Lancer Containers

Stock Opportunities
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Hello all forum members

This is my first stock coverage post on the forum, please bear with my mistakes.

Financial profile
Current market cap: 60 Cr
Debt: 23 Cr
Investment in liquid funds + cash: 14 Cr
PAT (TTM): 9 Cr
EV per share: ~8

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Lancer is a small NVOCC (non vessel operating common carrier). In the shipping value chain, below are the stakeholders:

  1. Exporter / importer - who are actually selling / buying goods
  2. Freight forwards - like DHL which act as agents for exporters / importers and help them manage the freight movement
  3. Custom handling agents - for processing custom related documents
  4. Shipping lines - which actually own the vessels that move the goods
  5. NVOCC - which don’t own ships, but own / lease containers that go on the ship and optimise inventory on ships

Putting it very simply, NVOCCs aggregate demand from exporters and package it efficiently onto carriers. Since they only own the containers, it is an asset light model.

Growth in the business has been driven by increasing the number of containers. In one of the interviews (Growing Volumes - BusinessToday), the CEO mentioned that they are targeting 25% CAGR. Company owns and operates around 9000-10000 containers. In comparison, India exports 7-8 million containers.

Promoter and management team seems to have reasonable amount of experience in the shipping industry.

Pros:

  1. Strong growth exhibited historically, which has also withstood the times of Covid
  2. Efficient cash conversion - seems the company has a negative working capital cycle, so CFO has been healthy
  3. Company has been expanding its portfolio - have international operations as well as expanded beyond container based freight into liquid / break bulk as well. Company also leased a 20,000 square metre parcel of land which is used as a yard for empty containers

Cons:

  1. Company is young - was founded in 2011
  2. No dividend has been paid, although acceptable considering company’s growth delivery
  3. Related party transactions with promoter family where they are leasing their bungalow as a guest house to the company and are charging as rental expenses

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4. Promoter is drawing a salary of 90 lakhs on a PAT of 8 Cr. In addition, his son (22-24 years age), daughter (younger than son) and wife are also drawing some salary. As per FY20 annual report, promoter intends to increase salary to INR 5 Cr if profits increase.
5. Thin margins in the business - so growth has to be driven via volumes.
6. On going litigation case (although the promoter is the complainant here)
7. Stock is highly illiquid. Volumes of just a few 1000 every day.

Request if other members can post their views - especially around related party transactions.

Disc: on watchlist, no investments made into the stock yet

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Lancer should benefit from the drastic increase in freight and container rates , as they own a large no of containers . Enclosed is an excerpt by their mgmt post the latest quarterly results

Commenting on the developments, Mr. Abdul Khalik Chataiwala, Chairman &
Managing Director said, “We are pleased to share with you a robust quarter
performance by our company. Demand for our containers was high and we were well
positioned to capitalize this and able to get higher average realizations during the
quarter due to container shortage.
During the quarter, we have been able to add containers in a mix of lease and selfowned boxes. This strategy has enabled us to improve revenues while keeping our
capital outflow low. During this time, we especially focused on efficient cash flow
management. We were able meet all obligations in time without taking moratorium while
further bringing down our overall borrowings. Our Balance-sheet remains strong and we
have sufficient liquidity to meet our business requirements.
In FY19 & FY20 we made significant investment in our office infrastructure and
operational resources designed to expand our business. During the current year, we are
consolidating our investments and have taken a key decision to move to a light model
and adding to container deployment with a mix of outright purchase and lease. We
currently deploy 9400+ containers, 95% of which are owned by us.
I am excited about what we will achieve together and look forward to your continued
support. We assure you of our commitment to continue working towards maximising
shareholder wealth. I would like to take this opportunity, on behalf of the Board of
Directors, to thank all of you for your continuing support”.

