Hold Allcargo Logistics; target of Rs 146: Nirmal Bang

Nirmal Bang has recommended hold rating on Allcargo Logistics with a target of Rs 146, in its August 8, 2012 research report.

“Allcargo reported 9.4% volume growth in CFS division (Exhibit 5). After a 24.4% growth in FY12, the P&E division (33.3% of FY12 EBITDA) continued its strong performance with revenue/EBIT up 28.3%/24.8% YoY in 1QFY13 (Exhibit 3).  However with lower dwell time by 1-3 days, coupled with stiff competition EBITDA of CFS division fell 14.4%. Following strong performance of P&E division, consolidated EBITDA rose 11% YoY to Rs1, 135mn, 2.1% below our estimate due to lower EBITDA of CFS division and lower volume growth of 3.2% of NVOCC division (Exhibit 4). But, as the RoCE of P&E division is lowest among three divisions, its higher share would put strain on consolidated RoCE.”

“Allcargo is going for share buyback amounting to Rs750mn which would reduce its equity base by 4%. It has competed 48.3% of total buyback till now. Following lower other income due to cash used for buyback, our net profit estimate stand reduced by 1.3%/1.9% for FY13E/FY14E, respectively, but EPS estimates increase by 2.8%/2.0%, respectively, for the same period.”

“Allcargo has incurred capex of Rs1.2bn in 1QFY13 and out of that Rs300mn was spent to buy third vessel for the coastal shipping division. Currently, this division is not making significant profits and with the addition of third vessel incremental RoCE would be negative in FY13/FY14. Allcargo trades at 8.7x/5.7x/1.1x FY13E PE, EV/EBITDA and P/B, would continue to trade at the lower end of its valuation band and below its median of 12.3x/7.3x/1.7x following likely lower free cash flow of Rs2.1bn (down from Rs4.4.bn) and lower RoCE at 13.1% in FY14E from 14.6% in FY12,” says Nirmal Bang research report.

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