators at JNPT and Mundra ports. CFS business due to its

nature and constraints for the new entrants (proximity to port, contiguous land

parcel and capital) enables operators to earn rich margins in the business. The

operating costs involved in the CFS are relatively low and hence operators can earn

high operating margins based on higher utilization rates.

Exhibit 36: CFS business for AGL dominated by JNPT volumes

2,58,859 2,50,209

2,91,572 3,19,395

3,55,380

-

50,000

1,00,000

1,50,000

2,00,000

2,50,000

3,00,000

3,50,000

4,00,000


TEU

s

Volumes handled at CFSs

Source: PL Research

AGL leases container space with major

shipping companies for its clients in MTO

segment and on the other hand, it gets

clients of CFS segment from the same

shipping lines

Allcargo Logistics

October 07, 2015 20

CFS business is mostly driven by EXIM trade volumes. CFS business is also driven by

dwell time - the ground rent charged to customers for using the space for storage of

containers. EBITDA/TEU for each of the CFS is directly linked to the dwell time, i.e.,

the number of days for which the container stays at the freight station. Hence, the

higher the dwell time, the higher the CFS revenue. Typically, import cargos have

higher dwell time compared to export cargos as the former takes longer time for

custom clearance. AGL has always been an import heavy operator (80%), i.e, the mix

of Export: Import volumes have been higher on the import side, thus benefitting its

revenues.

Exhibit 37: Dwell Time has been stable around 10 days for most CFS’s

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

FY12 FY13 FY14 FY15

Source: Industry, PL Research estimates

Exhibit 38: AGL CFS volumes are dominated by Imports

0%

20%

40%

60%

80%

100%

CY10 FY12 FY13 FY14 FY15

Import Export

Source: Company data, PL Research

Competition continues to be tough limiting new entrants in the CFS/ICD business

There are approximately 31 CFS companies at JNPT, 28 at Chennai port and 10 at

Mundra port. Due to the large number of companies, utilisation and margins are

expected to remain under pressure. However, over the long term, better

infrastructure and healthy growth in container traffic resulting from capacity

additions at major ports will improve utilisation rates thus stabilize margins. The

limited availability of land at strategic locations near ports acts as a barrier to entry

due to high land prices. Additionally, the host of guidelines issued by the Inter-

Ministerial Committee pertaining to requirements on land, minimum equipment and

minimum TEUs to be handled, may dissuade new players from entering the CFS and

ICD industry.

Strategically located CFS’s benefits AGL

AGL derives significant revenues from JNPT CFS which is strategically located at a

distance of 17kms from the JNPT port. Major costs in running a CFS are

transportation and logistics costs. CFS set-up cost which includes costs of land and

construction of the CFS facility has increased manifold over the years making CFS

set-up non lucrative business proposition currently. However, margins have been

under pressure and we believe the same has bottomed out in FY14.

There are approximately 31 CFS companies

at JN Port, 28 at Chennai port and 10 at

Mundra port.

Allcargo Logistics

October 07, 2015 21

Exhibit 39: Fall in margins over last couple of years have stabilized

0.0

10.0

20.0

30.0

40.0

50.0

60.0

0

5,000

10,000

15,000

FY12 FY13 FY14 FY15 FY16E FY17E

Revenue/TEU (Rs) EBIT/TEU (Rs)

EBIT Margin (%) (RHS)


Exhibit 40: Enough lee-way to improve capacity utilization over FY15-FY17E period

-

10.0

20.0

30.0

40.0

50.0

60.0

70.0

0

1,00,000

2,00,000

3,00,000

4,00,000

5,00,000

6,00,000

7,00,000


Total Capacity (TEUs) % Utilization (RHS)


AGL is continuously exploring opportunities to establish Pan-India ICD’s through strategic JV’s

AGL currently operates 2 ICD’s, one at Pithampur, MP with installed capacity of

36,000 TEU’s per annum and another at Dadri, UP with capacity of 52,000 TEU’s. AGL

has entered into a JV with Container Corporation of India for setting up an ICD at

Dadri. AGL owns 51% of the JV, with balance owned by Concor. The facility is set up

on a 11 acre land belonging to Concor. AGL has not seen significant traction in its ICD

business over the years and contributes less than 10% of CFS revenues. However,

AGL is best placed to capture any business opportunity arising in future with

significant historic land bank spread across three strategic locations.

