The management of Allcargo Global Logistics is planning to go ahead with a demerger of its Global LCL business. In addition the company has alsoannounceda share buyback prior to the demerger. Both theannouncementssound bullish from short to medium term perspective and may lead to a lot of value unlocking for the shareholders.
Looking forword to your comments…
alsoannounceda theannouncementssound
Looks like a classic Demerger opportunity like the ones covered in the famous book- " You Can Be A Stock Market Genius " by Joel Greenbalt
The shipping industry going through one of its worst cyclical down turn phases.SCI is now at 59 rs.Wont this n continued downturn in commodities adversely impact these logistic companies?
Yes, you are right but only partially.
There are two things here. First, it is not a classic long term buy and hold stock. Here we are looking at a special situation unfolding. The company is demerging its global LCL (less than container load business) which is doingreasonablywell. Further, on a consolidated basis the EPS works out to be aprox Rs 17 per share(the reported EPS of Rs 21 is for 15 months ending mar 12 as the company has changed its reporting period form dec to mar). The balance sheet is reletively clean. Even on these accounts the stock price isn’t expensive. Plus the last 5 year CAGR of 20% for sales and profits. Looks like a nice package for a nice gain.
Also refer the attached economic times article…
And some more…
http://www.thehindubusinessline.com/industry-and-economy/logistics/article2946747.ecehttp://www.thehindubusinessline.com/features/investment-world/stock-insight/article1682730.ece
The business models of SCI and allcargo arecompletelydifferent. Allcargo is asset light where as SCI is asset heavy( Refer their balance sheets and corporate websites). Profitability of the two companies are also contrasting as allcargo has donereasonablywell in FY 12.
alsoannounceda theannouncementssound
For detailed information about the company and its business verticals, plz refer…
Moreover the management is also planning to raise funds post the demerger for the demerged entity via public offering. This will surely lead to a lot of value unlocking for the global LCL business of the company.
Reputed FIIs like Blackstone, New Vernon and Acacia partners hold 24% stake in the company.
One must also go through the latest investor presentation provided by the company here—
http://www.allcargologistics.com/popupcontent.asp?pagename=Report&FileName=RR01012012004.pdf
It isextremely useful and informative. Biggest of the Bears andskeptics will become bulls after going through it!!!
Another treasure of invaluable investor information—Conferencecall of the company for the 15M period ending Mar 12. You can access it here-
http://www.allcargologistics.com/popupcontent.asp?pagename=Report&FileName=RR01012012003.pdf
it is very good stock and upmove wii start soon
Hi Ranvir,
Are you still tracking this stock? Any update on this?
Cheers
Vinod
This stock has recently fallen down to what i consider as very reasonable valuations. I cant see any other reason for the fall except from the general malaise in the infra sector. I do think that investors are wrongly clubbing the company with other companies in the infra space in general. I have done some research on the company and think it has a solid business model. Basically they have three divisions with good synergies (hate that word, i sound like a consultant):
MTO - which is a steady cash flow generator and should continue to be so. Doesnt require too much capital.
CFS - Again good margins and cash flows.
P&E - Now this is the problem area. This business is quite simple, they buy construction equipment such as cranes and rent it out. The company has spend close to 600 cr in capex on this segment in the last 2 years. Currently this is going through a downturn because of the slowdown in construction, realty etc.
The company does not have too much debt and will easily survive the downturn. Not only it has good cash generating businesses but also reasonable debt. But currently it is going down with the rest of the industry. It will recover quite fast once economy starts recovering (unlike many infra companies with ridiculous debt equity ratios of 4-5), only question is where will the bottom be.
I’m trying to catch the bottom, but even the current valuations look good.
Hi,
A comparison with Gateway - current capacity and expansion in different businesses
| CFS Cap | Expan | ICD Cap | Expan | Rail | Expan | Cold Stor | Expan | MTO | |
| Gateway | 500000 | 108000 | 350000 | 233500 | 88500 | 33000 | 46000 | NA | |
| Allcargo | 441000 | 0 | 88000 | NA | NA | NA | NA | 216000 |
| Allcargo operates in MTO, CFS and P&E business, Gateway operates in CFS, Cold Storage and Railway Logistics | |||||
| CFS business can be high moat business as once most lucrative ports and locations are takenup the company will have good moat when economy grows and capacities fillup | |||||
| Allcargo has 81% of revenue from MTO operation which has low OPM of 5.6%. It is difficult to ascertain the potential of this business. | |||||
| CFS is the high margin business in which Gateway has higher capacity and better margins. Gateway has more number of CFSs lowering risk. | |||||
| CFS business of Allcargo has declined by 27% in Q-3 comapred to decline of 2% by Gateway. | |||||
| P&E business of Allcargo has made losses this quarter largely due to provisioning for bad debts. The com is confident of recovering the amount. | |||||
| P&E business of Allcargo had a 20% OPM earlier, which has declined to 10% this year due to provisioning. Pickup in this business will augur well for the com. | |||||
| The cold stroage business of Gateway seem to have technological moat due to tieup with the Japanese major. Mitubishi and Nicherei have invested in this business. | |||||
| Gateway has only 51% stake in the high growth cold storage business. The OPM for this business is 23%. The business grew by 93% this year | |||||
| More raise of haulage charges might lead to lower realisations in the the rail business for Gateway. | |||||
| Gateway management has more detailed investor concalls and information in the reports. The management seem to be pro-investors with high divident payouts. | |||||
| Overall Gateway seem to be better placed to tap the Indian logistics story operating through integrated CFS-ICD-Rail model with Cold storage holding high potential | |||||
| The operating margins and lesser decline in business even during difficult times shows they have more stable business. | |||||
| The higher dividend yield at 4.5% offer decent margin of safety. |
Sorry, dont know why the alignment of the previous post has gone for a toss!
called’em up today.summary of whatever i remember.accuracy not vouched for nor guaranteed
Demerger is firmly in the not-happening zone ,ostensibly in the name of shareholder value considering that the NVOCC division is unlikely to get anywhere near a fair value(somehow in most of the other spinoffs i ve investigated market sentiment has never been a factor of consideration)
Being reliant on sentiments governing global trade and investment in all it’s segments.allcargo fully expects a couple of ‘irritating’ quarters ahead.
it has scaled back capex and hiring plans
volumes have contracted.
p&e will probably be the last division to make it into black apparently
p.s. fully appreciate the candid and fair disclosure of the c.s.The presence of Ruane does much to bolster confidence.Should be investigated at the very least as a mean reversion play
This stock is trading at PE of 17 whereas industry PE is 53. No wonder Porinju recomended it.
Any arguments why it is so cheap ?
