2ndFeb,2011

Allcargo Global Logistics Ltd.

Logistics | Initiating Coverage
Improvement in all segments, valuations attractive Company Overview
Allcargo Global Logistics Ltd (Allcargo) is the second largest Non Vessel Owning Common Carrier (NVOCC) in the world offering specialised logistics services across Multi Modal Transport Operations (MTO), Container Freight Station (CFS)/ Inland Container Depot (ICD) and Project & Engineering Solutions.

Buy
th

B P EQUITIES

29 March 2011
Stock Rating BUY HOLD SELL

> 15%

-5% to 15%

< -5%

Investment Rationale
Aggressive capacity expansion to boost top-line Allcargo has planned to spend Rs 2.5bn in CY11 out of which it has allocated ~ Rs 1bn for doubling its capacity at JNPT CFS to ~288,000 TEUs (Twenty-Foot Equivalent Unit) and expansion of other CFS. We expect the company would add JNPT capacity by Q3CY11 end. The company has allocated Rs 400mn for setting up ICDs at Dadri and Hyderabad with capacities of 52,000 TEUs and 36,000 TEUs respectively. The company is also planning to spend Rs 500mn for expanding its fleet size for project and engineering solution segment. We believe capacity expansion at JNPT CFS (current utilisation rate above 95%) & new capacity at ICDs as well as order book position (INR 1.8bn) of project and engineering solution segment would drive top-line growth. We expect revenues of the company to increase at a CAGR of 21.4% to 38.8bn between CY10-CY12. Improvement in international market to drive MTO volume ECU Line (subsidiary) generates its major revenues (more than 40%) from European region. As per the World Banks estimate, European economy is expected to grow at GDP growth rate of 1.3% and 1.8% in CY11 and CY12 respectively and the world economy is expected to grow at a GDP rate of 3.3% and 3.5% in CY11 and CY12 respectively. We believe with improvement in international trade, ECU Lines volume to increase at a CAGR of 9.6% to 257,643TEUs between CY10-CY12.

Sector Outlook
Stock CMP Target Price BSE code NSE Symbol Bloomberg Reuters Key Data Nifty 52WeekH/L(Rs) O/s Shares (mn) Market Cap (Rs bn) Face Value (Rs) Average volume 3 months 6 months 1 year

Bullish
Rs 165 Rs 241 532749 ALLCARGO AGLL IN ALGL.BO

5,736 18,943 130.5 21.5 2.00

Gradual shift towards higher margin services

The company is focusing on expanding its ICDs/CFS network to improve overall margins as its CFS division enjoys higher margins (EBIT margin ~45.4% in CY10). We believe the contribution in total revenue from CFS business would increase to 10.2% in CY12 compared to existing 7.6%. Going ahead, we expect change in revenue mix toward high margin CFS business to expand consolidated EBIT margin to 60bps to 9.1% in CY12. Outlook and Valuation Allcargo has a strong presence in NVOCC business through wide network of ECU Line and also has a strong hold on domestic MTO business. Considering aggressive capex plans for growing ICDs/ CFS and Project & Engineering Solution segments, we believe margins to expand going forward. At CMP, the stock is trading at 7.9x to CY12 earning estimates and available at ~56% discount to its peer group average of 14x. We have valued the stock on the basis of DCF method due to the huge capex plan, the benefits of which would accrue over a longer period. We arrived at the target price of Rs 241 per share. The target price implies a potential upside of 46% for investment horizon of 12-18 months. We initiate coverage with a BUY recommendation.
Ke y F ina nc ia ls YE M arch (Rs mn) N e t S a le s Sales gro wth (%) EB IT E B ID T A Net P ro fit D ilut e d E P S No o f Diluted shares (mn) EB IT (%) E B ID T A ( %) NP M (%) R o E ( %) Ro CE (%) Debt/Equity (x) P / E ( x) P /B V (x) EV/EB IDTA (x) CY08A 2 3 ,14 1 43.4% 1 ,754 2 ,2 0 1 11 ,1 6 10 .0 11 1 .8 CY09A CY1 0A 2 6 ,3 2 9 27.8% 2,245 2 ,7 9 0 1 0 ,71 13 .1 1 30.5 8.5% 10 .6 % 6.4% 15 .4 % 1 7.3% 0.32x 11.2 x 1 .5x 7.2x CY1 E 1 3 2 ,5 0 7 23.5% 2,832 3 ,5 4 4 2,1 93 16 .8 1 30.5 8.7% 10 .9 % 6.7% 16 .3 % 1 9.4% 0.25x 9 .8 x 1 .5x 6.4x CY1 2E 3 8 ,8 2 1 1 9.4% 3,541 4 ,3 0 7 2,726 2 0 .9 1 30.5 9.1 % 11.1% 7.0% 17 .3 % 22.2% 0.1 5x 7 .9 x 1 .3x 5.0x

151,575 99,693 71,493

Share Holding Pattern (%)