Exhibit 41: Land bank of 200 acres spread across three strategic locations

Bangalore 110 acres

Hyderabad 40 acres

Nagpur 63 acres


Project Engineering and Services (PES)

AGL, through its projects and engineering solutions segment, offers services that

include equipment leasing, transportation of high-value specialised equipment such

as oilfield equipment, power plants and compressor stations that cannot be

containerised on a turnkey basis and Coastal shipping. This is a cyclical business,

inherently asset heavy and tends to perform extremely well during capex cycle

revival. The capacity utilisation has improved to 95% in 1QFY16 and we expect the

pricing to improve in FY17.

Allcargo Logistics

October 07, 2015 22

Equipment Rental – Constitutes significant EBIT to segment results

AGL owns a diverse fleet of over 1000 owned equipments, that includes complete

range of Cranes (Crawler, Telescopic, Truck Lattice and all Terrain), Hydraulic Axles &

Self Propelled Modular Transporters (SPMTs), Strand Jacks, Trailers (Low Bed, Semi

Low & High Bed), Fork Lifts, prime movers, barges, coastal vessels & Reach Stackers

Exhibit 42: Equipment bank of over 1000 Equipments

Cranes

143

Trailers

571

Hydraulic Axles

201

Reach Stackers

and Forklifts

47

Prime Mover

20Ships

5Others

5


With the economy showing some signs of revival and infra projects getting the

required push, there is a slow recovery in the capex cycle. AGL is already seeing

some benefits in terms of increased order inflows and utilization. As at end Q1FY16,

crane utilization stood at 95%.

Exhibit 43: Asset utilization is on a rise

79

70

79

95

0

10

20

30

40

50

60

70

80

90

100

FY13 FY14 FY15 Q1FY16

(%)


Crane fleet includes world-class OEMs like

Demag, Faun, Fuwa, Kobelco, Sany, Krupp,

Liebherr, Sumitomo and Terex. The best

part about these OEMs is that even after

the crane has been used for four to five

years, its re-sell value is above 80% of the

acquisition cost

Allcargo Logistics

October 07, 2015 23

Project Logistics

AGL also operates in the project logistics segment which acts as a leveraging factor

to the already existing clientele. The company specializes in managing end-to-end

project logistics, from planning to movement of project cargo, over dimensional

cargo, over-weight consignments from port-to-site or site-to-site basis, route surveys

and multimodal/location transportation. This segment also caters to logistic services

for typically heavy capex projects like setting up of power plants, aluminum smelters,

steel blast furnaces etc.

Exhibit 44: Industry-wise share of revenues for PES division in FY15

Power32%

Oil & Gas16%Engineering &

Infra

9%

Logistics7%

Cement & Metals

6%

Port & CFS

5%

Others25%


International partnerships

AGL has entered into an alliance with Netherland-based Mammoet to provide

crawler lattice boom cranes from 1000MT upto 5000MT besides technical

support for erection and lift plans.

AGL also exclusively represents Germany-based Hansa Heavy Lift, world market

leader in heavy lift business with 21 multipurpose heavy-lift freighters.

Coastal Shipping – Constitutes almost 15% of Segment revenues

India has over 7,000km of coastline and coastal shipping is considered as efficient,

cost-effective and time-saving mode of cargo transport. AGL specializes in moving

bulk, break bulk, containerized and project cargo under its coastal shipping business.

AGL has six mid-sized ships, out of which, five shipping vessels are owned and one is

a chartered ship. It has recently acquired two ships for its coastal shipping business

which have an aggregate capacity of 24,000 DWT against a dedicated MNC contract

for 2+2 yrs.