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@ravi_ambati , @easwar
If you have gone through the business … can you help me with below point

I felt the business is typical commodity business (why would some one prefer Lancer Containers over other companies which are already present ) …

i there some moat for the business …

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I do not think there is any specific moat for the business , since it is a very small player in a highly competitive industry which is also cylical. However to the credit of the company it has managed sales growth of 54 % in last five yrs and profit growth of 77 % , it seems to have good operational efficiency, managed to increase market share in last few years , high cash profit and better working capital mgmt which helps to maintain profitability and reduce borrowings.In FY-21 -H1 it has repaid Rs 8 crs of borrowings .

Currently for rest of FY-21 , it is likely to benefit from the increase in freight & container rates, and at current valuations it seems cheap. It can close current year with EPS of Rs 10 plus.

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@easwar

Agree to your point on the company being a small player in the grander scheme of things. But from a Lynch perspective, they are just doing a boring job of providing containers and booking space. Container volume is set to increase given several industries like pharma, chemicals, auto ancillary play in this segment. And company has been expanding its container base quite rapidly. I don’t think it’s a cyclical industry as exports are a significant contributor to the GDP.

My concern is more around related party transactions where they are paying huge rent for bungalow belonging to the promoter, promoter’s children drawing salary and they don’t seem to have any experience, and illiquid nature of scrip.

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As on date , the rent and salary paid, to the relatives is not very significant as percentage of the overall expenses. However, this is a common issue and risk involved with all family run companies. As long as the promoters do not overdo this, we would have to live with this issue. The company has so far delivered on sales and profitability growth in last 5 yrs.

The script is illiquid, since the promoters holds close to 75 % and the floating stock is only 10 lakh shares , as balance is held by acquaintances.

This weeks trading volumes have significantly improved and on 11th Dec-20, the trading vol was 67k shares with 95 % delivery , which is an indicator of the stock price movement going forward.

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who is listed peers, can any one have listed peers

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Result was below expectation. Management cited shipping slots availability as a reason of lower sales.

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I don’t know if this is worth mentioning. This company was part of BSE SME migrated to main board.

https://www.bsesme.com/markets/Migrated.aspx

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What is the average age of their container fleet ?.
A shipping container is used for 10-12 years on avg.

Informative Articles.

What are the different sizes that they own
e.g How many of 20 FT or 40 FT etc?

It will give idea about their assets in terms of Containers

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Found a nice PDF summarizing the company’s services, the impact of COVID, the current status of the logistics sector, etc.

Lancer Container Lines Ltd…pdf (2.5 MB)

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I think containers shortage is helpful for lancer. Am I right?

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Though container shortage is helpful. But there is shortage of shipping slots too because of which their last quarter result was affected.

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All the logistics sector players have come out with good results-

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The company has come out with great result for the Financial Year 2020-21.
On a consolidated basis; in Q4, the topline has gone up substantially to 122 crores. For last many quarters, the topline was hovering around 70-80 crores. Profit has gone up to 2.6 crores, somewhat tepid growth in profit. EPS for 2020-21 has gone up to Rs. 9.66 against Rs. 7.97, a decent growth of 20% over 2019-20. Cash flow from operating activity has gone up to around 32 crores, against 16 crores in 2019-20. The performance is commendable in a year affected by pandemic and lockdown.
Lancer-FY-2020-21.pdf (3.8 MB)

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The revenue growth is one off thing. The management has already commented on it that the increase in revenue was due to shortage of containers due to the pandemic. The management also cleared that they couldn’t take the benefit of the increase in charges as shipping lines also increased their charges.
This also meant that they couldn’t buy more containers as the containers are trading at higher prices. There is no delta in the number of containers they owned in 2020 and 2021.
Actually no, the containers they own went down. How? They had 9981 containers with 5% of them at lease in '20. In '21 they have 9987 containers with 12% of them leased. Thats a reduction in the containers they fully own (~6 crore worth containers).
On the other hand their borrowings dropped by 8 crore inr.

disclosure: studying and waiting for their '21 AR.

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Forwarding business is totally commission based and higher rebates are hitting the margins which would stabilise with the increase in volumes. Company is carrying forwarding business to capture the market and provide all services under one roof.
Started forwarding business in 2019.

container are bought based on demand. Separate division for trading/renting containers.

reply I got a year back from company. Hope this helps. Disc- no investment as of now

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