Relative Price Chart

2 0 ,6 0 9 -1 0.9% 1 ,640 2 ,18 5 1 ,299 11.1 1 7.2 1 Ke y R a t io s 7.6% 8.0% 9 .5 % 10 .6 % 4.8% 6.2% 2 0 .6 % 16 .3 % 33.7% 20.5% 0.56x 0.21 x V a lua t io n R a t io s 12 .8 x 17 .7 x 2.3x 2.4x 7.7x 1 .1 1x

200 180 160 140 120 100 AllCargo

Research Analyst Rupin Shah rupinshah@bpwealth.com 022-61596408

0.040 0.030 0.020 0.010 0.000 Relative to Nifty

Mar-10 Jun-10 Sep-10 Dec-10 Mar-11

Source: Company Reports, BP Equities

Allcargo Global Logistics Ltd.

Investment Rationale
Aggressive capacity expansion to boost top-line

Initiating Coverage

After spending Rs 2.5bn for expanding CFS capacity at Chennai and Mundra as well as on fleet expansion of project & engineering segment in CY10, the company has planned to spend another Rs 2.5bn in CY11 mainly for expanding ICDs/CFS capacity and for increasing its fleet size in pro- Allcargo has a very aggresject and engineering solution segment. The company has planned to spend Rs ~1.0bn for dou- sive capex plan for expanding bling its capacity at JNPT CFS to ~288,000 TEUs and expanding other CFS. Currently, JNPT its ICDs/CFS network. contributes ~58% (~131,870 TEUs) of total CFS volume of the company. We expect the company would add this capacity by Q3CY11 end. The company has allocated Rs 400mn for setting up ICDs at Dadri (Greater Noida-Uttar Pradesh) and Hyderabad with capacities of 52,000 TEUs and 36,000 TEUs respectively. We believe the company would start its commercial operation at Dadri ICD by Q3CY11 and at Hyderabad ICD by Q3CY12. The company is also planning to spend Rs 500mn for expanding its fleet size for project and engineering solution segment.

CY11 Capex Break-up (Rs 2.5bn)

warehousing, 16% Project & Engineering, 20% JNPT, 40%

Other, 8%

ICD, 16%

Source: Company Reports, BP Equities

Expansion Plan of ICDs/CFS

Current Capapcity (TEUs)
144000 Nil Nil

CFS/ICDs
JNPT CFS Dadri ICD Hyderabad ICD

Expansion Total Capacity (TEUs) (TEUs)

144,000 84,000 36,000 288,000 84,000 36,000

Expected to complete
Q3CY11 Q3CY11 Q3CY12

Source: Company Reports, BP Equities

We believe expansion of ICDs/CFS facility would increase the revenues from CFS segment , particularly from JNPT CFS as currently its operates above 95% capacity utilization with ~9% market share at JNPT port. Currently, JNPT contributes more than 60% of CFS volume of the company which attracts higher realization compared to other CFS in India mainly due to most of its volume is contributed by imports. JNPT has registered a CAGR of ~15% to 4.1mn TEUs between FY01 and FY10. We believe this growth would continue in future considering overall growth in the economy and Allcargo is well positioned to get the benefit of increasing traffic on Indias largest port (accounts for ~60% of container traffic). Therefore, We expect revenues of the company would increase at a CAGR of 21.4% to 38.8bn between CY10-CY12.

We believe expansion at growing JNPT port would benefit the company to increase its CFS revenue.

Institutional Research

BP Equities Pvt. Limited (www.bpwealth.com)

31/3/2011

Allcargo Global Logistics Ltd.

Inorganic expansion plan to remain key strategy for ECU Line

Initiating Coverage

ECU Line generated ~67% of total revenues of Allcargo and accounted for ~90% of total volume of MTO business in CY10. ECU Line has its presence in over 59 countries through which includes emerging markets like Brazil, Vietnam and Russia. The company has 8 offices in China. Recently in Oct-2010, ECU Line has acquired two Hong Kong based companies in NVOCC space and has strengthened its position in Chinese market. Together these two companies generated revenues of USD 35mn and ~10% EBITDA margin (USD 3.6mn) in CY09. We believe these acquisitions would not only boost revenue for the company but also improve margins of ECU Line. We believe various cost reduction measures and new acquisition would boost operating margin of Allcargo

Allcargo has initiated various cost reduction measures to improve margins of ECU Line and currently working on setting up a global procurement system with which we believe the company would start saving some part of cost from Q2CY11. However, we believe various cost reduction measures would not improve the margins of ECU Line substantially. We expect inorganic expansion plans to remain main strategy for the company to improve ECU Lines margin.

