Allcargo has had a fairly decent run over the past one month. The CMD of AllCargo Global, Shashi Kiran Shetty talks about the company, its growth, revenues, etc. He states that they are almost done with their expansion operation.

Shetty says that Allcargo has acquired Hindustan Cargo which focuses on airfreight which was a missing link for them as they did not have a significant presence in that field.They wish to synergize the operations of both the companies achieving economy of scale by expanding in airfreight and sea freight. 

Shetty denies there were delays in their projects in Chennai and Mundra but admits they were in a wild goose chase while trying to acquire land in Delhi.

Excerpts from CNBC – TV18’s exclusive interview with Shashi Kiran Shetty: 

Q: Take us through your growth plans, you have had a fairly strong growth in margins especially in your container freight division - are you going to see a continued improvement both in margins and what are the revenue growth you are looking at in FY07 and FY08?

A: We kept on expanding this container freight station business. We started with a very small capacity of 40,000 TUs a year and very quickly within two years we expanded to 120,000 containers a year. We are almost at 90% capacity right now. Yes, it is a high margin business, its one of the important infrastructure project supporting the operations in Nhava Sheva. Going forward, yes, we believe the margins will sustain although there is pressure on the earnings because more facilities are coming up and we are also expanding our area into other locations in the country. Two of our other container freight stations are going to be commissioned coming month.

Q: You did about Rs 88 crore in revenues in Q2, can we assume that you will do about Rs 400 crore for the full year and where do you think revenues are headed in FY08?

A: First of all we are going to close our financial year in December as of this year because the acquisition what we had ECU Line which is in terms of topline almost four times higher than ours and we felt that this is a better way that we align our financial year ending to ECU Line which is on calendar year basis. So this year Allcargo we would reach for nine months around Rs 250 crore with bottomline of about Rs 45 crore. As regards ECU Line is concerned we would reach Rs 1200 crore topline. On a consolidated basis we would expect to earn about Rs 65 crore for the nine months, 12 months for ECU Line and nine months of Allcargo, so that’s what we end up for this financial year.

Q: Would there be a case for changing the revenue model just a bit because your multimodal transport operations business constitutes about 60%, is not your highest margin business it is your container freight business which accounts for only about 25% of your sales and then of course you have your project cargo handling facility as well. Is there a case which changing this mix going into FY08 for the lot of new capacities that you are adding?

A: NVOCC (non-vessel owning common carrier) or multimodal transport business is right now pretty fragmented and the margins that we make out of that has been fairly consistent but for us to grow in this business we have to get into competitive mode which we would not like to, we would like to retain our market leadership and sustain our earnings over the years in current levels.

So we can’t really grow unless there is consolidation in industry which sooner or later will happen the way we see it. Right now our focus is on development of container freight stations across the country. So after we commission these two facilities, we are in the process of acquiring land in other locations like New Delhi and Nagpur we have already acquired land.

Q: You have also acquired Hindustan Cargo?

A: That’s correct.

Q: Can you take us through what was the cost and what kind of synergies it brings? How much will it add to the balance sheet in 2007 and then in CY08?

A: Hindustan Cargo's focus is on airfreight. At Allcargo we don’t have a significant presence in airfreight and there is an only missing link that we have. We always wanted to grow in this challenging high growth business and this we felt as a very good company to acquire which is owned by Thomas Cook. The current turnover of that company is around 32 crore with the EBITDA of 1.3 crore. The synergy what we see is, there are multiple locations where Hindustan Cargo has their offices and Allcargo has their offices, we would try and bring them together and achieve the economy of scale by expanding in airfreight and also in sea freight business.

Q: There have been some delays on your projects in Chennai and Mundra, what is the update on that and once that is resolved what would then total TU handling capacity?

A: There is no real delay as such. We have been always talking about February-March and we would commission the project by that period of time. The expanded capacity would roughly work out to close to about 200,000 TUs. We have 120,000 and we are going to add another 80,000 between Chennai and Mundra.

Q: You are looking to acquire land in Delhi for your ICD (Inland Container Depot) operations, can you update us on what is the status and is that land acquisition over?

A: Yes, Delhi has been a little bit of wild goose chase for us and we are at advance stage in discussions with couple of projects, so within the next couple of months we should be able to very clearly identify and decide which way we are going to go in the NCR region.

Q: Are ECU Line’s margins in line with yours?

A: ECU Line margins are far higher than Allcargo because of the high operating cost in European countries and the western world. So when you compare Allcargo bottomline it is more or less the same but the operating margin there is very high.

Q: You are a Rs 1500 crore company if you put revenues of the two together as of December 31. What is it likely to look like in December 2007?

A: The main growth for Allcargo will happen from the container freight stations and the project transportation business what we are now very actively looking at and also the increase in ECU Line business will come about from expanding our network into the other countries where ECU Line doesn’t have presence right now. We would very safely reach somewhere around Rs 1800 crore.