Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Allcargo Global Logistics: Balancing growth and margins - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Dec 22, 2009

    Allcargo Global Logistics: Balancing growth and margins

    Logistics is one of the fastest growing sectors in India. With the economy growing at a strong rate, and with the emerging need for better supply chain management practices by companies, the sector is poised to take off sharply in the years to come. The past few years have also seen emergence of new companies and business models that are now key constituents of the sector's overall framework.

    And one company that has been at the core of such a development is Allcargo Global Logistics (AGL), which we have profiled in this report.

    AGL is involved in CFS (container freight stations), MTO (multimodal transport operations) and equipment and warehousing business. Domestically, the company is a dominant player in the CFS space and is one of the leading players in project logistics business. The company has also spread its wings across the globe covering 59 countries and over 5,000 destinations.

    Lets us take a look at the revenue structure of the company.

    Source: Company presentation

    CFS/ICDs: Firstly lets us explain what container CFS/ICD means. It is a port facility for loading and unloading containerized cargo to and from ships. AGL has its CFS facilities at major ports and hence is well positioned to leverage growth in domestic container logistics. To strengthen its position and tap the growing container traffic at upcoming ports, it has planned to set up ICDs on a pan-India basis. For the same, the company has acquired necessary land and has also entered into strategic alliances. The company plans to eventually develop these ICDs into full fledged integrated logistics parks in the future.

    Multimodal Transport Operations: Trade and transport are inextricably linked. Efficient transport services are a prerequisite to successful trading. This is where the concept of multimodal transport operations comes into the picture. Technically, it is the transportation of goods under a single contract but performed with at least two different means of transport. Under this business, AGL provides services such as LCL Consolidation, Project Logistics and Others.

    • LCL Consolidation: This involves the movement of less than container load (LCL) cargo. In simple words it is quantity of freight less than that required for the application of container load rate (capacity), also called as loose freight. The company consolidates orders from different vendors and then ships it in one container. This way, a particular vendor is not burdened with full charge of the container. The company gets paid for its services rendered and gains volumes.

    • Project Logistics: This is a niche activity that involves end to end services such as route surveys, transportation, and site handling. The growth drivers of for this specialized transport services are infrastructure led sectors like oil and gas (transportation of oil field equipments), cement, steel, etc.

    Equipment hiring: This division of AGL provides support services to companies in the logistics and infrastructure sectors. It provides services such as hiring out cranes and other infrastructure equipments as well as port handling. This division also owns equipments which support its CFS/ICD and MTO operations. The company has recently identified equipment hiring business as a separate revenue stream.

    AGL's past financial performance
    AGL has reported an average annual growth of little over 100% in revenue over the past three years. This has primarily been led by growth in its MTO business, which is around 90% of total revenue. The MTO market is largely fragmented and dominated by unorganised players. However, the company has opted for inorganic growth route (through acquisitions of companies like ECU Line) to tap the opportunities within the logistics sector and increase its reach across the globe. This has not only helped AGL achieve scale but has also enabled it to spread its wings across regions. This segment is also the largest contributor (over 50%) to the total profits before interest and taxes.

    Segmental break-up...
    Particulars Unit CY06 CY07 CY08
    MTO % of sales 93.1 92.7 92.0
    PBIT margin % 4.5 4.9 5.1
    CFS/ICD % of sales 6.9 5.8 6.3
    PBIT margin % 56.5 47.6 57.1
    Equipment hiring % of sales - 1.5 1.7
    PBIT margin % - 43.5 47.9
    Source: Company annual report

    Going forward, AGL's growth is likely to be boosted by increase in pan-India presence in terms of ICDs and increase in container traffic at these depots. Focus on high growth sectors like project logistics and equipment hiring is also being seen by the company has key growth drivers for the future. Equipment hire business and CFS/ICD segments are high margins business. Thus, focus on these segments will not only support topline growth but also cushion profitability for the company.

    The stock is currently trading at Rs 197. Its P/E valuations (based in trailing 12-months earnings) stand at 16.3 times.



    Equitymaster requests your view! Post a comment on "Allcargo Global Logistics: Balancing growth and margins". Click here!


    More Views on News

    Navkar Corporation Ltd (IPO)

    Aug 24, 2015

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    Proxy Plays: A Smart Way to Bet on 'Off Limits' Companies(The 5 Minute Wrapup)

    Aug 4, 2017

    The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 17, 2017 (Close)


    • Track your investment in ALLCARGO LOGISTIC with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
    • Add To MyStocks



    Compare Company With Charts