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Showing posts with label LOGISTICS. Show all posts
Showing posts with label LOGISTICS. Show all posts

Sunday, August 23, 2015

VRL LOGISTICS LIMITED: BEST PLACED IN SECTOR !!!

Scrip Code: 539118 VRLLOG
CMP:  Rs. 370.30; Market Cap: Rs. 3,378.74 Cr; 52 Week High/Low: Rs. 406.70 / Rs. 261.05
Total Shares: 9,12,43,495 shares; Promoters : 6,34,80,000 shares – 69.57 %; Total Public holding : 2,77,63,495 shares – 30.43 %; Book Value: Rs. 42.92; Face Value: Rs. 10.00; EPS: Rs. 9.67; Dividend: 40.00 %; P/E: 39.26 times; Ind. P/E: 35.64; EV/EBITDA: 13.81x
Total Debt: Rs. 443.35 Cr; Enterprise Value: Rs. 3,805.40 Cr.

VRL Logistics Limited: The Company was founded in 1976 and is headquartered in Hubballi, India. It was formerly known as Vijayanand Roadlines Ltd. and changed its name to VRL Logistics Limited in August 2006. VRL Logistics Limited provides goods and passenger transportation services in India. It offers various goods transportation services, including general parcel and VRL priority, courier, less than truck load, and full truckload services through its transportation network in 28 states and 4 Union Territories. The company came out with an IPO on April 15 2015 offering 2,28,23,333 equity shares of Rs. 10 each for Rs. 205 per share raising Rs. 467.88 Cr. The issue consisted of fresh issue of 57,07,333 of equity shares and offer for sale of 1,71,16,000 equity shares by the seller shareholders. It got listed on April 30, 2015 at Rs. 288 making a high of Rs. 309.00 on listing day. The object of offer for sale was to purchase of goods transportation Vehicles and repayment & prepayment of certain borrowings. The company’s goods transportation service business serves a range of industries, including fast moving consumer goods sector, as well as other industries comprising food, textile, apparel, furniture, appliances, pharmaceutical products, rubber, plastics, metal and metal products, wood, footwear, and machinery. It has a fleet approximately 3,500 owned vehicles. The company also provides bus services in the states of Karnataka, Maharashtra, Andhra Pradesh, Telangana, Tamil Nadu, Gujarat, Rajasthan, and Goa through its owned fleet of approximately 455 buses (including 53 staff buses), including Multi Axle Volvo seater buses, Multi Axle Volvo I-shift sleeper buses, Isuzu seater buses, non-Volvo A/C sleeper, sleeper buses, and semi sleeper buses. In addition, the company engages in liquid transportation and car carrying operations. Further, it is involved in the sale of power and sale of certified emission reductions units generated from operation of wind mills; and provision of air charter services. As of March 31, 2014, company had 81 branch offices of which 74 were leased offices and seven were owned offices, 739 agencies and 416 prepaid agencies for its bus operations business. Company also provide ticketing facilities through its website www.vrlbus.in, as well as through its network of commission agents and online travel agents such as www.redbus.in, www.mybustickets.in, www.makemytrip.com and www.abhibus.com. Company also operate car carrier vehicles for transportation of cars, vehicles for liquid transportation, as well as a courier service business across the State of Karnataka. Company also have minor business interests in wind power, air charter services and hospitality. VRL’s fleet size for goods and passenger transport business grew from 2,730 in 2010 to 3,874 as of March 31, 2014. VRL LOGISTICS LTD is locally compared to Patel Integrated logistics ltd, Transport Corporation of India Ltd, Shreyas Shipping, Costal Roadways ltd, Gati Ltd, Gateway Distripacks Ltd, Allcargo Logistics Limited, Blue Dart Express, Snowman Logistics nationally and globally with Senko Co of Japan, AMERCO Inc of USA, CSX Corp of USA, Con-way Inc of USA, Kansas City Southern of USA, PAM Transportation Services of USA, SixtSE of Germany, VTG Aktiengesellschaft of Germany, Stagecoach Group Plc of United Kingdom, Northgate Plc of United Kingdom, National Express Group Plc of United Kingdom, DSV A/S of Denmark, Dazhong Transportation of China, ComfortDelGro Corporation Ltd of Singapore, CJ Korea Express Corporation of South Korea, Central Japan Railway Co of Japan, CAR Inc of China, Bangkok Metro Public Co of Thailand, Asciano Ltd of Australia, Canadian Pacific Railway Ltd of Canada, USA Truck Inc of USA, Universal Truckload services of USA.