Ecu Line's EBITA margin (%)

Source: Company Reports, BP Equities

Gradual shift towards higher margin segment would expand overall margin Allcargo has planned to double its JNPT CFS facility to 2,88,000 TEUs per annum by 3QCY11 end. In addition, the company has started setting up new ICDs at Dadri and Hyderabad with capacities of 52,000 TEUs and 36,000 TEUs respectively. The company is focusing on expanding its ICDs/CFS network to improve overall margins as its CFS division enjoys higher margins (EBIT margin ~45.4% in CY10) compared to the domestic MTO business (EBIT margin ~7.1% in CY10) and project & Engineering segment (EBIT margin ~15% in CY10). As the company is increasing its capacities at Hyderabad ICD, Dadri ICDs and JNPT CFS, we believe the contribution in total revenue from CFS business would increase to 10.2% in CY12 compared to existing 7.6%. Going ahead, we expect change in revenue mix toward high margin CFS business would expand consolidated EBIT margin to 60bps to 9.1% in CY12. we expect change in revenue mix toward high margin CFS business would expand the operating margin of the comp may

Total Revenue, CFS Revenue & Consolidated EBIT Margin

50,000 40,000 30,000 20,000 10,000 0 CY08 CY09 CY10 CY11e CY12e
Consol. EBIT margin (%)

10.0% 8.0% 8.5% 8.7% 9.1% 9.0% 8.0% 7.0% 6.0% 5.0%

7.6%

Total Revenue (Rs mn)

CFS Revenue (Rs mn)

Source: Company Reports, BP Equities

Institutional Research

BP Equities Pvt. Limited (www.bpwealth.com)

31/3/2011

Allcargo Global Logistics Ltd.

Improvement in domestic & international market to drive MTO volume

Initiating Coverage

Allcargo generated its ~10% MTO volume (25,880 TEUs in CY10) from Indian market and it generates remaining 90% MTO volume (~211,700 TEUs in CY10) through ECU Line which has its presence in over 59 countries. Container traffic has positive co-relation with overall growth in the economy. The growth of Standalone MTO business is largely depends upon overall growth in Indian economy. We believe container traffic would continue to show uptrend in the coming years with increase in industrial production and improved trend of Indias import and exports. We believe standalone volume to increase at a CAGR of 5.4% to 28,733 TEUs in CY12 as the Indian economy is expected to grow above 8% for the next two years.

Standalone MTO volume & volume growth

Indias EXIM Performance

30,000 28,000 26,000 24,000 22,000 CY08 CY09 CY10 CY11e CY12e
We believe container traffic would continue to show uptrend in the coming years with increase in industrial production and improved trend of import and exports.

StandaloneMTOvolume(TEUs)
Source: Company Reports, BP Equities

%ofgrowth
Source: Economy Survey Report, BP Equities

ECU Line generates its major revenues (more than 40%) from European region. As per the World Banks estimate, European economy is expected to grow at GDP growth rate of 1.3 % and 1.8% in CY11 and CY12 respectively and the world economy is expected to grow at a GDP rate of 3.3% and 3.5% in CY11 and CY12 respectively. We believe with improvement in international trade, ECU Lines volume would increase at a CAGR of 9.6% to 257,643 TEUs between CY10CY12.

Project & Engineering solution segment showing high potential for revenue growth Considering the robust demand from windmill, power projects, refineries, metro & airport projects and building construction projects, the company has earmarked Rs 500mn for expanding fleet size of Project and Engineering solution in CY11. In Engineering Solution business, the company is currently operating at above 90% capacity utilization level. The current order book of the segment is ~Rs 1.8bn. We believe the company would execute all the order in CY11 with the existing fleet size and additional expansion of fleet size would set the platform for executing additional orders in this high growth area. We expect Project & Engineering Solution revenues would increase at a CAGR of 13.1% to 4.2bn between CY09 and CY13. Current Fleet size of Project & Engineering Solution
Current fleet size Cranes Forklifts Reach Stackers Trailers
So urce: Co mpany Repo rts, B P Equities

We believe the company would execute all the order in CY11 with the existing fleet size and additional expansion of fleet size would set the platform for executing additional orders in this high growth area.

101 68 25 423

Institutional Research

BP Equities Pvt. Limited (www.bpwealth.com)

31/3/2011

Allcargo Global Logistics Ltd.

Financial Outlook

Initiating Coverage

Revenue, EBITDA and Net Profit expected to grow at a 3 year CAGR of 14%, 16.3% and 17.3% for CY10-13E
Revenue, EBIDTA and EPS and Growth for FY07-13E

50,000 40,000 30,000 20,000 10,000 0 CY08

mainlydueto recessionin US&Europe

60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 10.0% 20.0% CY11e CY12e CY13e
NetProfit(Rsmn) NetProfitgrowth (%)

CY09

CY10

Revenues(Rsmn) Revenuesgrowth(%)
Source: Company Reports, BP Equities Research

EBITDA(Rsmn) EBITDAgrowth(%)

