Logistics sector

Stock Opportunities
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This is probably not the right place for this post but I did not know where else… so I put it here. Seeking advice and opinions on the logistics sector - given the general euphoria esp around FDI in retail .

There is no way anyone can make money in retail given the current pathetic state of logistics support we have. And the big retailers have to invest half of the bounty in building back end infra - for their own good. Organised retail will have to depend on organised logistics, rail, cold chains etc rather than the unorganized sector and the numerous road transport companies we have.

PC also wants to implement GST which will be hugely positive for the sector. A delegation has currently gone to Canada to study this and are as usual squabbling over the pros and cons while looking at Niagara falls.

Does anyone see an opportunity to get into stocks which may be a beneficiary of $$$$ coming in? Any particular stocks on the radar?

I agree there’s many a slip between the cup and the lip and any worthwhile earnings jump to justify rerating may still be a while away but I guess there is value to be found in the sector especially for anyone willing to put some money and wait?

This sector hasn’t really caught anyone’s fancy so far although there is some movement.

I have a few logistics sector reports few months old and the sector favorites seems to be Gateway, Arshiya, Allcargo, concor in roughly that order with targets roughly around 200+/- 25 ( except concor).

Gateway is the universal favourite with the cleanest balance sheet, strong cash flows and 5 % div yield . It is the only one in the country which operates a cold chain ( currently at 100% capacity and expanding) . The CFO recently sold 40K shares though.

Arshiya has a hugely leveraged balance sheet due to capex but it’s the only one in the country which operates FTWZ which have huge margins. Arshiya is the ‘cheapest’ given the earnings momentum but they get discounted due to the debt , pledging etc.

Am not putting in too many details in case the seniors dont think it’s worthwhile putting any money in the sector yet.

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You may also consider Balmer Lawrie in this list, although technically speaking, its not a pure-play as its into many other businesses as well. But a major portion of its profits does come from logistics infrastructure and logistics services. More importantly, the company is quite cash rich, with almost zero debt, and distributes a decent dividend as well.

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welcome back Vivek Sir

We need more postings from senior like you

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Hi Samir,

This is a wonderful forum, although I see members dont participate too much here. There’s so many things to learn from learned and experienced members like yourself and all. Indeed, sharing and exchanging knowledge makes everyone richer…

Vivek

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“This is a wonderful forum, although I see members dont participate too much here” - Vivek Sukhani

DONALD, Administrator … please note that

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btw it seems Sameer Arora (Helios) is loaded up on Arshiya. Found several instances on the net where he is strongly recommending it for a while now.

Saw that he personally joined the last earnings quarterly call and was given the first opportunity to fire away questions :wink:

FTWZ is definitely a wide moat and cant say what’s the risk return trade off if one wants to bet on it given the leverage.

I guess several logistics companies have pretty wide moats but do not have the earnings momentum to go with it because of the downturn in economy ( eg concor and even gateway) I do not have the experience to call if one often gets companies with such moats trading at reasonable valuations.

Dont know much about Balmer Lawrie. a friend holds it for ew years and feels its a value trap.

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The sector needs huge amount of capital investment. Further it is highly cyclical depending upon the business cycle. In general it will difficult to generate high RoE in a capital intensive sector.

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Hi Mr. Sood,

Does a stock become a value trap, just because its price doesnt move too much? By that definition, a HUL was a value trap in the decade from 2000-2010. Similarly, a VST was a value trap all this while, until it decided to significantly jack up its dividend.

I dont think any investor in Balmer Lawrie wont be overly disappointed with the company. he must be getting higher and higher dividend year after year for at least 5 years now. The company has grown quite significantly in the meantime. The company is debt free, and is sitting on decent amount of cash and is managing its operations quite, except for the instance of fraud at Transafe Services Pvt. Limited.

And I can tell you one thing that even the new CMD is quite determined to carry out his job very well, just like the previous CMD. I have been attending the AGM of Balmer Lawrie now for at least 4 years now, and going by my experience, I think the company is quite capable to scaling new peaks. Whether that translates into stock prices, is a different matter altogether, but the dividend stream doesnt look jeopardised at this point of time.

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This sector is starting to look very cheap. Any interest still left??I have started to dig a little deep so am writing here, to hopefully get more views

Starting out with the negatives (most of them have been listed above)

No real moat, high Capex, near term outlook is negative as economic activity has slowed down

Some triggers

1). GST (whenever it is passed) â Will lead to major increase in efficiencies and thus in margins

2). FDI in retail (again dependant on the mercy of the government to solve the impending issues) â This will give a major boost to the supply chain management divisions of most logistic companies.

