P&E Division Compensates For Other Divisions
Following 66.3%/36.4% y-o-y/q-o-q growth in project and engineering solutions (P&E) division, Allcargo Logistics reported a 39.1% y-o-y growth in operating profit at Rs1,247mn, 31.8% higher than Nirmal Bang estimate. It would commission 100,000 TEU CFS facility at JNPT by July 2012, the benefit of which would be visible in FY13/14. Following lower capex likely in FY13 and higher share of high margin/high RoCE CFS business, net profit should show 11.4% CAGR and report positive free cash flows of Rs4.4bn over FY12-14E, which calls for a re-rating of its valuation. Nirmal Bang retain their Buy on Allcargo with a SOTP-based TP of Rs173.
Strong performance of P&E division:
P&E division, which contributed 33.3% to FY12 EBITDA, reported strong performance with revenue up 66.3%/36.4% y-o-y/q-o-q at Rs1,260mn in Q5FY12 and its EBIT up 26.4%/16.1% y-o-y/q-o-q. Due to challenging environment, Allcargo witnessed flat growth q-o-q in NVOCC volume, while its CFS volume declined 12.1% q-o-q in line with Nirmal Bang estimate. Due to lower volume, operating profit of CFS division declined 11.7% q-o-q. Due to cost rationalisation, ECU Line witnessed ~4% improvement in core EBITDA in euro terms. Following strong performance of P&E division, consolidated operating profit increased 39.1%/25.6% y-o-y/q-o-q to Rs1,247mn. With a change in classification of operating lease, other expenses were understated by Rs178mn. Adjusted operating profit of Rs1,069mn was 12.9% higher than our estimate.
Turning free cash flow positive:
After increasing capital employed by Rs5bn over CY09-FY12, Allcargo plans to consolidate its capex plan of low RoCE P&E division. Benefits of new CFS facility with a capacity of 100,000 TEU at JNPT, operational by July 2012, would be visible in FY13/14. Allcargo is consolidating its business, with lower annual capex of Rs1bn and it should report positive free cash flow after a gap of five years. The stock witnessed a de-rating following aggressive capex (mainly of P&E division), which resulted in negative free cash flow of Rs13.7bn over CY07-FY12. Strong free cash flow of Rs4,384mn over FY13-14 would drive up valuation.
Allcargo trades at 7.3x/4.6x/0.9x FY13E PE, EV/EBITDA and P/B, at lower end of its valuation band and below its median of 12.3x/7.3x/1.7x.
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Founded in 1986 by Nirmal Bang, the Nirmal Bangis recognized as one of the largest retail broking houses in India, providing an array of financial products and services. Their retail and institutional clients have access to products such as equities, derivatives, commodities, currency derivatives, mutual funds, IPOs, insurance, depository services and PMS. The Group is headed by Mr. Dilip Bang and Mr. Kishore Bang.
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