Allcargo Logistics

October 07, 2015 24

PES is an asset-heavy business; catching the cycle right is important

AGL invested ~Rs7.2bn for acquiring the equipment fleet during the slump of FY10-

FY13 period. Though AGL was caught in the down-cycle and was hit badly for two

consecutive financial years i.e., FY13 & FY14, the environment in the PES segment

improved in FY15. Further, with economy expected to pick-up pace with increased

corporate capex and Govt. spending over the next two years, high equipment

utilization levels and firm pricing will help the segment to almost double the EBIT

from 0.7bn to 1.35bn over FY15-FY17 period. However, this segment has high

working capital requirement which is normally between 75-90days.

Exhibit 45: Investments over last five years

2,368

3,937

937

464

32 -

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500


(Rs

m)

PES capex cycle

peaked in FY12


Exhibit 46: EBIT to almost double over FY15-FY17E period

0

200

400

600

800

1,000

1,200

1,400

1,600


(Rs

m)


Exhibit 47: Cycle in PES clearly turning around

15.816.7

4.7

1.6

9.2

0.0

5.0

10.0

15.0

20.0

CY10 FY12 FY13 FY14 FY15

RoCE (%)

Source: PL Research estimates *for 15 months period

Allcargo Logistics

October 07, 2015 25

Assumption Sheet

Exhibit 48: Assumption Table (Rs m)


MTO Segment

Revenues 31,824 41,248 47,308 50,914 56,227

Freight and other ancillary cost 23,120 30,153 34,563 37,167 41,046

Gross Profit 8,704 11,095 12,745 13,747 15,181

Gross profit Margin (%) 27.3% 26.9% 26.9% 27.0% 27.0%

Volumes (TEUs) (Cons) 284,726 334,870 422,200 464,420 510,862

Realization per TEUs (Rs) 111,770 123,177 112,052 109,629 110,063

EBIT 1,484 1,558 1,896 2,090 2,299

EBIT Margin 4.7% 3.8% 4.0% 4.1% 4.1%

EBIT/TEU (Rs) 5,212 4,653 4,490 4,500 4,500

CFS Segment

Revenues 3,080 3,121 3,875 4,248 4,730

Handling, Transportation and Fuel charges 1,113 1,288 1,772 1,954 2,176

Gross Profit 1,967 1,833 2,103 2,294 2,554


EBIT 1,140 962 1,090 1,190 1,324

EBIT Margin 37.0% 30.8% 28.1% 28.0% 28.0%

Volumes (TEUS) 258,859 250,209 291,572 319,395 355,380

PES Segment

Revenues 4,290 4,131 4,976 5,767 6,184

Project operating and hiring expenses + Power & Fuel 2,723 2,548 2,972 3,460 3,711

Gross Profit 1,567 1,583 2,004 2,307 2,474


Asset Utilization % 79 70 79 93 95

Consolidated Turnover 39,193 48,500 56,160 60,930 67,141

Consol EBIT 3,033 2,656 3,731 4,335 4,963

EBIT Margins (Cons) 7.7% 5.5% 6.6% 7.1% 7.3%

EUR INR (Rate) 70 81 78 74 74

Tax Rate 21.9 21.2 22.1 24.0 25.0


Allcargo Logistics

October 07, 2015 26

Financials

AGL is expected to generate cash profit in excess of Rs9.7bn over the next two years

AGL is expected to show good overall performance across all its business segments

buoyed by good volume growth in MTO and turnaround in the PES division. EBIT in

the PES in FY16E is expected to get back to the FY12 levels based on the strong

utilization rate of 95% already shown in Q1FY16. Further, with bulk of capex behind

barring any unforeseen acquisition in MTO, AGL is expected to be theoretically a

debt-free company in FY16.

