Tiger Logistics


(Bheeshma Sanghani, PhD) #1

Tiger logistics is a small Third Party Logistics player ( 3PL ). The main business of the company is facilitating the movement of goods by co-ordinating with various agencies across the world. It does not own anything of its own and most of investments are in working capital.
Most of its business (~55%) comes from its multimodal operations ( the movement of goods through multiple modes of transport under a single contract). It has a Multimodal Transport Operator license, an Authorized Economic Operator license and a Custom House Agent License (these 3 are the main licenses required to service customer requirements )
It has three divisions

  1. Multimodal (54% of revenue in FY16)
  2. Transportation (26% revenue)
  3. CHA i.e Custom Clearance (20% revenue)

From handling 10,000 TEUs in 2006 it clocked 73185 TEUs in 2016.
From its top 5 customers contributing to ~50% of its revenue in 2013, the share of the top 5 has dropped to 29% in 2016 ( in 2017 its expected to be 20%). Besides the obvious fact that its business is more diversified now than it was earlier it also means that it is able to attract business from new customers and is able to retain existing ones. It has recently opened offices in Singapore and Dubai. It services 7 verticals

  1. Projects & Heavy Lifts
  2. Automotive ( 2W and 4W)
  3. Yarn & Textiles
  4. Rice & Wheat
  5. Consumer Durables ( LG, Samsung etc)
  6. Cold Chain logistics
  7. Defense

Right now it seems to be concentrated in export logistics ( ~90% of revenue , South America and South Africa) so there is a significant amount of untapped growth in import logistics ( which is higher margin ) , domestic logistics where it doesn’t have a major presence currently. Even in export logistics there is a lot of scope of expansion ( for e.g. US where it doesn’t have a presence). It recently announced its intent to enter into Defence Logistics which is a high margin business. Currently its overall operating margins are hovering around ~5%.
It is important to note that while the overall commodity exports have been coming down since 2014 – Tiger logistics has been increasing its revenue YoY.

Overall growth in container traffic at major ports is also slowing down

http://www.containersindia.in/../INDIAN CONTAINER MARKET REPORT-2016.pdf

This also gives us an estimate about the size of opportunity in export logistics where currently Tiger seems to be focused. Logistics forms roughly about 10% of the value ( US its 8.5%, China its 18% and India its 13% of GDP). At a total of 16L crores of commodity exports , 10% would be 1.6L crores. The size of opportunity is massive even under a declining export value situation. Tiger Logistics has a miniscule market cap of 227 crores.

Risks

  1. It may be overvalued at a PE of ~24 ( When the issue was launched in 2013 the average industry PE was taken as 10.48)
  2. GST while being a game changer for the overall logistics space can also limit the need for 3PL players as ease of transportation becomes easier.
  3. Commodity export in crores has been coming down since the last few years – there is sluggish global demand.
  4. As with all companies in the space, the business has no long lasting competitive advantage which will even become lesser with the rollout of GST as warehouses will be located at logistic friendly locations and not tax friendly locations
  5. A multi modal contract is risky as the freight forwarder bears the final responsibility for transportation
  6. The business is working capital intensive and will always be under pressure for cash flows. Expect high short term debt in the future as the company grows.
  7. The 2016 Annual report page 72 has imprest given and received of 32L to Mr Malhotra and Beny Malhotra. Imprest as I understand is petty cash. I don’t know why petty cash of 32L has been given or received

In 2013 it came out with a small issue of 7.52cr mostly to fund its expected working capital requirements of 6.40 cr. Unlike other big players in the industry TGL is a pure service provider and facilitates the movement of goods under a multimodal contract (a single contract across multiple forms of transport) by coordinating with various agencies. Thus it is an asset light player with very attractive return ratios. From its issue price of Rs66 per share its share price has reached 210 levels currently. On 25/04/2017 it announced its intention to get into defence logistics.

http://corporates.bseindia.com/xml-data/corpfiling/AttachHis/567d9ffe-4a2d-4ab0-988f-cea8427e784a.pdf

There are a couple of positives that caught my attention.

  1. The business was started by an IIFT graduate ( Harpreet Singh Malhotra) who initially partnered with someone but failed. Then he started this business and grew it to 100 crores+ from 2000 to 2013.