Investment Rationale:
VRL Logistics Ltd owns and operates the largest fleet of commercial vehicles in the private sector in India. VRL has now grown into a logistics and transport company which is currently the largest fleet owner in India with a fleet of 4,077 Vehicles including 373 Passenger Transport Vehicles & 3,704 Goods Transport Vehicles as of 10 May 2015. VRL also has its mentions in the Limca Book of Records as a single largest fleet owner of commercial vehicles in India in the private sector. VRL provides general parcel and priority parcel delivery (less than truckload services, LTL), courier and full-truckload (FTL) services through its widespread transportation network in 28 States and 4 Union Territories across India. Its operational infrastructure for the goods transportation business as of June 30, 2015 comprised 624 branches comprising 604 leased branches and 20 owned branches and 346 agencies across India, and of such 624 branches, 48 (41 leased branches and seven owned branches) served as strategic trans-shipment hubs for its operations. VRL employs nearly 4,506 drivers for its fleet of 4,024 vehicles, who are provided with pension benefits, accident insurance coverage, etc. The company also provides attractive incentives for efficient driving, on-time performance, etc, which increases overall remuneration and hence provides drivers with job satisfaction. The logistics sector presents an incredible arena of opportunity because nearly 90 % of the market is still controlled by the unorganized sector. The Indian logistics industry is expected to grow at 15 % to 20 % per annum, reaching revenues of $38,500 Cr by 2016. The demand for focused supply-chain services has been fuelled by industries with a high propensity to outsource from industries like automobiles, consumer packaged goods, hi-tech, telecom and retail amongst others. In India, Logistics sector has generated employment for near about 4.5 Cr people. India currently spends 12 % to 13 % of its GDP on logistics as compared to 8 % to 9 % in developed economies. For the sectors moving physical products this percentage is much higher because 55 % of India’s GDP is generated by the service sector. The industry as a whole is very fragmented and disorganized. India's logistics sector continues to be attractive for global investors and Investment in logistics in India is projected to grow annually at 10 %. VRL Logistics is differentiated itself in service offerings and building a  large integrated hub-and-spoke transportation network and extensive operational infrastructure, including advanced technology systems which enabled VRL to establish a leadership position in the surface logistics industry with a strong brand name across India. 
VRL’s hub-and-spoke operating model enables it to transport various parcel sizes and provide its customers with access to multiple destinations for booking and delivery of goods, and provide “last mile” connectivity to even remote locations in India. This involves effective consolidation of goods from multiple locations at its trans-shipment hubs, which are continuously operated on a 24X7 basis throughout the year, and redistribution thereof to their respective destinations, resulting in operating and cost efficiencies, optimal capacity utilization of co’s transportation vehicles, rationalization of routes, as well as flexibility in operation, allocation and optimal utilization of resources including manpower. Road transport is competitive even at higher prices given its advantages of flexibility, better service quality and end-to-end delivery. Freight transporters are broadly classified as small fleet operators (SFOs), medium fleet operators (MFOs) and large fleet operators (LFOs) on the basis of number of trucks they own or control. Typically, an LFO is one who owns more than 20 trucks, while SFO is one who owns less than 5 trucks. VRL is one of the largest LFO in India with a fleet of 3,649 trucks. Road freight transportation is highly fragmented, with Small Fleet Owners cornering a high market share of approximately 77 %, as per CRISIL. Low entry barriers have led to a proliferation of small truck operators in SFO segment, resulting in high fragmentation of this segment leading to competition, offering customers better bargaining power also the lack of service differentiation amongst the smaller operator’s results in very competitive pricing. Large fleet operators though enjoy distinct advantages over Small Fleet Operators. Large Fleet Operators typically enjoy scale advantages and provide a variety of value-added services as well such as warehousing, express service, third-party logistics (3PL), consulting, etc. and the key factors impacting the profitability of freight transporters include freight rates, fuel costs, fleet utilisation rates, load flexibility and regulations among others. Given that the industry is highly fragmented, typically, LFOs have a better bargaining power than SFOs due to the contractual nature of the former’s business. LFOs have the flexibility to offer services like full truckload (FTL), less than truckload (LTL) and express cargo transportation. LTL & FTL are higher-margin services. In the express cargo segment, LFOs realise positive cash flow even at 40 % utilisations due to higher realisation per tonne. With this flexibility in the kind of load services being offered, LFOs are able to restrict the impact on their margins during periods of low freight availability. On the cost front, fuel (diesel) is the single largest cost component. LFOs generally operate on a yearly contract basis and include a fuel cost pass-through clause to hedge against hike in fuel prices. However, due to weak freight availability, SFOs who operate largely in the spot market are unable to completely pass on such increases. The implementation of GST is expected only by CY2016. The logistics sector is likely to respond positively to GST by making more use of the hub and spoke systems, large scale warehousing and specialized services. A gradual opening up of key sectors like retail, aviation, defense etc. will also help to boost this sector. The entry of multinational companies (MNCs) in sourcing, manufacturing and distributing could be the other growth drivers.