Allcargos revenues grew at a Allcargos revenues grew at a 3 year CAGR of 17.7% to Rs 26.3bn in CY10 on account growth in volume from CFS business and MTO business. We expect the company to post similar healthy 3 year CAGR of 17.7% to Rs growth rate and projected its revenue to grow at a 3 year CAGR of 14% over CY10-13E to Rs 26.3bn in CY10 on account growth in volume from CFS 39.0bn. business and MTO business. EBITDA grew at a 3 year healthy CAGR of 25.1% to Rs 2.8bn in CY10 on account of decrease in operating expenses. During the same period, EBITDA margin expanded by 150bps to 10.6% in CY10 primarily due to operational efficiency as well as due to decrease in administrative & selling expenses with respect to sales. We expect the companys EBITDA Margins to expand marginally by 66 bps (from CY10-13E) to 11.3% in CY13E. Net Profit grew at a 3 year CAGR of 30.6% to Rs 1.7bn in CY10 and during the same period, net profit margin increased by 158bps to 6.4% in CY10 on the back of reduction in interest payment. Going forward, we expect net profit to grow at a 3 year CY10-13E CAGR of 17.3% to Rs 2.7bn and we expect net profit margin to expand 58bps to 6.7% in CY13. EBITDA grew at a 3 year healthy CAGR of 25.1% to Rs 2.8bn in CY10 on account of decrease in operating expenses.

Institutional Research

BP Equities Pvt. Limited (www.bpwealth.com)

31/3/2011

Allcargo Global Logistics Ltd.

Adjusted EPS to grow at a 3 year CAGR of 21.4% to Rs 23.3 in CY13e Adjusted EPS (Rs)

Initiating Coverage

30.0 25.0 20.0 15.0 10.0 5.0 0.0 CY07 CY08 CY09 CY10 CY11e

CAGR: 21.4% (CY10-13e)

CY12e

CY13e

Source: Company Reports BP Equities Research

Q4CY10 Performance

Standalone revenue of the company increased by 27.3% YoY to Rs 1,779mn in Q4CY10 on the back of growth across segments, particularly CFS segment which reported a 37.1% YoY growth to Rs Consolidated revenue during the quarter increased by 25.9% YoY increase to Rs 7,037.5mn 614.6mn in revenue. mainly due to volume growth across segments. EBIT margin during the quarter improved 350bps YoY to 8.4%. Adjusted net profit margin increased 208bps to 5.9% in Q4CY10. Standalone revenue of the company increased by 27.3% YoY to Rs 1,779mn in Q4CY10 on the back of growth across segments, particularly CFS segment which reported a 37.1% YoY growth to Rs 614.6mn in revenue. Project & Engineering solution segment registered 33.2% YoY increase to Rs 662.8mn in Q4CY10. Domestic MTO segment registered 12.7% YoY increase to Rs 545.7mn on the back of 24.2% YoY growth in average realization to Rs 89470 per TEU in Q4CY10.

Quarterly Performance (Rs mn)

8000.0 6000.0 4000.0 6.00% 2000.0 0.0 Q4CY09 Q1CY10 Q2CY10 Q3CY10 Q4CY10 Total Revenue (Rs mn) Net margin (%)
Source: Company Reports BP Equities Research

12.00% 10.00% 8.00%

4.00% 2.00%

EBIT margin (%)

Institutional Research

BP Equities Pvt. Limited (www.bpwealth.com)

31/3/2011

Allcargo Global Logistics Ltd.

Company Description

Initiating Coverage

Allcargo is the 2nd largest global player in LCL (less than container load) consolidation business. Allcargo is the second largest Through its MTO operations, the company offers end-to-end freight services to exporter and imNVOCC player in the world. porter of cargo and this is done through more than one form of transportation modes. MTO segment continues to be the major revenue driver for the company, accounting for ~81% of its CY10 revenues, with the balance being contributed by CFS operations (~8%) and Project & Engineering Solution segment (~11%). The company operates primarily in three segments, viz. MTO, CFS/ICDs operations and Project & Engineering Solution segment.

Allcargos Revenue segments

AllcargoGlobalLogisticsLtd.

CFS/ICDs

MTOOperation

Projects&Engineering Solution

NVOCC

Projectcargo

EngineeringSolution

Import

Export

FCL/LCL
Source: Company Reports, BP Equities

Segment wise client break up

CFS

MTO

Project & Engineering

Shipping Lines

Freight forwarders

Capital intensive companies like Oil & Gas, Power

Freight forwarders

Transformer & wind turbine companies

Source: Company Reports, BP Equities

Institutional Research

BP Equities Pvt. Limited (www.bpwealth.com)

31/3/2011

Allcargo Global Logistics Ltd.

Initiating Coverage

Projects & Engineering solution business: It provides integrated end to end project, engineering and logistics through a diverse fleet of owned or rented special equipment like cranes, hydraulic axles, barges, reach-stackers, to carry ODC/OWC as well as project engineering solutions across various infrastructure industries. The company offers equipments like cranes, reachstackers and trailers on rental basis. Currently, the company has 101 cranes, 68 forklifts, 423 trailers, 25 reach stackers.