  2. The business has almost doubled its topline in the last 4 years from 147 cr to a TTM of 283 odd crores.

  3. The PAT has more than doubled in the 4 years.

  4. The last 2 quarters have been good and have shown a good QonQ increase

  5. Very comfortable debt position

  6. There is no institutional ownership whatsoever as per 2016AR

From a technical point of view it has recently witnessed high volume at lows which often leads to base formation patterns like double bottoms , flat bases and cup formations. As correctly pointed out by @manish962 it is not a good practice to predict any patterns before they have formed so i would keep a watch out for those.

On 27th it announced that officials of the company will be attending an investors conference organised by motilal oswal. As per the 2016AR the stock had no insitutional ownership with only 250 odd shareholders. So the high volumes could be a outcome of some institutional endorsement.
http://corporates.bseindia.com/xml-data/corpfiling/AttachHis/5acdefc1-9509-41c4-885d-cea679c55f78.pdf

Views invited

Disc - invested

Best
Bheeshma


(cool_gaurav) #2

Trading at P/BV-5.5 to 6 (Stock has fallen significantly). Negative cash flow from operating activity in 2014 & 2015. No increase in fixed assets. Receivable days has increased significantly ?


(vishwa7000) #3

Hi Bheesma,
Just checked BSE bulk deals to verify institutional interest.
Spurt in Volume recently is due to trading activity and not institutional purchase,
However, there is con call arranged by MOSL as per disclosure by the company.
http://corporates.bseindia.com/xml-data/corpfiling/AttachHis/5acdefc1-9509-41c4-885d-cea679c55f78.pdf

Company : TIGERLOGS ( 536264 )
Period :01-Feb-2017 to 05-May-2017
Deal Date Client Name Deal
Type Quantity Price
03/05/17 DINESH SHAH S 107079 215.24
03/05/17 DINESH SHAH P 107079 218.56
02/05/17 DINESH SHAH S 75921 219.41
02/05/17 DINESH SHAH P 75921 218.95
24/04/17 VAIBHAV S PANDYA S 68099 216.05
24/04/17 VAIBHAV S PANDYA P 67930 218.46
24/04/17 DINESH SHAH S 60575 217.71
24/04/17 DINESH SHAH P 60575 222.76
24/03/17 VIRAL DINESH SHAH S 66754 218.80
24/03/17 VIRAL DINESH SHAH P 64989 218.24
24/03/17 MANOJ GUPTA S 3300 219.00
24/03/17 MANOJ GUPTA P 65000 218.54


(Bheeshma Sanghani, PhD) #4

Thanks for digging this out.

What i meant was that perhaps some impending insitutional endorsement could have led to the high volumes. The relative volume is the highest that it has ever been in the last 4 yrs.


(gaurav) #5

My 2 cents on this company:
Tiger Logistics isemerging as a capital-light, highly efficient (leading RoE, ROCE), fast growing (25% growth since inception), multi-line logistics player in export market, with marquee clients. Led by visionary leader (vision to build a leading logistics company in India, built business from scratch in 15 years, no dilution, 73% promoter stake), the company seems agile (low dependency on single customer/sector) with good ethos (BoD getting no fees, CMD getting less than 1 Cr salary), honest reporting (simple annual report discussing the roadmap clearly) and low employee turnover (80% of employees associated since inception).

Comments invited.


(ASPN) #6

Hi @bheeshma, would like to read your note on this. Pls share.


(Bheeshma Sanghani, PhD) #7

I have edited my original post to include more information


(Bheeshma Sanghani, PhD) #8

To get a sense of the competitive landscape in logistics i did a brief profiling for some key names in the business ( comparison.docx (18.5 KB))

The competitive position of Tiger Logistics should be viewed in the context of the profiles above. Each logistic player has a somewhat different profile with some overlap but broadly speaking i got a sense that they are all present in different pockets in the logistics chain and no one truly spans the entire spectrum because the capital needed to do that would be prohibitive.

In my opinion Tiger should be viewed as an entity that gets business for companies operating in the logistics sector. For e.g if i own a CFS or an ICD and i am looking for business i will call up Tiger to see if any of its ongoing contracts need a CFS/ICD. The brings an important factor to fore - facilitator/enabler kind of businesses can be scaled up rapidly due to network effects.