Outlook and Valuation:
VRL has pioneered in providing a safe and reliable delivery network in the field of parcel service. It has spread its operations to Courier Service, Priority Cargo & Air Chartering to meet the growing demands of its burgeoning customer base. VRL Logistics (VRL) is one of the largest commercial vehicle owners in the Indian private sector, and provides goods transportation and passenger bus operations across India. Its goods transportation segment contributes around 78 % to the company’s FY15 revenues, and its higher-margin parcel delivery business contributes around 77 % to its revenues. 3PL & Warehousing solutions offered by VRL are tailor-made and cater to unique needs of its diverse customer base. With the largest goods transportation network in India, VRL parcel service is indispensable for a large number of Corporate Houses. This network spans the length and breadth of the country and is supported by strategically located transshipment hubs. In the goods transportation business, it serves a number of customers in the FMCG industry as well as in general commodities such as food, textiles, apparel, furniture, appliances, pharmaceutical products, rubber, plastics, metal and metal products, wood, glass, automotive parts and machinery. The company’s hub-and-spoke operating model helps to serve a diverse mix of end-consumers in various industry verticals, which enables it to transport various parcel sizes and provide customers with access to multiple destinations for booking and delivery of goods. Its extensive network with large number of fleets enables VRL to provide last mile connectivity to even remote areas in India. The large fleet, most of which is owned by the Company, enables it to reduce dependence on hired vehicles, retain control of the value chain and service quality, and establish a reputation for reliable and timely delivery of consignments. VRL owns an in-house vehicle body designing facility at Hubli, Karnataka, to build customised vehicles with lighter and longer bodies to carry higher payload, resulting in increased margins per vehicle. The company hires third-party vehicles only during periods of high demand and in emergency situations. Operating owned vehicles enables VRL to significantly reduce vehicle hiring and operational costs. VRL’s large fleet of owned vehicles allows it to cover a large number of routes, and maintain timely delivery of consignments. The variety of goods transportation vehicles in its fleet enables the company to serve a diverse mix of consignments while the range of passenger buses enables to serve transportation requirements of different customer segments. The company’s goods transportation fleet primarily comprises heavy commercial vehicles carrying capacity of more than 7,500 kg with the same accounting for 66 % of its goods transportation fleet as of Mar’15. VRL also enjoys the benefits of economies of scale (discounts, etc.) especially during bulk procurement of key items like vehicle chassis, diesel, tyres, spare parts, etc. The company relies largely on Ashok Leyland to supply it with vehicle chassis as per customised requirements. In the case of spare parts, VRL has entered into supply arrangements with Ashok Leyland and VE Commercial Vehicles who have set up dedicated outlets at the Hubli facility, which allows VRL to source spares parts at competitive rates and reduce procurement timelines. GST will help make India’s manufacturing competitive by cutting high logistics and warehousing costs. Currently, each of India’s 29 states taxes goods that move across their borders at different rates. As a result, freight that moves across the country is taxed multiple times. Worse, there are long delays at inter-state checkpoints, as state authorities review and examine freight and apply the