The company has successfully executed many projects for its clients such as BHEL, British Gas, Weatherford, Delhi Metro Corporation, Jindal, Vedanta, Bombardier, Project cargo provides services in ODC (over dimensional cargo) and OWC (overweight cargo) TVS Motors, etc. logistics. The company has successfully executed many projects for its clients such as BHEL, British Gas, Weatherford, Delhi Metro Corporation, Jindal, Vedanta, Bombardier, TVS Motors, etc.

Allcargos Geography-wise revenue break-up

5%

2% 2%

15%

31%

18% 27%

Europe FarEast Mediterranean Africa

India America Australia &NewZealand

Source: Bloomberg, BP Equities

Institutional Research

BP Equities Pvt. Limited (www.bpwealth.com)

31/3/2011

Allcargo Global Logistics Ltd.

Initiating Coverage

MTO business
MTO includes consolidation and transport of cargo as less than container load (LCL) cargo and full container load (FCL) cargo, by utilizing multiple modes of transport such as sea, road and rail under a single Multimodal Transport document. NVOCC involves LCL consolidation activities in India and overseas. NVOCC services are classified under two sub-categories: LCL (less than container load) and FCL (full container load) consolidation. Allcargo undertakes LCL consolidation of multiple types of cargo from various consignees in a single container. This service is beneficial for small exporters/importers, since they often have insufficient cargo to fill an entire container. ECU Line is the main subsidiary of the company which has overseas network for LCL activities. Allcargo, by acquiring ECU Line, has expanded the geographical reach of its LCL services.

Allcargo undertakes LCL consolidation of multiple types of cargo from various consignees in a single container.

Allcargos LCL Consolidation Flow

Source: Company Reports, BP Equities

Primary Functions of ICD/CFS

CFS/ICDs business: A CFS is a warehouse located near a port that facilitates customs clearance of cargo, essentially acting as an extension of the port. The CFS container yard space is equipped to handle containers and provide storage, handling and cargo consolidation services. It involves cargo stuffing, de-stuffing, custom clearance and other related ancillary services to importers and exporters. The companys largest CFS is located at the Jawaharlal Nehru Port Trust (JNPT), Mumbai. This CFS is spread over 23 acres and has a total storage capacity of up to 144,000 TEUs Apart from CFS at JNPT, the company also has CFS at Mundra and Chennai as well as an ICD at Pithampura (Indore). The company commands ~9% market share at JNPT, ~10% market share at Chennai and ~7% market share at Mundra in Q4CY10. Allcargos Existing Capacity at various ICDs/CFS
Source: Company Reports, BP Equities

Existing Capacity

CFS

ICD

JNPT (144,000 TEUs)

Source: Company Reports

Chennai (120,000 TEUs)

Mundra (77,000 TEUs)

PithampurIndore (36,000 TEUs)

Institutional Research

BP Equities Pvt. Limited (www.bpwealth.com)

31/3/2011

Allcargo Global Logistics Ltd.

Industry Overview The Indian Logistics Industry

Initiating Coverage

Logistics refers to all activities relating to the procurement, transport and storage of goods. The fortune of a company operating in the Indian logistics sector is closely linked to Indias overall GDP growth. The Indian economy has witnessed fast paced growth over the last decade, making it one of the preferred investment locations across the globe. As per the Planning commission report of Government of India, GDP is expected to grow at 8-9% over CY10-CY20. The amount spent on logistics in India is around 13%-15% of GDP, higher than developed countries due to poor infrastructure and undeveloped services. National highways in India account for less than 2% of the total road network but carry 40% of the traffic, resulting in a national average speed of commercial vehicles in India of 20 miles per hour, compared to around 60 miles per hour in some developed economies. The lifespan of a vehicle in India is directly correlated with the condition of Indias roads. Poor condition increases logistical operating costs and reduces efficiency. Furthermore, rail transportation in India is around 3-4 times more expensive than the same service in some European countries. These additional costs are compounded by Indias cumbersome and substandard custom clearance processes. For example, the average time taken to clear import and export cargo at a port in India is 19 days, compared to 3-4 days in Singapore. These factors are increasing margins and driving down the profitability of Indian logistics companies. However, as companies focus on their core competencies, they are outsourcing ancillary activities to third party service providers. Outsourcing logistics requirements to third party logistics players has improved customer service, enhanced flexibility and reduced costs. Third party logistics providers specialize in integrated operations, warehousing and transportation services that can be scaled and customized according to a clients requirements. However, this sector is at a very nascent stage in India. Currently, third party logistics players in India handle only 7% of total logistics business, compared to more than 50% in developed economies. MTO business MTO is a low capital business and there are virtually no entry barriers. Therefore, it is a very fragmented sector dominated by unorganized players. The MTO business is a low margin business, and economic viability only comes with high volumes. Of the MTO businesses, LCL is a higher margin business compared to FCL due to value added by consolidation. NVOCC operates its MTO business as an LCL and a FCL sea freight forwarder and undertakes the consolidation of cargo by renting space on vessels for their own containers. In MTO businesses, LCL is a higher margin business compared to FCL due to value added by consolidation.