3). Pick up in economy â Logistics sector normally grows at 1.5 times the GDP

While most companies in this sector are available for next to nothing, multiple year lows (as is the case with many sectors), I particular like the model of TCI (Transport Corporation of India)

Available at a market cap of about 325cr, it currently trades at 0.8 times book and almost equal to its net current asset value. It operates in multiple areas like Freight, Supply chain management and express logistics amongst others. Business is gradually shifting to the higher margin SCM and Express logistics areas. Margins have increased consistently over a period of time due to this shift of business mix. Apparently they move 2.5% of Indiaâs GDP (donât know the significance of this but this is something the management does not forget to mention). In other words, they penetrate most of India, have large number of owned and rented fleet and offices Pan India. What I particular like about this company is that their business is very stable. Even in bad times, it still manages to keep or rather increase its profits, be it marginally. So it is not as cyclical as other companies in this sector. To add to it all, promoters have been continuously buying back stock at prices starting from 30% above CMP. While returns may not be immediate here, but it may be an interesting stock to keep in the portfolio given its valuation comfort, triggers and size in mind

Views invited

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You are right this is one of the dog sector these days. Checkout Gateway and Allcargo as well.

[Not invested but looking at Gateway where downside is limited due to high yield and low debt]

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whenever i buy some product i start seeing lot of products of these companies around :slight_smile:

like

when bought agrotech … i started seeing act ii in every shop

when i bough TCI … i started seeing lot of TCI containers on highway

but nowadays I have not bought stock-X(nor researching that companay) … but still started seeing lot of containers of this company on highway and that is GATI KWE

little bit of googling revealed that some 1-2 years before GATI partener with Japan’sKWE AND maybe I am seeing fruits of that partership … maybe some logistic sector expert can reveal more about it

(Note: I am not holding stocks of GATI, I don’t know about promoter and its financial condition)

BUT Yes Gateway Distripark is great dividend play and its investment in SNOWMAN could be ice on cake

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Well Gati has been two-bagger in just 6 months since my last post and news is that RKD entered in GATI … I don’t know about valuation but I still I have been seeing lot of containers of GATI KWE(and even GATI KAUSAR cold chain) on highways

http://economictimes.indiatimes.com/markets/stocks/stocks-in-news/gati-ltd-shares-rally-after-investor-radhakishan-damani-buys-stake/articleshow/28176020.cms

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Akshay,

I appreciate your detailed view. TCI looks the best bet in Logistic story ahead because of fundamentals, stable performance, shift towards high profitable areas in Logistics etc.

This is not a short term stock. One shall expect multi fold return in few years ahead.

(I don’t have TCI in my portfolio but in watchlist)

Kunal

left??I

1). â

2). â

3). â Indiaâs GDP (donât

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Gati con call add by Mr. Sanjeev Jain Director Finance****Key highlights by Capital Mkt

The company has changed its financial cycle which now stands between April and March from earlier July to June. Hence the revenue for FY’14 ended March 2014 reflects only 9 months starting from July 2013 and not a complete 12 month cycle.

For FY’14 (9 months), the consolidated revenue, grew by 17% to Rs 1127 crore and PAT was up by 181% to Rs 28.3 crore. This is well within the guidance as given by the management for FY’14.

Ecommerce business is currently the most focused business for the company given the growth potential in this business. The segment has grown by 125% on YoY basis to Rs 39 crore for 9 months ended FY’14. The segment is operating at EBIDTA level of around 15% and as per management, has further scope to increase its margins.

Shipping business continue to report losses and loss for 9 months ended Mar’14 stood at Rs 15 crore at PAT level. Management expects loss to continue another quarter. There are 2 more ships and negotiations are going on for the sale of the 1 ship which is unutilized. Hence the losses will come down in FY’15.

The company’s investments in the Shipping subsidiaries together with some overseas investments did not materialize as warranted. As per the management, based on the appraisal and expert advice an amount of Rs 203 crore is adjusted against the special reserve created in the balance sheet at the time of merger with these subsidiaries.

Also management is working on an FCCB write back given to Goldman Sachs of about Rs 12.60 crore and is waiting for court approval for the same.

The promoters have pledged total of about 63% of their holding and this is primarily for their various other power businesses.

As per the management while for FY’15, various other businesses will continue to grow in around 15-20%, ecommerce will continue to grow around 100% every year for next couple of years. Currently ecommerce constitute about 13% of total sales and management expects the same to go to around 19% in next couple of years.

