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Allcargo Global: SWOT analysis-III
Jan 12, 2010

After discussing the weaknesses and threats that Allcargo Global Logistics (AGL) faces, let us now look at some opportunities that can benefit the company in the long run. Trade tracks GDP growth: The growth of logistics sector is primarily linked to movement of goods, which reflects growth in trade. Growth in trade is supported by economic growth. Thus, growth of the logistics sector is linked to growth in trade and economic growth. As per a report from the Confederation of Indian Industies, the Indian logistics industry is set to grow from US$ 90 bn (2007) to US$ 125 bn by 2010. This translates into a growth of nearly 12% per annum. The growth would primarily be led by expanding domestic economy.

The growth prospects of the logistics sector are not only closely linked to domestic business but EXIM (export - import) trade too. EXIM container traffic at Indian ports reported an impressive 14% annual growth over the past decade. This is more than double the rate of growth of the Indian economy as measured by the GDP. Similar trends are expected to continue in future as well. To achieve these growth targets, the government and policy makers have lined up huge investments to develop infrastructure. Also, to support growth across logistics value chain they have also approved regulatory changes (public private partnership PPP). These initiatives, if implemented well, along with improving economic scenario are expected to drive the growth of the sector and also of AGL.

Increase in container volumes: The container volume in India is expected to grow at the rate of 12.3% per annum to 680 m tonnes during FY08 to FY26 (Source: Company presentation, Ministry of Shipping). This growth in volumes would be backed by growing trade.

Increase in the penetration of containerization: Containerization is the method of packing goods in reusable containers of uniform shape and size for transportation. At present, containerization accounts 30% in value of Indiaís EXIM trade, while globally it accounts for nearly 70%. In the last few years, there has been a rising trend towards containerization. This is due to the advantages of transferring cargo through containers. Increase in containerization of cargo is also likely to support container volume growth. Thus, increase in conversion of bulk commodity into containerized cargo is beneficial to AGLís business.

Focus on Infrastructure built up: Growth in port, rail and road infrastructure creates opportunities for AGLís business. Rapid development of major and minor ports is being planned. Improvement in road and rail connectivity is also taking place. Improvement in the logistics infrastructure in the country such as the dedicated rail freight corridor, modernization of ports, and improvement in road infrastructure are set to give a boost to intra-state and inter-state freight movement.

Recognizing increase in containerized cargo, container capacity at major ports is slated to increase. As per the 11th five year plan, total container capacity at major ports is expected to reach 1,002 m tonnes (by 2012) as compared to 508 m tonnes at the end of 10th five year plan (2007).

Sunrise sector: Logistics plays an important role in distributing products to all corners of the country. Growing sectors like retail and agro-processing industries are enhancing opportunities for logistics services. Better supply chain management is the necessity for growth of these sectors. There is a need to have appropriate infrastructure for storage and transportation. This is necessary to avoid physical wastage of goods and retain quality of the products to be transported. Thus, growth of these sectors in turn is likely to put forth immense opportunities for logistics solution service providers.

Further scope

  • To consolidate position: Allcargo plans to consolidate its position in the global LCL market. It acquired ECU Line to build its MTO business on a global scale. The company is looking forward to significant value enhancing acquisitions in the regions where it does not have presence currently. This will help the company to strengthen its position. There is scope to create more profitable trade lanes (like US and China). AGL expects this move to widen reach and improve scale.

  • Expand reach and explore service verticals: The company has outlined plans to set up ICDs (inland container depot) to achieve pan India presence. The move will enable it to tap the growing container volumes at upcoming ports. Additionally, these ICDs can eventually be developed into full fledged logistics park. AGL plans to gradually develop these ICDs into full fledged integrated logistics parks. It is also strategically expanding its warehouse network. The move will help it provide 3PL (third party logistics) services.

Apart from banking upon synergies between various business segments, AGL is looking at addressing gaps in service verticals and integrate its operations. As for the stockís valuations, it is currently trading at a P/E valuation (based in trailing 12-months earnings) of around 16.6 times.

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