CFS/ICDs business There are around 199 ports in India, 12 of which are major ports which handle ~75% of total port traffic. Freight forwarders and MTOs are the key clients of CFS operators. The performance of operators in this market sector is essentially determined by their ability to balance volume throughput and dwell time. Industry Outlook: The National Maritime Development Programme (NMDP) launched by the Government of India (GoI) in 2005 is the GoIs most significant initiative to bring about an all-round improvement in the Indian maritime sector. A total of 251 projects at an investment outlay of INR 568bn have been identified to augment the capacity of the major ports by 429 mmt, thereby taking the total beyond the 1,000 mmt mark by FY12. The first phase of this project was completed in FY09 while the second phase, which is currently under way, is scheduled for completion by FY12 end. In FY10, of the total traffic handled at the major ports, Petro products accounted for the maximum at 31%, iron ore (18%) and coal (13%). Going forward, we believe cargo growth to continue on an upward trajectory given the ongoing and proposed investments in the key user segments. Thermal coal imports in the country are expected to increase significantly on the back of the large number of ongoing and proposed power projects of companies like TATA Power, Adani Power, Mundra and other projects. With a number of greenfield refineries in project stage and brownfield expansions being implemented at existing refineries, the import of crude oil and export of surplus petroleum products are expected to be major contributors to overall cargo volumes.

Going forward, we believe cargo growth to continue on an upward trajectory given the ongoing and proposed investments in the key user segments.

Institutional Research

BP Equities Pvt. Limited (www.bpwealth.com)

31/3/2011

10

Allcargo Global Logistics Ltd.

Experienced and efficient Top Management
Management Profile
Name Mr. Shashi Kiran Shetty Mr. Kris De Witte Designation/ Role Chairman & Managing Director
CEO of the ECU Line Group of companies with responsibility for the Far East, Australia, New Zealand and the Americas regions and jointly with Marc Stoffelen of the ECU Line Group CEO of the ECU Line Group of companies with responsibility for the Europe, Middle East Africa regions and jointly with Kris De Witte of the ECU Line Group

Initiating Coverage

Degree B.Com degree in shipping and logistics degree in shipping and logistics Mechanical Engineering

Total Years of Experience over 32 years over 27 years

Mr. Marc Stoffelen Mr. Adarsh Hegde

Source: Company reports

over 27 years over 18 years

Executive Director

1993 1995 2003 2005-06 2006 2007 2008 2009 2010

Key Milestone Started as cargo handeling operator at Mumbai port Entered into LCL consolidation as an agent of ECU Line Started CFS at JNPT Acquired ECU Line in stages Listing on BSE & NSE, Acquired Hindustan Cargo (freight forwarding company of Thomas Cook) Started CFS at Chennai & Mundra Merged the Equipment Hiring business (Trans India), Balckstone acquired stake in AllCargo Blackstone increased its stake, Started ICD at Indore Raised USD 23.5mn through QIP, Acquired two Hongkong based companies

Source: Company Reports, BP Equities

Institutional Research

BP Equities Pvt. Limited (www.bpwealth.com)

31/3/2011

11

Allcargo Global Logistics Ltd.

Key Risks
Economic slowdown may have an adverse impact on company

Initiating Coverage

The Logistics industry has witnessed strong traffic growth due to robust economic growth in India. However, India may face the risk of economic slowdown in future. Since the countrys growth has positive correlation with the Logistics industry, Allcargos performance would be affected if Indias growth will slow down going forward. Similarly, as the company generates its majority revenues from other countries through ECU Line, its growth is subject to overall performance of world economy. Changes in regulatory environment may impact negatively The domestic market in which the company operates is highly regulated. Any changes in oil prices or on tax structure declared by regulatory authorities would impact companys margins.

Since the countrys growth has positive correlation with the Logistics industry, Allcargos performance would be affected if Indias growth will slow down going forward.

Volatility in currency risk The company generates more than 65% of its revenues from ECU Line and as it operates in more than 59 countries, Allcargos revenues are subject to foreign exchange volatility risk. Major volatility in foreign exchange may affect the company top-line.

Delay in capacity addition at JNPT port Currently, JNPT is operating almost at full capacity (more than 95% utilization rate) level. In view of expected growth in container traffic going ahead, Allcargo is doubling its capacity at JNPT from 144,000 TEUs to 288,000 TEUs. We expect Allcargo would complete capacity expansion by Q3CY11. However, any delay in expansion of existing capacity will impact our earning estimates.

We expect Allcargo would complete capacity expansion by Q3CY11. However, any delay in expansion of existing capacity will impact our earning estimates.

Institutional Research

BP Equities Pvt. Limited (www.bpwealth.com)

31/3/2011

12

Allcargo Global Logistics Ltd.