Exhibit 49: Cash profit over FY13 –FY17E period

3,171 3,248

3,973

4,566

5,216

0

1,000

2,000

3,000

4,000

5,000

6,000


(Rs

m)


Exhibit 50: EBITDA growing @15% over FY15-FY17E

3,562 3,913

4,754

5,737 6,301

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000


(Rs

m)


Exhibit 51: Strong PAT growth of 20% over FY15-FY17E

1,697 1,493

2,399

2,945

3,476

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000


(Rs

m)


Allcargo Logistics

October 07, 2015 27

Strong cash flows has historically funded capex

AGL, over the years, has used cash flow from operations to build the MTO business

through the inorganic route. Major Capex in the Indian operations (CFS and PES)

during FY10-FY13 period, were funded by internal accruals, Equity issuances

(Rs1.1bn in CY10) and Debt (Rs6bn during FY11 to FY14). However, with strong cash-

flows in FY14 & FY15, net debt levels have started coming off from a peak of Rs6.9bn

in FY14 to Rs4.2bn in FY15 and ~Rs3.2bn at the end of Q1FY16.

Domestic debt gradually inching lower over the last four years

AGL over the last four years has gradually reduced its high cost domestic debt.

Further, with most of the capex cycle behind in PES and CFS division, AGL is in a

sweet spot with strong balance sheet (D/E ratio at 0.15x for FY16E) and improving

return ratios. Strong cash flows generated over the next few years will further

reduce debt and help AGL pursue new growth opportunities.

Exhibit 52: Consolidated Debt (Rs m)


Consolidated Debt

Debt 3,778 7,626 7,234 9,875 6,095

Cash 2,749 1,773 2,320 2,994 1,930

Net Debt 1,029 5,853 4,914 6,882 4,165

Overseas Debt

Debt 1,305 2,036 2,551 5,529 3,353

Cash 1,853 1,339 1,323 1,696 1,696

Net Debt -548 697 1,228 3,833 1,657

Standalone debt

Standalone debt 2,473 5,590 4,683 4,346 2,742

Cash 896 434 998 1,298 234

Net Debt 1,577 5,156 3,686 3,049 2,508


AGL capex cycle has moderated over the

last two years and is focusing on improved

utilization of assets created

Allcargo Logistics

October 07, 2015 28

Valuation and Outlook

With container volumes largely stable and domestic industrial activity showing signs

of revival, growth outlook for AGL looks fairly decent. The performance in NVOCC

segment has shown a 22% CAGR volume growth over FY13-FY15 period despite

weak global growth as AGL primarily operates in LCL segment which is more immune

to sluggishness in FCL trade. Strong domestic presence across the CFS and Project

Engineering space is expected to bode well for AGL as it benefits from the domestic

capex cycle recovery. AGL trades at 11.3xFY17E earnings, P/BV of 1.6x, D/E ratio of

0.11x and EV/EBITDA of 5.5x which is reasonable entry point considering 20.4%

CAGR PAT over FY15-FY17E period, improving return ratios and strong management

bandwidth. We initiate coverage on AGL with a ‘BUY’ and a Target price of Rs386

valuing the company on PER of 14x FY17E.

Exhibit 53: 1 Yr forward P/E Chart


Exhibit 54: 1 Yr forward P/BV Chart


AGL offers an attractive play on global & local logistics segment with significant

presence in Projects Engineering and services which benefits out of the capex cycle

recovery.

Exhibit 55: Comparative Valuations

Bloomberg Code

Mcap (bn)

Sales (m) P/E (x) RoE (x) EV/EBITDA (x) CY/FY15-CY/FY17

CAGR (%)

CY14 / FY15

CY15E FY16E

CY16E FY17E

CY14 / FY15

CY15E FY16E

CY16E FY17E

CY14 / FY15

CY15E FY16E

CY16E FY17E

CY14 / FY15

CY15E FY16E

CY16E FY17E

Sales EBITDA PAT

International (CHF)

PWTN SW 2.6 6,707 6,333 6,614 30.2 25.0 18.7 12.3 14.6 18.3 12.9 12.4 10.0 (0.7) 17.5 26.8

KNIN EU 15.3 17,501 20,071 21,067 24.1 23.1 21.3 25.4 27.9 31.5 14.7 14.6 13.8 9.7 3.7 6.3

Domestic (Rs)