The more contracts it handles the more valuable it becomes to the other players in the logistics sector (as they can dependably source their business from tiger) and the more valuable it gets the more contracts it handles.

The happy outcome of all this? More revenue from incremental working cap investments. Between 2013 to 2016 - every additional rupee invested in working capital has got it an additional revenue of Rs 6.3 (Addn 6.5 for every rupee of invested capital).

Its Capital turnover ratio is ~7, by far the best in the industry. It also has very thin PAT margins ~b/w 2% -3%, which makes it very difficult for new entrants to make a mark. Of course this is a double edged sword if the margins shrink in future ( they have stayed stable since the last 4 yrs) - RoIC will tank but low margins keep people away. However, its recent move to get into defence logistics which is higher margin is possibly to pre-empt that eventuality.

Right now in my opinion its in a sweet spot competitively - its has a business model that is complementary to the other big players in the sector.

Views Invited.


(Bheeshma Sanghani, PhD) #9

I found this note posted by the prof on his blog recently

https://dl.dropboxusercontent.com/u/28494399/Blog%20Links/Some%20Thoughts%20on%20Visual%20Thinking.pdf

my post above is to be read with his thoughts below ( “how tradeoffs between margins and capital turns can change the value of a firm over time”)


(James Sebastian) #10

Was trying to do a preliminary screening. Why screener does not show Book value, CMP/BV, PEG, PE etc for this stock ? Or may be a newbie question, what drives ‘NaN’ entries ? However I can see PE, PB etc in ratestar.in, though I am not sure if data correct in either for this stock.


(Bheeshma Sanghani, PhD) #11

You could go to the tgl ar and calculate it directly. You are right though some values are missing from screener


(Bheeshma Sanghani, PhD) #12

http://m.timesofindia.com/business/india-business/indias-exports-rise-20-in-april-to-nearly-25-billion/articleshow/58691005.cms


(Bheeshma Sanghani, PhD) #13

The results should be viewed in context of Harpreet Singh Malhotras background. He doesnt come from a business family. As i understand, His father was in the navy and his grandfather in the army.

Best
Bheeshma


(Ravindra Mutyala) #14

@bheeshma

Thanks for starting this thread.
I have been studying and tracking this stock from last few months.
I got interest and idea of this stock while studying the book “Little Book that Builds Wealth” where author explains how third party logistic companies could create competitive advantage inform of “Network effect”.

Network-effect examples comes from an incredibly profitable industry that’s not nearly as well known as it should be: third-party logistics. That may sound dull, but 40 percent returns on capital combined with 20 to 30
_percent growth rates over more than a decade should pique your interest. How did firms like Expeditors International and C. H. Robinson compile such impressive track records? By building moats based on the network effect. _

_Both of these companies essentially connect shippers with cargo carriers—think of them as brokers for cargo space. C. H. Robinson operates in the U.S. trucking industry, matching companies with cargo to ship with trucking operators that ant to keep their trailers as full as possible. The more shippers with which C. H. Robinson has relationships, the more attractive the company becomes to cargo-hungry truckers, and vice versa. This is a textbook example of the network effect, and it’s also a very strong competitive advantage. _

Expeditors International is a little bit different. The company operates internationally, and is more than just a matchmaker; essentially, the company’s clients ask it to
move goods across borders within a defined time frame, and Expeditors takes care of the details. Expeditors buys cargo space on planes and ships on behalf of its clients, fills that space with clients’ cargo, and also takes care of whatever other complications—customs, tariffs, warehousing— might arise between the point of origin and the point of
_departure. _

Expeditors International’s moat lies in its extensive branch network, which enables it to serve customers more effectively, because no matter where they need to ship stuff, odds are good that Expeditors has a branch at both
the sending end and the receiving end. One way to verify this is to do a bit of financial sleuthing. If a larger network
really does mean that Expeditors can push more cargo through each branch, then the company’s operating income per branch should increase, as new branches add cargo flow to existing ones. It turns out that this is exactly what has happened.

Competitors listed by you are completely different. They are logistic companies but not third party logistic companies. Their business operation is completely different and not comparable with Tiger Logistics. One company I know in this sector (3PL) is TVS Logistic Services Ltd. This company is not listed, I think it’s the market leader in this space (Not sure). If we can chek whether Tiger Logistics can create the Network effect in future as explained in the book above then we can a make fortune out of this company.