Valuation & Recommendation

Initiating Coverage

We expect the Logistics industry to perform well on the back of various infrastructure development activities such as ports expansion/modernization mentioned in the Eleventh Planning Commission report (total outlay Rs 2,618bn). We are bullish on the stock considering different expansion plans for setting up ICDs/CFS. Allcargo has a strong presence in NVOCC business through wide network of ECU Line and also has a strong hold on its domestic MTO business. Allcargo benefits from the growth in the ECU Line business (NVOCC) and also spreading its wings through inorganic acquisitions in emerging markets. The companys project and engineering solution division is performing really well and is expected to continue its growth momentum going forward on the back of current order book of INR 1.8bn which would be executed in CY11. We believe expansion of CFS capacity at JNPT would improve margins going forward. At CMP, the stock is trading at ~56% discount (7.9x) to its peer group average PE multiple of FY12 (14x). We believe valuations are attractive considering its aggressive expansion plans, margin improvement and its relative earnings multiple with peer group average. We value Allcargo on the basis of DCF valuation due to the huge capex plan, the benefits of which would accrue over a longer period. We arrived at the target price of Rs 241 for the investment horizon of 12-18 months. Therefore, we recommend a Buy on this stock. DCF Method Key Assumption

We have done DCF on the FCFF (Free Cash Flow to the Firm) basis from CY11e to CY20e. WACC: 11.2% Perpetual growth rate: 2.5%

Peer comparison
Container Corporation of India Ltd (Concor) is the largest player in Railway Logistics as well as ICDs/CFS business in India. It also provides cold storage solution to its clients. Gateway Distriparks Ltd (GDL) is the largest private player in railway logistics which also has a network of ICDs and CFS at various location in India. The company also provides cold storage facility like Concor. Allcargo generates its major revenue from NVOCC segment which is a very low margin business (EBIT margin of ~5%). Allcargo operates its business model with unique synergy between NVOCC and CFS/ICDs business. At one hand, Allcargo contacts and books container space with shipping companies for its clients of NVOCC segment and on other hand, it gets clients of CFS/ICDs service from shipping companies. Therefore, the company gets clients of CFS/ICDs business from shipping companies by providing business of containers cargo to shipping companies through NVOCC business.

Comparative Analysis P/E EV/EBITDA

Companies AllCargo Global* Gateway Distriparks Concor CMP 165 119 1240 Market Cap (Rs mn) 21,482 12,889 161,187 FY11 9.8 14.1 17.7 FY12 7.9 12.0 16.0 FY11 6.4 8.8 12.4 FY12 5.0 7.3 11.2

P/BV FY11 1.5 1.5 3.0 FY12 1.3 1.4 2.7

P/Sales FY11 0.7 2.2 3.8 FY12 0.6 1.8 3.4

Source: Bloomberg except for AllCargo, BP Equities

*estimates for Calendar Year

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Allcargo Global Logistics Ltd.

Consolidated Income Statement
YE M arch N et Sales % chg Total Expenditure % chg EB ID T A M argin (%) Other Income Depreciation Interest Extraordinary PBT M argin (%) Total Tax (% of PBT) Exceptional Item PAT M inority Interest A dj. P A T % chg C Y08 23,141 80.2% 20940 42.3% 2,201 9.5% 106 447 249 1,612 6.9% 357 22.2% (39) 1,216 139 1,116 46.4% C Y09 20,609 (10.9%) 18424 (12.0%) 2,185 10.6% 286 545 232 (27) 1,667 8.0% 260 15.6% (33) 1,374 108 1,299 16.4% C Y10 26,329 27.8% 23538 27.8% 2,790 10.6% 259 545 220 (3) 2,282 8.6% 482 21.1% 5 1,805 101 1,696 30.6% 6.4% C Y11E 32,507 23.5% 28963 23.0% 3,544 10.9% 385 712 296 2,922 8.9% 617 21.1% 2,305 112 2,193 29.3% 6.7% C Y12E 38,821 19.4% 34514 19.2% 4,307 11.1% 366 767 300 3,606 9.2% 761 21.1% 2,845 119 2,726 24.3% 7.0%
Y E M a rc h S O UR C ES O F F UN D S Equity Share Capital Reserves & Surplus Net Wo rth ESOP s Out standing To tal Lo ans Net Deffered Tax Liabilities M ino rity Interest Capital Emplo yed A P P LIC A T IO N O F F UN D S Gro ss Blo ck Less: A cc. Depreciatio n N e t B lo c k Capital Wo rk-in-P ro gress Investments Current Assets Current Liabilities Net Current A ssets M iscellaneo us Expenditure Capital Deplo yed So urce: Co mpany Repo rts, B P Equities

Initiating Coverage
Consolidated Balance Sheet
C Y08 C Y09 C Y 10 C Y11E C Y 12 E