AGLL IN 39.2 56,288 60,930 67,141 16.3 13.3 11.3 13.0 14.5 15.0 9.1 6.7 5.5 9.2 15.1 20.4

SGM IN 13.6 3,060 4,380 5,544 168.9 18.5 11.6 1.2 10.3 14.7 9.0 5.7 4.3 34.6 43.9 281.5

GDPL IN 37.3 11,113 11,573 13,614 19.9 22.7 18.6 21.3 16.0 17.6 12.7 12.2 10.2 10.7 10.7 4.4

Source: Company Data, Bloomberg, PL Research

11.8

16.4

10.6

10.2

4.60.0

5.0

10.0

15.0

20.0

Mar

-09

Sep

-09

Feb

-10

Jul-

10

Dec

-10

May

-11

Oct

-11

Ap

r-1

2

Sep

-12

Feb

-13

Jul-

13

Dec

-13

May

-14

No

v-1

4

Ap

r-1

5

Sep

-15

P/E (x) Peak(x)

Avg(x) Median(x)

1.62.3

1.4

1.4

0.5

0.0

0.5

1.0

1.5

2.0

2.5

Mar

-09

Sep

-09

Feb

-10

Jul-

10

Dec

-10

May

-11

Oct

-11

Ap

r-1

2

Sep

-12

Feb

-13

Jul-

13

Dec

-13

May

-14

No

v-1

4

Ap

r-1

5

Sep

-15

P/B (x) Peak(x)

Avg(x) Median(x)

Allcargo Logistics

October 07, 2015 29

Though there is no direct listed comparable for AGL, we have collated valuation

sheet for significant players in the business segments where it operates. Panalpina

group and Kuehne+Nagel International are significant players in global ocean freight

where AGL operates through the MTO (ECULINE) division. Similarly, two other listed

companies Sanghvi Movers (Bloom Code: SGM IN) and Gateway Distriparks (Bloom

code: GDPL IN) are significant listed players in Equipment rental & CFS business,

respectively.

Exhibit 56: Sanghvi Movers and AGL’s PES segment both derive significant revenues from crane leasing

Sanghvi Movers All Cargo PES segment*

FY12 FY13 FY14 FY15 FY12 (15M) FY13 FY14 FY15

Revenues 4,505 3,392 2,444 3,082 4,969 4,290 4,131 4,976

EBIT 2,048 1,136 179 585 1,081 409 135 745

PAT 1,018 409 (145) 81 NA NA NA NA

Cranes 375 cranes; >90% of cranes above 100T Equipment fleet which includes 143 cranes

EV - (Rs M) 16,027

Mcap – (Rs M) 13,597

Source: Company Data, Bloomberg, PL Research

PES division is strictly not comparable between SGM and AGL since for AGL, its PES

division also involves project logistics and coastal shipping. However, AGL has the

second largest heavy Engineering crane fleet after SGM in the listed space. Similarly,

AGL and GDPL have major CFS capacities, both located at Mumbai and Chennai.

Exhibit 57: AGL compares well with the GDPL’s CFS Business

Gateway Distriparks CFS Segment* AGL CFS Segment

FY13 FY14 FY15 FY13 FY14 FY15

Capacity (TEUs) 550,000 570,000 620,000 573,000 573,000 573,000

Volumes carried (TEUs) 342,662 340,004 387,136 258,859 250,209 291,572

Revenues In CFS 3,150 2,274 3,368 3,080 3,121 3,875

EBITDA Rs (M) 1,510 1,225 1,369 1,090 1,120 1,300

EBITDA Margin (%) 47.9% 53.9% 40.6% 35.4% 35.9% 33.5%

EV - (Rs M) 40,769

Mcap – (Rs M) 37,277

Source: Company Data, Bloomberg, PL Research (*EV for GDPL and AGL cannot be compared as GDPL also houses rail division and cold storage)

