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Allcargo Global Logistics IPO: Our View - Views on News from Equitymaster
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Allcargo Global Logistics IPO: Our View
Jun 2, 2006

Allcargo Global Logistics' initial public offering (100% book building) for 2 m equity shares is open between the 1st and 6th of June 2006. The price band is Rs 625 (floor price) to Rs 725 per share (cap price) of face value of Rs 10 each. The company is expected to raise Rs 1.3 bn to Rs. 1.5 bn (depending upon the offer price). The promoters' holding (post the issue) will come down from 88.7% to 79.6%. Enam Financial and Inga Advisors are the book-runners for the issue.

Issue structure

  QIBs Non-Institutional Investors Retail Investors
Number of shares Atleast 1.2 m shares Minimum of 0.2 m shares Upto 0.6 m shares
% offered from Net public offer 60% 10% 30%
Minimum Bid/Application size Greater than Rs 100,000 Greater than Rs 100,000 9 shares
Maximum Bid/Application size Not exceeding the issue size Not exceeding the issue size < = 100,000

Objects of the issue

The net proceeds of the issue (after deducting issue related expenses) will be utilized as follow:

Funds requirement (Rs m) CY06 CY07 Total
CFS at Chennai 172 58 230
CFS at Mundra 176 54 230
ICD at NCR 176 34 210
Repayment of Loan 150 0 150
Total 674 146 820


Incorporated in 1993, Allcargo Global Logistics Ltd.(AGLL) is a leading integrated logistics services provider involved in multimodal transport operations (MTO), operating of container freight station (CFS) and handling of project cargo. The company operates on a pan-India basis with presence across 26 locations in India (17 branches and 11 franchisees) and covers over 4,000 international destinations.

As a MTO, AGLL's principal activities include consolidation and transportation of LCL (less than container load) cargo, and full container load (FCL) forwarding using different modes of transport like sea, rail and road. The CFS business currently includes operating of TransIndia Logistic Park, a CFS facility located at JNPT (India's largest container port). It is also engaged in handling of project cargo, which includes providing tailor-made logistics solutions (generally on a turnkey contract basis) to meet specific requirements of the shipper. This business generally includes transportation of high value specialized equipments like oil field equipments, power plants and compressor stations.

To strengthen its presence at strategic international destinations, AGLL has acquired a 50% stake in the Belgium based ECU Hold NV (holding company of ECU line NV, an AGLL's associate for 10 yrs). The company also has a joint venture with the Transworld Group (New Jersey), which caters to the US markets.


Logistics includes the entire process of moving goods from the area of production to the area of consumption. Thus, it includes all activities relating to the procurement, transport, transshipment and storage of goods. The Indian logistics industry, which is highly fragmented and unorganized, is currently estimated at 13% of India's GDP (US$ 90 bn).

With the increasing international trade, outsourcing of logistics function to third party logistics (3PL) service provider is gaining importance. This has led to increasing number of companies focussing on their core competencies (manufacturing and selling) and outsourcing non-core activities like transportation and warehousing to specialized parties. 3PLs are specialized organisations that manage all or a significant part of the logistics requirement of shippers (manufacturers and traders). India's 3PL market is estimated at around US$ 300 m, compared to China's market of US$ 4.7 bn.

The fortunes of the logistics Industry is linked to the growth in the economy (other factors influencing the growth of the sector are growth in foreign trade and development of adequate infrastructure). With the Indian economy growing at a healthy pace, the demand for logistics services is likely to remain strong. According to Goldman Sachs, over the next two decades, the Indian GDP could touch $140 tn (CAGR of 4.4%). This translates into a market size of around $140 bn (10% of the GDP) for logistics and related services. With the growing acceptance of the 3PL concept in India, the share of 3PL companies in the logistics industry will grow significantly (expected to grow at a CAGR of 20.4% over the period 2004-09).


Mr. Shashi Kiran Shetty (CMD), 48 years, has over 28 years of experience in the logistics industry. He started his career in 1978 with Intermodal Transport and Trading Systems and subsequently moved to Forbes Gokak, where he gained experience in port operations. In 1982 he set up Transindia Freight Services, a transportation company catering to shipping lines. After gaining considerable experience in freight forwarding and consolidation activities he got the company appointed as the general agents for Asia Lines, a Mauritius based NVOCC. In 1995 he joined hands with ECU Line NV, which enabled the company to scale up its operations significantly across the country. He has served as Ex. Trustee of Mumbai Port Trust and is presently the Vice Chairman of the Association of Multimodal Transport Operations of India (AMTOI).