relevant taxes and other levies. Truck delays average five-to-seven hours at inter-state checkpoints. This, combined with other delays, keep trucks from moving during 60 % of the entire transit time. As much as 65 % of India’s freight moves by road, hence GST is critical for India. Simply halving the delays due to roadblocks, tolls and other stoppages could cut freight times by some 20-30 % and logistics costs by an even higher 30-40 %, according to World Bank estimates. This alone can go a long way in boosting the competitiveness of India’s key manufacturing sectors by 3-4 % of net sales. GST, when implemented, will free the decisions on warehousing and distribution from tax considerations, which, henceforth, would be based purely upon operational and logistics efficiency. This will lead to changes in logistics requirements of clients, forcing logistics service providers (LSPs) to rethink their business operations, including creating new warehousing and logistics locations and expanding or closing existing warehouses at certain other locations. GST will score over the existing regime in the transportation and logistics industry, where a tendency is seen to engage with the unorganized players for tax considerations. The GST regime will see the emergence of the organized service providers since taxes will no longer be added costs for the businesses. Given the highly fragmented nature of the Indian transportation and logistics industry (the leading 10 listed firms command less than 5 % of the overall market), implementation of GST is expected to unleash a plethora of opportunities for companies in the organized sector. On financial side, posted a Net Profit (standalone unaudited) of Rs. 35.38 crore posting a strong increase of 40.93 % as compared to Rs. 25.1 crore for the first quarter Q1 FY16 ended June 30, 2015. The Net Profit increased 82.67 % as compared to Rs. 19.37 crore in Q4 FY15. The Total Income from operations increased to Rs. 447.011 crore up 9 % from Rs. 411.36 crore for the quarter. The segment revenue of the Goods transport business increased to Rs. 339.69 crore up 12.66 % in Q1 Fy16. The segment revenue from Bus operations stood at Rs. 94.69 crore in Q1 FY16. The segment revenues from sale of power increased to Rs. 7.1 crore up 10.54 % in Q1 FY16. VRL operates a 42.5MW wind farm in Karnataka, and owns two aircrafts, which provide charter services to corporate clients. The contribution from these non-core businesses remains very small a 1.3 % from wind energy business and 0.7 % from air charter business in FY15. The company came with a successful IPO and those funds would be used mainly for Purchase of goods transportation vehicles and Re-payment/pre-payment of certain borrowings. VRL’s debt totalled Rs. 443 Cr as of FY15, and is expected to decline further as a small component of IPO proceeds approx. Rs. 28 Cr will be used to repay debt. VRL’s ‘net debt to equity ratio’ is expected to fall to almost 0.4 x by FY16 aided by strong free cash flow generation. Despite the industry slowdown, VRL has generated positive FCF in four of the last five years, and we expect FCF generation to continue to improve aided by higher volumes and fleet utilisation. The company plans to spend approximately Rs. 51.8 Cr towards vehicle purchases in FY16. A strong balance sheet provides further headroom for targeting growth. At the current market price of Rs. 370.30, the stock is trading at 28.92 x FY16E. Earnings per share (EPS) of the company for FY16E could be Rs. 12.80 & for FY17E could be seen at Rs. 18.40. It is expected that the company will keep its growth story intact in the coming quarters also with rationalization of haulage charges by IR or Pickup in containerized trade both in EXIM and domestic segment. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also. 