Allcargo Logistics

October 07, 2015 30

Risks and Concerns

Large acquisitions in MTO segment to enhance reach or consolidate existing position in the region

AGL has been using Ecu-Line’s cashflow to grow inorganically over the years. The

company has been acquiring companies which strategically complement Ecu-Line’s

existing operations every 2-3 years. AGL has, thus, far acquired companies in the

range of 6-12x EV/EBITDA and with a maximum deal size value of US$50m. Any large

acquisitions than the usual ticket size of US$20-50m and at a multiple above 10x

EV/EBITDA can not only drain the existing cash flows but can have adverse impact on

D/E ratios in the near term.

AGLL has gone in public record that they expect to achieve US$2bn revenue by 2020

and to achieve the same they may need to invest US$500mn. While the FY15-17E

cash generation is likely to be short of the funding requirement, should the company

go through any acquisition, further issuance of equity or increase in debt cannot be

ruled out.

Goodwill of Rs8.3bn poses an Impairment risk

AGL has over 100 subsidiaries that have been acquired over the past decade. If the

performance of any of its subsidiaries weakens for a couple of years, AGL estimates

the recoverable amount of the asset by forecasting future cash flows. If the

recoverable amount of the discounted cash flow is less than the carrying account of

the asset, there are chances of impairment of the goodwill. This reduction is treated

as an impairment loss and is recognized in the statement of P&L. AGL has goodwill

on consolidation of Rs8.3bn which is not amortized but is tested for impairment on

each balance sheet date and impairment losses are recognised, where applicable.

Currency translation Risk

Global operations for AGL have significant exposure to currency volatility leading to

currency translation impact on reported financials on the balance sheet date.

Though these are notional losses, reported financials may show a distorted picture

not actually reflecting the underlying strength or weakness of global business.

Liability Risk

Liability Risk arises out of any damage to cargo, equipment, life and third parties due

to existing business operations. However, AGL attempts to mitigate this risk through

contractual obligations and insurance policies.

Allcargo Logistics

October 07, 2015 31

Income Statement (Rs m)

Y/e March 2014 2015 2016E 2017E

Net Revenue 48,594 56,288 60,930 67,141

Raw Material Expenses 34,039 39,381 41,931 46,622

Gross Profit 14,556 16,908 18,999 20,520

Employee Cost 7,276 8,566 9,423 9,988

Other Expenses 3,366 3,587 3,839 4,230

EBITDA 3,913 4,754 5,737 6,301

Depr. & Amortization 1,755 1,574 1,621 1,740

Net Interest 563 535 359 222

Other Income 365 526 219 401

Profit before Tax 1,960 3,171 3,976 4,741

Total Tax 416 700 954 1,185

Profit after Tax 1,544 2,472 3,021 3,556

Ex-Od items / Min. Int. 51 112 117 124

Adj. PAT 1,493 2,399 2,945 3,476

Avg. Shares O/S (m) 126.2 126.2 126.2 126.2

EPS (Rs.) 11.8 19.0 23.3 27.5

Cash Flow Abstract (Rs m)

Y/e March 2014 2015 2016E 2017E

C/F from Operations 3,107 4,300 4,776 5,594

C/F from Investing (4,390) (27) (1,117) (1,624)

C/F from Financing 1,350 (3,957) (2,241) (1,216)

Inc. / Dec. in Cash 67 316 1,418 2,755

Opening Cash 1,314 1,596 1,659 3,078

Closing Cash 1,596 1,659 3,078 5,833

FCFF 133 5,476 4,756 3,845

FCFE 2,774 1,695 1,894 3,293

Key Financial Metrics

Y/e March 2014 2015 2016E 2017E

Growth

Revenue (%) 23.8 15.8 8.2 10.2

EBITDA (%) 9.9 21.5 20.7 9.8

PAT (%) (12.0) 60.6 22.7 18.0

EPS (%) (12.0) 60.6 22.7 18.0

Profitability

EBITDA Margin (%) 8.1 8.4 9.4 9.4

PAT Margin (%) 3.1 4.3 4.8 5.2

RoCE (%) 9.4 13.3 16.1 18.0

RoE (%) 8.8 13.0 14.5 15.0

Balance Sheet

Net Debt : Equity 0.4 0.2 0.0 (0.2)