Reasons to apply

Integrated logistic service provider: Indian logistics industry is highly fragmented and unorganized. As a result, integrated logistics companies like AGLL, enjoy better bargaining power as compared to non-integrated players. The company's offering includes a wide range of services such as LCL consolidation, FCL freight forwarding, multi-city consolidation, airfreight handling, project cargo and CFS services. While Allcargo is not really an end-to-end service provider, the fact that it has more to offer to the customers is a positive.

CFS business to boost revenues and improve profitability: AGLL currently operates a CFS facility at JNPT, with a capacity to handle 120,000 TEUs annually. It plans to develop two additional CFS at Chennai (capacity of 96,000 TEUs) and Mundra, and an ICD in national capital region (NCR) in the next one year. Since its CFS facilities would be located at key container handling ports, AGLL would benefit from the ongoing boom in the international container traffic (expected to touch 10 m TEUs by FY12 from present 5 m TEUs). As a matter of fact, JNPT and Chennai ports together handle around 70% of India's total container traffic and a significant portion of the container traffic handled at the west-coast (JNPT and Mundra) culminates/originates in NCR. Also, the CFS business is a high-margin business as compared to MTO business. This will result in increased profitability for the company, as it has over the last three years.

Segmental Data
  FY04 FY05 FY06*
Revenue 1,367 1,996 1,541
% Share 91.4% 86.0% 75.5%
PBIT margins (%) 4.3% 5.5% 5.8%
Contribution to Total PBIT (%) 66.5% 37.2% 21.3%
Revenue 128 326 500
% Share 8.6% 14.0% 24.5%
PBIT margins (%) 23.2% 56.6% 65.6%
Contribution to Total PBIT (%) 33.5% 62.8% 78.7%
Revenue 1,495 2,322 2,041
PBIT margins (%) 5.9% 12.7% 20.4%

Acquisition of 'ECU Hold NV' to benefit: AGLL uses ECU group's network (own/agents) to deliver cargo to a majority of its destinations abroad. In early 2006, AGLL increased its stake in ECU HOLD NV (revenues of euros 186 m) to 50% (from 33.8%) for a consideration of 3.6 m euros. The company intends to increase its stake to 100% going forward. The acquisition will not only boost the company's topline but also increase AGLL's presence across important markets such as USA, China, Japan, Russia and South Africa.


Profit and Loss Accounts (Standalone)
(Rs m) FY02 FY03 FY04 FY05 FY06*
Net sales 1055 1170 1462 2266 1972
Expenditure 995 1105 1354 1947 1571
Operating profit 60 64 108 318 401
EBIDTA margin (%) 5.7% 5.5% 7.4% 14.0% 20.3%
Other income 19 20 33 56 70
Interest 6 5 11 8 16
Depreciation 29 28 52 78 49
Profit/(Loss) before tax 44 52 78 289 406
Tax 15 19 19 39 36
Profit after tax 29 33 59 249 370
Net margins (%) 2.7% 2.8% 4.0% 11.0% 18.8%

Comparative valuations & comments

Valuations: At Rs 725, the issue is offered at a price to earnings multiple of 29.7 times annualised 9mFY06 earnings. While valuations are on the higher side, the fact that the company is expanding capacity on the CFS side is likely to propel profitability going forward (significantly higher margins as compared to the MTO division). Also, the ECU acquisition is likely to be earnings accretive going forward. Perhaps one of the major risks is not-so-proven track record of the company (logistics is a sunrise sector in India and is in early stages of evolution). Investors, by applying of the IPO, carry the major risk of the company not meeting deadlines with respect to execution of the expansion plans. To that extent, the margin of safety is skewed towards risks.

Allcargo Global v/s Gateway Distriparks - A Comparison: Gateway Distriparks is in the business of owning and operating CFS and ICD facilities (combined capacity of 330,000 TEUs). GDL recently signed a MoU with Container Corporation of India (Concor), wherein the latter will run container trains for GDL. Hence, its activities would be limited to handling of containers at CFS and transporting them to its ICD. In comparison, AGLL with its presence in MTO, CFS and freight forwarding (both overseas as well as domestic) is able to provide one-stop logistic solutions to its customers. We believe that integrated players like AGLL are in a better position to attract international container traffic (read higher throughput) as compared to other players.

Peer Comparison
Rs (mn) Allcargo* Concor TCI Gateway
Revenues 1,972 24,408 8,641 1,388
Operating margins (%) 20.3% 28.8% 4.8% 59.9%
Net Profit 370 5,026 160 725
Net margins (%) 18.8% 20.6% 1.9% 52.2%
EPS (Rs)** 24.4 77.3 15.2 7.9
P/E 29.7 20.7 23.4 25.3
P/BV*** 6.5 6.1 4.6 3.0
*9MFY06**EPS for Allcargo is annualised
***P/BV for Allcargo is based on post issue book value, whereas Concor's P/BV is based on its FY05 book value

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