HDFC Securities recommends BUY on Allcargo Logistics

allcargoHDFC Securities has released a Stock Note on Allcargo Logistics Ltd. At the CMP of Rs 355, they have recommended a BUY on the stock and add on declines with sequential targets of Rs 426 and Rs 469.

Allcargo Logistics Ltd. (Allcargo), part of the Avvashya Group, is a leading logistics services player providing integrated logistics solutions.

Its key business divisions are global Multimodal Transport Operations (LCL and FCL consolidation), domestic CFS/ICD operations and, domestic Project and Engineering Solutions (Project Logistics, Equipment Hiring Solutions and Ship Owning & Chartering) along with 3PL and warehousing services.

 

 

Triggers –

 

 

  • Creating a niche as a Multimodal Transport Operator (MTO) – amongst top 2 LCL consolidators internationally
  • Container Freight Stations (CFS) and Inland Container Depots (ICDs) – to benefit out of increased EXIM trade
  • Project and Engineering Solution – Providing diversification edge with presence in attractive coastal shipping segment, to benefit from revival in capex cycle
  • Outsourcing of logistics – trend gaining momentum
  • Has an asset light model in all segments except Projects & Engineering solutions
  • Streamlining indirect tax structure with the introduction of GST  to be another trigger

 

 

Risks/Concerns –

 

 

  • Global Economic slowdown
  • Competition risk – more players wanting a share in the same pie
  • Regulatory Risk – unable to obtain required approvals and licenses in a timely manner

 

 

Conclusion and Recommendation –

 

Allcargo is focused on revenue & profit growth, ROCE, asset utilization & cash flows across all the businesses. Given the low debt-equity ratio, focused management with a strong established presence in the industry, Allcargo is well placed to benefit out of the emerging opportunities in the logistics space in India over the next few years.

 

Enthused by the business model and promoter quality, we feel investors could buy the stock at CMP (Rs 355.40) and average on dips in the band of Rs 306-315 (~11x FY17E EPS) for sequential targets of Rs 426-469 (~15-16.5x FY17E EPS) in 3-4 quarters.

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