Allcargo piggybacks on investor love for logistics stocks

Allcargo stock has more than doubled, outperforming the BSE 500 index, so far this fiscal year

Logistics companies have found favour with investors this year, who expect the sector to benefit from the introduction of the Goods and Services Tax (GST) and a boom in the e-commerce industry. In keeping with the trend, shares of Allcargo Logistics Ltd have also run up. So far this fiscal year, the Allcargo stock has more than doubled, outperforming the BSE 500 index. Its share has risen by 216% till date, compared with a 27% increase in the BSE 500 index. The company derives its revenue from three main sources: multi-modal transport operations (MTO), container freight stations (CFS) operations and project and engineering solutions.

Allcargo’s MTO segment performed well so far this year (39% year-on-year revenue growth for the half-year ended September) providing a boost to the company’s overall consolidated numbers.

The MTO business contributed 84% of the company’s revenue. “Volumes have improved for the MTO segment in H1FY15 at around 210,000 twenty-foot equivalent unit (+41% YoY) primarily due to consolidation of the new acquisitions as well as improvement in trade,” said a note from Kotak Securities Ltd on 30 December. Of course, what is more consequential is whether the strong growth can be sustained in the coming quarters as well.

Revenue from the CFS business grew at a relatively slower pace of 22%. Thus, Allcargo’s overall consolidated revenue for the half year ending September increased by about 36% on a year-on-year basis, and net profit increased by 39% over the same period last year. Even as revenue and net profit performance has been robust, operating profit margin has declined slightly to 8.5% due to higher costs. A decrease in tax outgo boosted net profit growth. While the industry seems to be in a good place, the sharp appreciation in Allcargo’s shares suggests that investors are already capturing most of the upside in the price. At present, the stock trades at about 16 times its estimated earnings for FY16.

A recovery in global trade as and when it happens should give a further impetus to its performance. Of course, an improvement in margins will be welcome. “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. (In the) coming quarters our margins should be getting back to the double digit figures of roughly about 10-11%,” said the company’s executive chairman Shashi Kiran Shetty in an interview to CNBC-TV18 while commenting on the September quarter financial performance.

Investors would do well to keep a tab on progress on that front.