Total consolidated debt as on Mar’14 is around Rs 480 crore.

The JV between Gati and KWE, reported a 23% growth in revenue for Mar’14 quarter. Primary segments driving the supply chain management business are apparel, healthcare, pharma, peripherals, computers, imaging etc. More than 20% growth was a combination of improvement of both Yield and weight. Thus the company was able to pass on the price rise to the customers.

Capex for FY’15 is expected to be around Rs 25 crore.

Overall, management has reduced its guidance for FY’15 to around 15-20% growth and followed a conservative approach due to the losses in shipping and overseas business.

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NEWS on TCI by CRISIL

CRISIL : LOGISTICS PLAYERS EXPECT TO GROW ON E-COMMERCE BOOM

04/02/2014 | 05:15am US/Eastern

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India’slogistics sector is expected to grow in the coming years with growth in the e-commerce sector. The logistics sector is expected to grow toRs15,000 croreby 2019 fromRs3,000 crorenow, say industry experts. According toCrisil, online retail market inIndiahas grown toRs13,900 crorein 2012-2013 fromRs1,500 crorein 2007-2008.Transport Corporation of Indiais expecting its revenues from e-commerce sector to increase toRs400 croreby 2019 fromRs4 crorenow.

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The links givenbeloware in response to Santosh Sinha’s query on Hitesh’s thread.

I had responded to Santosh’s query on Hitesh’s thread as below and hence I am posting some web links which should give good information on the potential of logistics sector.

Pasting Santosh’s query and discussion on Hitesh’s thread to ensure continuity, followed by the weblinks.

Hi Hitesh,

Just wanted to know if you have any info on what is the best proxy to play online retail boom going on in India. flipcart/snapdeal etc. I was wondering the best proxy wud be to play logistics companies enabling them them deliver good v fast. They also must be common to many players. Do you know any listed company in this space, which these companies are using as a preferred choice. This cud be the only way to participate in this growth story till flipcarts are listed.

Hi Santosh,

This question is directed towards Hitesh but I am chipping in with my views as I feel strongly about logistics as a sector and have a strong conviction about it [however suggest you to develop your own conviction after reading and analysing available resources :)) ].

I will reply to your post in the thread for logistics sector in detail. I would post some very good links. I suggest you spend some time going through this links, which I am sure would be very helpful and informative for you if you are interested in logistics space.

Personally I have created a logistics basket in my portfolio where in I hold Gati, TCI, Gateway Distriparks and Gujarat Pipavav. For me all these put together allow me to participate in the overall logistics sector (micro as well as macro plays). But please bear in mind that these stocks have run up a lot in the short term (I hold them since very low levels), therefore there may be short term volatility in them. Although I hold them with a 10 year perspective and believe thatit is a very long term story.

The e-commerce biz of companies like GATI and TCI is growing at >100% CAGR.

The revenue contribution is in high teens but slated to grow manifold in future.

GATI has all online retailers as its client except Flipkart.

Standalone for e-commerce biz GATIposted a topline of Rs 12 crore in FY12, Rs 25 crore in FY13, and expects to see a figure of Rs 70-75 crore for FY14.

Market size of express logistics segment during 2011-12 was estimated at Rs. 10,870 crores (about USD 1.8 billion). The industry is expected to grow at 17 per cent per annum compared to 11 per cent growth estimated for the overall logistics industry to Rs. 17,450 crores (about USD 2.9 billion) in the next three years.

ButI believethat Logistics (express delivery, e-commerce, cold storage chains, warehouses, ports, other import-export services, etc.,)will not only be about e-commerce but it will be a major beneficiary of the uptick in economic cycle and India’s rising contribution to world trade. If India is to be a $5 trillion economy by 2025 then I find this sector hard to ignore.

This space requires a lot of capital to grow and newer and smaller players are finding it very difficult to grow and are shutting shops due to lack of capital, which augurs well for companies like above which have established infrastructure on a pan India basis.

I will post links in the logistics thread which give lot of information on this spcae with respect to trying to assess the potential of this sector. The link for logistics thread is _http://www.valuepickr.com/forum/untested-worth-a-look/132771546#956739190_ Link: .#956739190

Apologies Hitesh to have chipped in with my views as the question was directed towards you. But thought of giving my views as I am invested in the sector.

Cheers!!!