KEY FINANCIALSFY14FY15FY16EFY17E
SALES ( Crs)1,493.801,671.201,814.502,073.10
NET PROFIT (₹ Cr)57.0091.20117.00167.50
EPS ()7.2010.7012.8018.40
PE (x)44.3029.8024.8017.30
P/BV (x)8.207.604.903.80
EV/EBITDA (x)13.9011.2010.408.30
ROE (%)18.6025.6019.8022.10
ROCE (%)9.1916.2216.0219.37

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*As the author of this blog I disclose that I do not hold VRL LOGISTICS Ltd in my any of the portfolios.

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Friday, April 3, 2015

TRANSPORT CORPORATION OF INDIA LTD : ON WAY AHEAD !!!

Scrip Code: 532349 TCI
CMP:  Rs. 264.40; Market Cap: Rs. 1,937.35 Cr; 52 Week High/Low: Rs. 299.00 / Rs. 103.20
Total Shares: 7,32,73,500 shares; Promoters : 5,06,00,940 shares – 69.06 %; Total Public holding : 2,26,72,560 shares – 30.94 %; Book Value: Rs. 60.40; Face Value: Rs. 2.00; EPS: Rs. 9.91; Dividend: 65.00 % ; P/E: 26.68 times; Ind. P/E: 28.82; EV/EBITDA: 12.16.
Total Debt: Rs. 258.51 Cr; Enterprise Value: Rs. 2,177.99 Cr.

TRANSPORT CORPORATION OF INDIA LIMITED: Transport Corporation of India Ltd was founded in 1958 and is based in Gurgaon, India. It was formerly known as TCI Industries Limited and changed its name to Transport Corporation of India Ltd in October 1999. Transport Corporation of India Ltd was founded in 1958 and is based in Gurgaon, India. Transport Corporation of India Ltd provides integrated supply chain and logistics solutions primarily in India. TCI came with an IPO in May 1975 with 4,80,000 equity shares of face value of Rs. 10 each offered at a premium of Rs. 10 per share. The company’s Freight division offers surface transport solutions for full truck load, less than truck load, and small and over-dimensional cargo through road and rail. Its XPS division provides door-to-door express distribution services by air, surface, and rail. The company’s Supply Chain Solutions division offers services for Auto, Retail, Telecom, Electricals, Pharmaceuticals, FMCG, and Cold Chain sectors. Its Global division provides logistics services comprising freight forwarding, custom clearance, express and courier, warehousing, transportation, and supply chain consultancy services. The company’s Seaways division provides ship management, liner, charter, agency, project handling, multi-modal, and transportation services, including container and bulk cargos from islands and ports. TCI was the first to launch several solutions in the logistics field. Its product offering includes TCI Freight, TCI XPS, TCI Supply Chain Solutions, TCI Global, TCI Seaways and TCI Foundation. The company also has two JV’s - Transystem International Pvt Limited (TLI) a joint venture between TCI and Mitsui & Co Ltd which is the sole logistics partner for Toyota Kirloskar Motors Ltd. in India. TLI has been providing complete logistics solutions, from inbound transportation from suppliers across India and other countries to outbound transportation of complete built units (CBU) & spares. TCI’s second JV is Infinite Logistics Solutions Pvt Ltd (ILSPL) this JV is with CONCOR for bulk multi-modal logistics solutions by Rail and Road. TCI Limited is locally compared with Container Corporation of India Ltd, GATI India Ltd, Gateway Distriparks Ltd, Ruchi Infrastructure Ltd, Kesar Terminals & Infrastructure Ltd, Shreyas Shipping & Logistics Ltd, Blue Dart Express Ltd, Patel Integrated Logistics Ltd, Global Vectra Helicorp Ltd, SICAL Logistics Ltd and Globally compared with S Line Company Ltd of Japan, Keihin Co., Ltd of Japan, Okayamaken Freight Transportation Co., Ltd of Japan,  FedEx Corp of USA, Royal Mail Plc of London, Postal Services mail Plc of London, Deutsche Post AG of Germany, PostNL N.V. of Netherlands, Hanjin Transportation Co., Ltd of South Korea, Pos Malaysia Berhad of Malaysia, Singapore Post Ltd of Singapore, Yusen Logistics Co Ltd, Hyundai Glovis Co Ltd of Korea, Atlas Air Worldwide Holdings of USA, Bpost NV-SA Brussels, Belgium, Kintetsu World Express Inc of Japan, UPS – United parcel Service Inc of USA, Fedex Corp of USA, Air transport Services Group of Ohio, Hub Group Inc of Illinois, Xpo Logistics Inc of USA, Echo Global Logistics Inc of Illinois, Uti Worldwide Inc of British Virgin Islands,  Chichibu Railway Co., Ltd of Japan, Kobe Electric Railway Co., Ltd of Japan, Keifuku Electric Railroad Co., Ltd.