51 8 5,580 6,097 1 6 3,440 1 27 15 1 9 ,7 9 5

250 9,545 9,795 1 6 2,044 1 79 1 35 12 ,16 9

261 1 65 2,1 1 2,426 1 3 3,980 1 79 236 16 ,8 3 4

261 1 4,227 1 4,488 1 3 3,625 179 348 18 ,6 5 3

261 1 6,822 1 7,084 1 3 2,564 1 79 467 2 0 ,3 0 7

7,084 1 ,460 5,624 741 828 5,673 3,075 2,599 3 9 ,7 9 5

9,241 2,053 7,1 88 750 1 ,668 5,463 2,900 2,563 12 ,16 9

1 1,477 2,597 8,880 853 1,378 8,689 2,966 5,723 16 ,8 3 4

1 3,977 3,31 0 1 0,667 928 1 ,378 9,046 3,366 5,680 18 ,6 5 3

1 4,777 4,076 1 0,701 952 1 ,378 1 0,977 3,701 7,276 2 0 ,3 0 7

M argin (%)Company reports, BP Equities Research 4.8% 6.2% Source: Source: Company Reports, BP Equities

Key Ratios
YE M arch Key Operating R atio s EBITDA M argin (%) Tax / PBT (%) Net Profit M argin (%) RoE (%) RoCE (%) Current Ratio (x) Dividend Payout (%) Book Value Per Share (Rs.) F inancial Leverage R atio s Debt/ Equity (x) Interest Coverage (x) Interest / Debt (%) Gro wth Indicato rs % Growth in Gross Block (%) Sales Growth (%) EBITDA Growth (%) Net Profit Growth (%) Diluted EPS Growth (%) T urno ver R atio s Debtors (Days of net sales) Creditors (Days of Operating Exp.) Inventory (Days of Optg. Exp.) Source: Company Reports, BP Equities 47 40 0 42 39 1 45 38 1 41 35 1 44 32 1 26.9% 43.4% 54.6% 46.4% 32.6% 30.4% -10.9% -0.7% 16.4% 11.1% 24.2% 27.8% 27.7% 31.6% 18.2% 21.8% 23.5% 27.0% 28.2% 28.2% 5.7% 19.4% 21.5% 24.3% 24.3%
YE M arc h P/E (x) P/BV (x) EV/EBITDA (x) M arket Cap. / Sales (x)

Consolidated Cash Flow

C Y10 C Y11E C Y12E
Y E M arc h C Y08 1 ,612 447 (1 ,381) 357 (1 41) 894 (1 ,742) (336) (1 ,184) (1 ,098) 3 2,177 (49) (249) 2,130 395 631 1 ,027 C Y 09 1,667 545 (41 4) 11 2 1,91 0 (9) 1,901 (3,630) 1,120 (386) (138) (232) 347 (75) 1,01 2 937 C Y 10 2,282 545 (780) 482 216 1 ,781 (2,236) (103) (558) 290 1,936 (1 31) (220) 2,644 2,380 916 3,297 C Y 11E 2,922 71 2 (51 5) 61 7 296 2,797 (2,500) (75) 222 (355) (131) (296) (781) (559) 3,297 2,738 C Y 12 E 3,606 767 (1,209) 761 300 2,703 (800) (24) 1,879 (1 ,061) (131) (300) (1,492) 387 2,738 3,125 P ro fit befo re tax Depreciatio n & A mo rtisatio n Change in Wo rking Capital

C Y08

C Y09

9.5% 22.2% 4.8% 20.6% 33.7% 1.8x 10.1% 55

10.6% 15.6% 6.2% 16.3% 20.5% 1.9x 10.9% 84

10.6% 21.1% 6.4% 15.4% 17.3% 2.4x 7.6% 95

10.9% 21.1% 6.7% 16.3% 19.4% 2.9x 6.0% 111

11.1% 21.1% 7.0% 17.3% 22.2% 2.7x 4.8% 131

Direct taxes paid & Fringe B enefit Tax Other Non-cash Exp/(Inc) Cash Flow from Operatio ns (Inc.)/Dec. in Fixed A ssets Cap WIP Free Cash Flo w Inc./(Dec.) in Investments Inc./(Dec.) in Capital

0.6x 7.1x 10.6%

0.2x 7.1x 8.4%

0.3x 10.2x 7.3%

0.3x 9.6x 7.8%

0.2x 11.8x 9.7%

Inc./(Dec.) in Loans Dividend paid (incl. tax) Interest paid (Net) Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances Source: Company Reports, B P Equities

Valuation Ratios
C Y0 8 12.8x 2.3x 7.7x 0.6x C Y09 17.7x 2.4x 11.1x 1.1x C Y10 11.2x 1.5x 7.2x 0.7x C Y11E 9.8x 1.5x 6.4x 0.7x C Y12 E 7.9x 1.3x 5.0x 0.6x

Source: Company Reports, BP Equities

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Research Desk Institutional Sales Desk Disclaimer Appendix

Analyst (s) holding in the Stock : Nil Analyst (s) Certification:

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We analysts and the authors of this report, hereby certify that all of the views expressed in this research report accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation (s) or view (s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the BP Equities Pvt. Ltd. (Institutional Equities).

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