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Allcargo Global: SWOT analysis II - Views on News from Equitymaster

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Allcargo Global: SWOT analysis II

Jan 6, 2010

Having discussed the strengths of Allcargo Global Logistics (AGL) in the first of the series of our articles on the company's SWOT analysis, we herein discuss the weaknesses and threats. Weakness

High operational costs of MTO business: We had earlier looked at AGL's revenue structure. A major chunk of AGL's revenues come from multimodal transport operations (MTO). The operational costs of MTO segment are substantial. Thus, this segment enjoys slim margins. High dependence on MTO business leads to subdued margins. Thus, further margin expansion would depend a lot on AGLís ability to balance growth and margins.


Economic growth and geopolitical risk: AGLís business is directly related to the movement in international trade of a country. Any instability such as global recession or changes in economic, fiscal and regulatory policies will impact trade between India and other nations. This in turn can adversely affect movement of goods and growth of the company. Inflationary situation and changes in taxation and trade policies can also impact the companyís business prospects.

Integration of acquired businesses: AGL has opted for inorganic growth route in the past. This move has helped it enhance its capabilities. It also helped address gaps in service verticals and geographic coverage. For growth in the future, AGL plans to explore the acquisition route further. However, there are few risks. These are difficulties in integrating the acquired products, services or technologies with its existing operations. This could disrupt AGLís ongoing business. It may also lead to increase in expenses and in turn would result in underperformance, thus affecting the companyís overall growth.

Increasing competition: AGLís growth has been backed by MTO business. The entry barriers to this business are not very high. There is no restriction on entry of private, public or foreign players into the business. Shipping lines themselves also might consider setting up of CFS/ICDs. This would further intensify competition in an already competitive environment.

Balance sheet risks: AGL may have to take in higher debt to set up CFS/ICDs (container freight stations/inland container depot) or pursue strategic acquisitions. Leveraged growth strategy may fail to yield the desired benefits. This would not only hamper growth of the company but would adversely affect the overall profitability and shareholder returns.

Acquiring and retaining requisite personnel: For a service-oriented business, people are strongest pillars of success. AGL depends significantly on the expertise, experience and continued efforts of its key management as well other personnel. However, there is a dearth of managerial talent. Thus, challenges do exist in terms of talent acquisition and retention across the hierarchy.

Execution risk: Delay in project execution is what can impact AGLís growth in the future. The company has outlined number of projects to set up CFS, expand and grow its service verticals. Project execution is largely dependent on land purchases, timely delivery of equipment by suppliers, etc. Delay in project implementation can directly impact its growth in revenues going forward. It may also lead to cost overruns. These would exert further pressure on margins.

These aspects can impair AGLís future growth prospects. However, the company is also eyeing some tremendous growth opportunities, some of which we will discuss in the concluding article of this series.

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Feb 19, 2019 (Close)


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