Shashi Kiran Shetty, executive chairman, Allcargo Logistics says the company’s 40 percent revenue growth has come on the back of its strategic acquisitions in US and Europe.
While such a revenue growth is unlikely to be repeated, Shetty says the company’s margins will come in double digits in the quarters to come.
Below is the transcript of Shashi Kiran Shetty’s interview to CNBC-TV18’s Latha Venkatesh and Sonia Shenoy
Latha: This is a fairly scotching pace of revenue growth. 40 percent revenue growth in multimodal transport, container traffic up 21.5 percent. Will you be able to maintain this multimodal transport growth which is your big segment at 40 percent?
A: The multimodal transport business has grown significantly mainly because of the acquisition that we did last year. We have done two acquisitions one in America where we are operating with line officers all over the country. Also we acquired two companies in Europe. So primarily the contribution is coming from those acquisitions and these acquisitions are very strategically achieved. One because we had no presence in the US which is such an important market for our business and that was the only missing link that we had in our global network. So that worked out extremely well for us and integration has been extremely smooth.
The other company we acquired was in Europe which was a company which is very specialised in handling the full container load business and that is a business now we are going to take globally because the customer base is the same, we have a global network already and quite a few of our offices are very active in the full container load business, so is the American acquisition that we did. So now with this acquisition we are now going to roll out full container load business all over the world and that should give us significant growth also going forward in the future.
In addition to that we are making significant investment in our talent pipeline in terms of our people, management in China and in the US and also in South East Asia. These are all very important growing global markets for us.
Yes the growth is going to sustain but may not be 40 percent, that is yet to be seen but there is tremendous focus on the business and great opportunities.
Sonia: In your earlier conference call you had mentioned that once the market starts to stabilise you will look at more inorganic or rather more organic or inorganic acquisitions. Anything that you have lined up in say the next 6-12 months?
A: As a matter of fact our focus is now back on India. Last two years because we did lot of investments but the economy didn’t support these investments. Firstly those investments which are done couple of years ago are now going to come extremely handy with the economy reviving. Especially on the CFS business where we have almost double the installed capacity happened couple of years ago, that is one area where we are going to look at significant growth coming along. On the other hand we have quite a lot of equipments and the capabilities do the project transportation business.
As we speak the equipment rental business has already picked up quite significantly and that is going to drive the EBITDA growth in the coming quarters. Although the project transportation business is still not showing traction because not much is moving on the ground, but in the next few quarters that business is likely to also increase.
So we see next few quarters the project and equipment division and the costal shipping business is going to contribute a lot. As far as acquisitions are concerned as you know that we have already done about 10 acquisitions and we have been quite successful in integrating all of them. We are very actively looking at growing in the areas of contract logistics, in the area of ecommerce and cold chain capabilities in the country. So these are the areas where we are actively working on few target companies. I cannot disclose anything at the moment but we are very actively working on such growth in the future.
Latha: What is your debt, do you have free cash flow?
A: This year if everything goes well our cash generation will be somewhere in the region of Rs 520 crore in the financial year. Our debt is roughly about net of cash is about Rs 550 crore.
Sonia: The only niggling worry is despite a very good growth in revenues, your margins continue to remain around that 7-8 percent mark. At the end of FY14 it was 8 percent, now at the end of this quarter as well it is 8 percent. When do you think you will be able to get into double digit margins? Would it be by the end of this year?
A: If you look at the global peers in our business, their EBITDA margin is actually lower than ours. Two, we have some businesses where we have EBITDA margin of about 5-6 percent but we have high margin businesses in India. So combined you see them roughly around about 9 percent which was actually 10 percent last year. As you know the global shipping business is under pressure right now so overall the freight rates are low and we are in the freight business, the arbitrage what we make between buy and sell.
When the freight rates goes down our arbitrage also goes down to some extent and as freight markets pick up the arbitrage gets better. So this is a normal phenomenon in our business and since we are asset light in that business it doesn’t really affect so much in terms of the company’s financials. But we do expect the margins to significantly go up because of the growth in the CFS business and the project equipment business which is a high margin business. Coming quarters our margins should be getting back to the double digit figures of roughly about 10-11 percent.
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