Investment Rationale:
Transport Corporation of India (TCI) is India’s leading integrated logistics and supply-chain solution provider, offering single-window integrated services, backed by strong multi-mode transport operations by road, rail, sea and air. The company operates in high growth segments such as express cargo & supply chain solutions. TCI has progressed from being a One Man, One Truck, One Office set up to an extensive setup of 1000 + IT enabled offices and having a fleet of 7,000 trucks, trailers, 4 cargo ships and has reefer vehicles with a skilled workforce of 6,500 with offices in 4 countries, with an managed warehouse space of 9.75 million sq. ft., and has an ability to make deliveries in 200 countries. Today, TCI moves 2.5 % of India’s GDP by value and is also a part of World Economic Forum’s Community of Global Growth Companies. The logistics sector presents an incredible arena of opportunity because nearly 90 % of the market is still controlled by the unorganized sector. The Indian logistics industry is expected to grow at 15 % to 20 % per annum, reaching revenues of $38,500 Cr by 2015. The demand for focused supply-chain services has been fuelled by industries with a high propensity to outsource: automobiles, consumer packaged goods, hi-tech, telecom and retail amongst others. The movement of basic commodities, domestically and globally, has led to an increase in multi modal and bulk transportation and to the emergence of many new ports and port-related services providers. It has generated employment for 4.5 Cr people. India currently spends 13 % of its GDP on logistics as compared to 8.50 % in USA and 18 % in China and around 9 % in developed economies. India bears 8.20 % as Transportation Cost of its GDP as compared to 5.30 % in USA and 9 % in China. India spends 3.80 % of its GDP on Warehousing as compared to 2.80 % in USA & 6 % in China. For the sectors moving physical products this percentage is much higher because 55 % of India’s GDP is generated by the service sector. In India Auto Components, Textile, Pharmaceuticals, Cement sector are the major Industries driving logistics sector as compared to USA its F&B, E commerce and in China its Metals, Cement, Textile, Electronics sector which drives the Logistics sector there. The industry as a whole is very fragmented and disorganized. India's logistics sector continues to be attractive for global investors and Investment in logistics in India is projected to grow annually at 10 per cent. According to ASSOCHAM and PWC, the Indian e-commerce industry’s market size is less than 10 % of USA and China’s market size (US$15,000 Cr) of ecommerce. However, over 2009-13, the e-commerce sector in India has grown at a CAGR of almost 35 % to an estimated US$12,600 Cr on back of rising internet and mobile phone penetration. In the domestic e-commerce industry, nearly 70 % of the transactions are accounted by online ticketing and about 10 % by e-retailing and online market place. However, e-retail in both its forms, ie online retail and market place, has become the fastest-growing segment, increasing its share from 10 % in 2009 to an estimated 19 % in 2014. As per an industry report, going forward, the e-retail market is expected to grow to around US$10-20bn by 2017-20 on account of increase in consumer-led purchases in durables and electronics, apparels and accessories etc. This will also be helped by the impending change in the Indian tax system from the current state-level Value Added Tax (VAT) to a national and uniform Goods and Services Tax (GST) which will help to create a national market for many goods and services. However, the implementation of GST is expected only by CY2016. The logistics sector is likely to respond the GST by making more use of the hub and spoke systems, large scale warehousing and specialized services. A gradual opening up of key sectors like retail, aviation, defense etc. will also help to boost this sector. The entry of multinational companies (MNCs) in sourcing, manufacturing and distributing could be the other growth drivers. TCIL over the years has increased its presence across the country. In a scenario, where GST gets rolled-out, TCIL is expected to be one of the few pan-India based Logistics players to get benefitted from any such development. The Supply Chain Solution segment of TCIL accounted for 27 % of total revenue in FY2014. In this segment 75 % of the business comes from the automobile sector and the balance from the FMCG (customers include Maruti, GM, Tata Motors, Hero, Bajaj, Hindustan Unilever, Samsung, VW Group etc) and other segments. In the automobile OEMs segment, the company provides supply chain solutions including inbound logistics, outbound logistics, and stocking vehicles at the warehouses. Further, in this segment, the company has a JV with Mitsui, Japan which manages the entire inbound logistics operations of Toyota Kirloskar Motors India since 1999. The company owns 49 % stake in this JV. Apart from this, the company also provides services in managing fulfilment centres and back-end operations for e-commerce business nationwide. TCIL has shifted its focus towards better margin segments like express and supply chains; it is believed that these segments will propel TCIL to place itself on a higher growth orbit. Thus, giving thrust to its stock price.

