Heavy on the wallet
Allcargo Global Logistics (AGL) is a logistics service provider involved in multimodal transport operations (MTO), owning and operating Container Freight Station (CFS) and handling project cargo. Currently, AGL owns and operates one CFS 18 kms from Jawaharlal Nehru Port Trust (JNPT), India's largest container port, with a capacity of 120,000 twenty feet equivalent unit (TEUs), after the completion of Phase III of the development plan by June 2006.
The total container traffic in JNPT has increased by 12% to 2.67 million TEUs during the year 2005-06 from 2.37 million TEUs. One of the major container terminals is operated by the JNPT itself, which has handled 1.34 million TEUs of the total container traffic and the other major container terminal in Mumbai port, the Nhava Sheva International Container Terminal (NSICT) had handled 1.32 million TEUs.
The margins on the handling import TEUs is approximately double that of export TEUs. The mix of import to export was 24:76 for the nine months ended December 31, 2004, which marginally improved to 26:74 for the nine months, ended December 31, 2005. The company can increase its margins in the CFS business, if it is able to improve the import-export mix.
Strengths
Container traffic is witnessing a CAGR of 20% in India in the last decade from 0.68 million TEUs in 1990-91 to 3.9 million TEUs in 2003-04. For the year 2006-07 the volume is estimated at 7 million TEUs. The National Maritime Development Program envisages a CAGR growth in traffic at all ports from 2003-04 to 2013-14 of 7.69% and the container traffic is being estimated at 18.31%. The company already has 10-11% market share in the CFS business, which will be further strengthened with its plans to set up a CFS, one each in Chennai (to add 60,000 TEUs p.a. from October 2006) and Mundra port (adding 54,000 TEUs p.a. from December 2006) and to set up an ICD in NCR.
The joint venture with TLSS for the USA market will help through their own office which will facilitate control of operations in the USA as also will give local customers a greater level of comfort.
The strategic acquisition of 49.99% stake in Ecu Hold NV and in the coming months the acquisition of the balance 50.01% stake will give it a strong base in the international markets. Also it will strengthen the financials of AGL, as Ecu Group is five-folds of AGL with revenues of Eur 185.8 millions for the year ended December 31, 2004.
Weaknesses
The MTO and CFS businesses are highly competitive with no restriction on the entry of private, public and foreign players. As competition intensifies, under-cutting can become the norm, thereby putting pressure on margins.
In the MTO business, the revenue earned from LCL (less than container load) cargo is higher than FCL (full container load) cargo primarily on account of consolidation. With AGL focusing on FCL, the margins will be adversely affected.
AGL has yet to apply for regulatory approvals for the CFS at Mundra and ICD at NCR. Failure to obtain these approvals will impact the growth plans and be detrimental to the business.
Though the operational cash flow remains positive, the company can end up in negative cash flows as it requires investments to be made for rapidly expanding and investing funds in TransIndia Logistic Park and for increasing its equity stake in Ecu Hold NV
In January 2006, the company obtained private equity at an effective price of Rs.548.70 per share.
Valuation
The annualized EPS for the nine months ended December 2005 is Rs 21 per share. At the asking price band of Rs. 625-725, the multiples are 30x to 35x. Gateway Distripark with EPS Rs 7.9 is discounted 27 times and Concor with EPS of Rs 77.3 is discounted by mere 22 times. There's nothing much left on the table.