Global tie-ups and increasing investment in multi-modal facilities should drive growth
The Centre’s endeavour to integrate and improve India’s long-term growth potential is evident in the recent passage of the Goods and Services Tax (GST) Bill and demonetization move. The short-term liquidity squeeze caused by demonetization should be partially offset by the payout from the Seventh Pay Commission and a pick-up in rural demand following a good monsoon.
These efforts, in tandem with the Centre’s increased investment focus on infrastructure creation such as roads, railways and coastal waterways, should bode well for companies such as Allcargo Logistics — that offer multi-modal logistic services — over the next two to three years.
With a strong balance sheet, Allcargo Logistics is well-positioned to fund its expansion plans. The stock’s current price-to-earnings ratio (trailing 12 months) is at its three-year average of 16 times. This is lower than that of its peer Gateway Distriparks and Transport Corporation of India, which trade close to 21 times.
Allcargo Logistics operates in three main divisions — multi-modal transport operations, container freight stations, and project and engineering solutions.
Leadership position
The multi-modal transport operations division, also known as ‘ECU worldwide’, globally connects close to 4,000 ports and operates in three segments — road, rail and waterways predominantly and accounted for nearly 80 per cent of the company’s revenue in 2015-16.
The acquisition of Avvashya CCI to expand the company’s contract logistics business and investment to build a logistics park in Jhajjar, Haryana, need mention. The division increased its growth volume by 9 per cent between FY15 and FY16.
Similarly, in the container freight station (CFS) division, Allcargo is a leading player with CFS facilities in all the three major ports — JNPT, Mundra and Chennai — which account for close to 80 per cent of the container traffic in India.
Allcargo Logistics’ inland container depot (ICD) facilities are located at Dadri and Pithampur. Container traffic in India is expected to double between 2016 and 2021. In line with this, CFS and ICD facilities are expected to grow.
With land banks close to 200 acres, a new CFS facility under construction at the Kolkata port and possible expansion of CFS capacity in JNPT, the company is expected to see healthy growth in this segment.
The project and engineering solutions division should benefit from the increasing coastal movements to transport engineering and over-sized goods and equipment over the next couple of years. Possible entry into project logistics management segment is another possible future driver that is being investigated.
The revenue and operating profit between FY14 and FY16 have grown at an annualized rate of 12.7 and 12 per cent, respectively.