Valuation

PER (x) 26.2 16.3 13.3 11.3

P / B (x) 2.2 2.1 1.8 1.6

EV / EBITDA (x) 12.1 9.2 6.7 5.5

EV / Sales (x) 1.0 0.8 0.6 0.5

Earnings Quality

Eff. Tax Rate 21.2 22.1 24.0 25.0

Other Inc / PBT 18.6 16.6 5.5 8.5

Eff. Depr. Rate (%) 8.4 7.6 7.5 7.5

FCFE / PAT 185.8 70.7 64.3 94.7

Source: Company Data, PL Research.

Balance Sheet Abstract (Rs m)

Y/e March 2014 2015 2016E 2017E

Shareholder's Funds 17,931 19,079 21,657 24,691

Total Debt 9,875 6,095 3,233 2,681

Other Liabilities 1,847 1,562 1,731 1,852

Total Liabilities 29,653 26,735 26,622 29,225

Net Fixed Assets 14,011 12,605 11,983 11,744

Goodwill 8,710 8,314 7,898 7,503

Investments 3,132 3,146 3,268 3,395

Net Current Assets 3,800 2,672 3,473 6,582

Cash & Equivalents 1,647 1,738 3,729 6,968

Other Current Assets 8,798 8,659 9,264 10,019

Current Liabilities 6,645 7,726 9,520 10,404

Other Assets

Total Assets 29,653 26,735 26,622 29,225

Quarterly Financials (Rs m)

Y/e March Q2FY15 Q3FY15 Q4FY15 Q1FY16

Net Revenue 14,618 14,317 14,152 14,779

EBITDA 1,178 1,325 1,060 1,369

% of revenue 8.1 9.3 7.5 9.3

Depr. & Amortization 391 372 384 362

Net Interest 141 140 89 91

Other Income 147 116 191 44

Profit before Tax 793 928 777 960

Total Tax 132 187 222 190

Profit after Tax 636 718 555 751

Adj. PAT 636 718 555 751

Key Operating Metrics

Y/e March 2014 2015 2016E 2017E

Segment Revenues

MTO 41,248 47,308 50,914 56,227

CFS 3,121 3,875 4,248 4,730

PES 4,131 4,976 5,767 6,184

EBIT

MTO 1,558 1,896 2,090 2,299

CFS 962 1,090 1,190 1,324

PES 135 745 1,055 1,340

Capital Employed

MTO 12,490 11,145 11,600 11,750

CFS 4,198 4,237 4,387 4,537

PES 8,312 7,916 8,616 8,916

Others 4,361 3,234 2,630 2,630

Source: Company Data, PL Research.

Allcargo Logistics

October 07, 2015 32

Prabhudas Lilladher Pvt. Ltd.

3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai-400 018, India

Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209

Rating Distribution of Research Coverage PL’s Recommendation Nomenclature

43.8% 43.8%

12.4%

0.0%0%

10%

20%

30%

40%

50%

BUY Accumulate Reduce Sell

% o

f To

tal C

ove

rage

BUY : Over 15% Outperformance to Sensex over 12-months

Accumulate : Outperformance to Sensex over 12-months

Reduce : Underperformance to Sensex over 12-months

Sell : Over 15% underperformance to Sensex over 12-months

Trading Buy : Over 10% absolute upside in 1-month

Trading Sell : Over 10% absolute decline in 1-month

Not Rated (NR) : No specific call on the stock

Under Review (UR) : Rating likely to change shortly

DISCLAIMER/DISCLOSURES

ANALYST CERTIFICATION

We/I, Mr. Nishna Biyani (BE, MBA-Finance), Mr. Keyur Pandya (Mcom, MBA-Finance), Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

Terms & conditions and other disclosures:

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