WEBLINKS:

http://www.dsij.in/article-details/articleid/9260/gati-delivering-express-returns.aspx Link: http://www.dsij.in/article-details/articleid/9260/gati-delivering-express-returns.aspx

http://www.industry20.com/detail/features/E-commerce-And-Logistics-A-Likely-Symbiosis-Or-An-Unlikely-Challenge-/8598 Link: http://www.industry20.com/detail/features/E-commerce-And-Logistics-A-Likely-Symbiosis-Or-An-Unlikely-Challenge-/8598

http://www.tcil.com/tcil/pdf/print/business_World_25_Jan_2014.pdf Link: http://www.tcil.com/tcil/pdf/print/business_World_25_Jan_2014.pdf

http://www.tcil.com/tcil/pdf/print/Logistics_Players_expect_to_grow_on_e-commerce_boom.pdf Link: http://www.tcil.com/tcil/pdf/print/Logistics_Players_expect_to_grow_on_e-commerce_boom.pdf

http://www.outlookbusiness.com/printarticle.aspx?289175 Link: http://www.outlookbusiness.com/printarticle.aspx?289175

http://www.tcil.com/tcil/recent-news.html Link: http://www.tcil.com/tcil/recent-news.html

http://www.dsij.in/article-details/articleid/9591/gati-delivers-another-express-quarter.aspx Link: http://www.dsij.in/article-details/articleid/9591/gati-delivers-another-express-quarter.aspx

http://www.dsij.in/article-details/articleid/10262/gati-operating-margins-expand-in-march-2014-quarter.aspx Link: http://www.dsij.in/article-details/articleid/10262/gati-operating-margins-expand-in-march-2014-quarter.aspx

http://articles.economictimes.indiatimes.com/2014-06-20/news/50738968_1_thirdparty-logistics-firms-fulfilment-centres-amazon-india Link: http://articles.economictimes.indiatimes.com/2014-06-20/news/50738968_1_thirdparty-logistics-firms-fulfilment-centres-amazon-india

http://articles.economictimes.indiatimes.com/2014-02-21/news/47559341_1_logistics-companies-third-party-logistics-firms-indian-logistics-industry Link: http://articles.economictimes.indiatimes.com/2014-02-21/news/47559341_1_logistics-companies-third-party-logistics-firms-indian-logistics-industry

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I read lot of excitement for GST been passed helping companies like TCI and Gati but however I beg to differ as I see more of the Retailing companies (Sp. with branded products) benefit from the GST policy only advantage that may arise might be from removal of State Barrier which may Increase the Truck movement timing. Other than that Logistics is very capital intensive and low margin business, Many a times Companies don’t generate enough cash to meet their Capex requirement.

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LT reader from other side of globe and not frequent poster.

Recently I have read in WSJ that Amazon is aggressively investing in India. Amazon has changed how people shop at least in US. Many B&M store is going out of business due to Amazon. India has very large young population which can hook up very easily to online shopping. Knowing India it will never allow Amazon or any retail over 51% FDI.

In that case how one can play logistic/shipping (alternate to online shopping) co for LT say 15-20 years. I donât know much about this sector but can someone shed more light specially who amazon or flipkart use as a shipper? Or who is key shipper in India? It may not be cheap right now but may have huge potential to grow fro next 15-20 years.

TIA

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donât

Hey ,

There are number of shipper for e-retail companies like Bluedart(DHL), gati, safe-express, DTDC being the larger shippers. Sector is already matured and International firms like fedex are also operating via private owned companies…

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Hi Wallst,

The weblinks given in posts above would give you more info @ the shippers in addition to the names mentioned by Navtej.

Flipkart doesn’t use any shipper. I am not sure if this has changed though.

I personally believe that the sector has long way to go and it is a long term buy. Personally I don’t have an issue holding onto Gati’s, TCI’s, Gujarat Pipavav’s of the world as have entered near their 52 weeks lows.

Recently there has been a lot of traction in the stocks of packaging companies as well (although stocks of most packaging companies have done well i.e. the ones also catering to FMCG companies, paint companies and the likes as well). I like to look for ancillary themes that cater to bigger sectors/industry. And if one believes that shippers would do well coz of e-commerce boom then I think the ones who would provide them with packaging materials should also do well (something as basic as cardboard packaging). These companies may not sound to be in an exciting businesses and they may not have the numbers to show right now, but in any case one is betting on the earnings to improve going ahead (same was the case when one would have invested in something like Gati and TCI at 40-50 bucs last year).

Discl: Have been invested in Gati, TCI, and couple of packaging companies. Hence the views may be biased :slight_smile:

Cheers!!!