Disc: Not Invested because of high valuation. Will invest if valuations comes under justifiable limit


(rajput.delhi) #15

Whatever the company makes goes into working capital? Are they really making money? Receivables less payables equal networth.

Keen to know how is it investment worthy?

Rgds
RR
Tracking


(Bheeshma Sanghani, PhD) #16

Hi @mmvravindra

Thank you for sharing the relevant excerpt. I havent gone through the book but after reading your note i certainly will. It seems identical to the way i am looking at TGL.

The companies I have listed are not competitors to TGL. TGL supports/faciliates them. But its important to know the competitive landscape to get a sense of how TGL fits into the jigsaw puzzle.

Best Regards
Bheeshma


(Bheeshma Sanghani, PhD) #17

Hi @rajput_delhi

For companies which grow at a fast pace esp in companies in TGL type business models, all the cash flows are normally reinvested into working capital. Frequently you will see negative operating cash flows.

To get a sense of whether the Receivables are collectible or not you could compare Bad Debt provision & Bad Debts written off for the past 3 years to see how they are faring with respect to sales.

If i recollect, receivables are ~25% of the Sales which is a big enough number for you to dig around to see whether its collectible or not.

Best
Bheeshma


(rajput.delhi) #18

I prefer to err on the side of caution when I see a company with all its 47cr networth in its 82 cr receivables and operating at 3-4% net margin. In such scenarios applying criteria like 25-30% WC to sales etc can be dangerous.

I was not able to see any growth or any real money as the receivables hv been increasing much faster than sales since its ipo 2013 and maybe before that too. In a situation like this all ratios and growth appear illusionary.

Also, it was tough to see anything concrete behind the ENGLISH in their AR, website, interviews, etc. It appears that they don’t have anything meaningful to offer to their clients except Acting as a one-stop-shop and sharing info (maybe that’s how an asset light 3PL actually is).
If they don’t control their rapidly increasing debtors, they may soon have to rely on debt or will come to us (investors) asking for more money and many of us will pay looking at optically high ratios, profits and growth.

The other view - can they improve or become anything like an Amazon…still a broker but with a huge moat? From whatever I have read so far, I couldn’t see even one remote sign of that.

All the same, I am still keen to know how will they do something they haven’t been able to do for four long years…control increasing debtors.

Rgds
RR


(Bheeshma Sanghani, PhD) #19

Dear @rajput_delhi

Criticisms are welcome. It helps the thesis. I will try to answer some key questions.

On debt - the business has grown in the last 17 yrs after starting from scratch to about 300 crores. The debt on its books is 6.46 crs. This translates to a debt equity ratio of 0.14. The long term debt is a mere 24L. They have not used any debt to grow thus far however this might change as Mr Malhotra has indicated that some leverage will be necessary to focus on the domestic market after GST is implemented.

On debtors - only debtors that are not collectible are a worrying sign but judging from their debtors written off compared to sales all seem to be good. Besides if debtors were not collectible it would be difficult to survive for 17 years. Receivable days have increased from 64 days in 2013 to about 3 months now in 2017. In this interim sales have increased from 122 cr to 298 crores. This is reasonable in my opinion compared to the growth in sales. It certainly needs to be monitored nonetheless.

Co-ordinating the complicated steps that go into moving goods from an exporter to an importer through multiple forms of transport and across multiple countries is a very valued & “meaningful” service in international trade and people pay top dollar for the more mature international 3PL players. The largest i think is Kuehne + Nagel with a revenue of 20 billion dollars. For more information you could visit - http://www.3plogistics.com/3pl-market-info-resources/3pl-market-information/aas-top-50-global-third-party-logistics-providers-3pls-list/

Lastly, small listed companies in India usually have very basic ARs , but TGL is trying to be investor friendly by having investor presentations. I get a sense that the promoters are genuine and honest. The MD has grown the company almost single handedly despite coming from a non-business background. There is entrepreneurial spirit written all over TGL, and that cannot be captured in the balance sheet.

Here is the latest Investor presentation

http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/c3ff9286-e0ae-4054-a051-c65fb83b11a1.pdf

Best
Bheeshma


(Bheeshma Sanghani, PhD) #20