Outlook and Valuation:

TCIL has a global division which provides logistics services comprising freight forwarding, custom clearance, express and courier, warehousing, transportation, and supply chain consultancy services. It has a strong vertical integration and have been gaining market share because unorganised players find it difficult to operate due to high wage cost and other procedural hurdles. In the freight segment, the company is one of India’s premier organized freight services providers with a pan India presence. The company has around 7,000 trucks and trailers, both owned and leased, which provide freight movement services on a daily basis. It has a strong backing in terms of its extensive and strategically located branch network and trained work force. The Freight division contributed around 38 % to the total revenue in FY14. TCIL’s Freight division (Transport division) has been underperforming in the last few years due to slowdown in GDP growth, reflecting slowdown in overall industrial activity in the country. In 9MFY2015, the Freights division showed recovery in revenue growth, i.e. it posted a revenue growth of 5 % YOY mainly in the previous quarter, owing to an improving economic scenario. Further, the Management is also confident of posting a better performance, than in the previous few quarters, in the coming financial years. Considering momentum in policy reforms, fall in inflation, and anticipation of further rate cuts by the Reserve Bank of India (RBI), it is believed that the investment cycle and commercial activities in the country will get a boost this would lead to improvement in GDP growth in FY2016 and FY2017, which in turn will assist overall growth in the Freight division (Transport segment). Also, industry is expecting GST implementation in FY2016 which will further increase the growth prospects of this industry, and this will directly benefit the company as it being a dominant player in the industry. Considering the overall improvement in demand for the Freight division in 9MFY2015, increasing numbers of trucks in operation, and improving economy activities, it is expected that Freights division to report a healthy 9 % CAGR over FY2014-17E. TCIL’s Seaways has well equipped ships in its fleet and caters to the coastal cargo requirements for transporting container and bulk cargo from ports on the East coast of the country. Recently, the company has increased its fleet of ship from 4 ships in FY2014 to 5 ships during 9MFY2015; also, it has replaced one of its old ships. As a result the total capacity now has increased from 17,000 DWT to 27,800 DWT. Further, the company is also planning to diversify outside Port Blair sector and operate on the west coast as well. Now with the additional capacity of ships, the company can generate around Rs. 50 to 60 Cr in revenue with an EBITDA margin of 10-15 %, translating into a healthy return ratio. Going forward, it can be expected that the company to report a strong 9 % CAGR in revenue over FY2014-17E. TCIL is well positioned due to its Asset light business model where it owns 20 % of the total fleet and leases the remaining 80 %. The company has rapidly scaled its business model to 7,000 trucks, trailers, and reefer vehicles as of today. On the same lines, TCIL has been prudent in managing warehousing space, as a majority of its total 10mn sq. ft. of warehousing space is on lease basis. With its focus to invest less on building the asset base, the company has been able to generate healthy return ratios even in the worst phases of business cycles. Given the company’s unlevered business model, the long-term growth prospects of the company would not be impacted due to lack of capital availability. TCIL is one of the few companies in Surface Transportation & Logistics space, which has shown consistency & has enjoyed a healthy asset turnover ratio of 5.2 X in FY14 and ROE of 14.6 %. Given the strong matrices of the company, TCIL at any phase of the business cycle would be well positioned compared to its peers, as its peers have majorly levered business models and have lower ROEs. On Financial side, TCIL, on bottom line is expected to report 25 % CAGR over FY2014-17E on account of healthy top-line growth in the higher margin business due to change in revenue mix. An improvement in operating margin of up to 0.60 % to 0.70 % in the Freight segment can be seen due to pick up in volumes and lower fuel cost. Going ahead, it is expected that the Freight division to benefited due to improvement in industrial activities. The XPS Cargo division’s growth would be supported by growth in e- commerce. The Supply Chain Solution division is expected to grow by the support of recovery in the automobile industry and more than 75 % of the division’s revenue of TCIL comes from the automobile sector and the Seaways segment would benefit due to addition of new ships. The SCS and express segments possess massive growth potential. The SCS and express businesses are highly EPS accretive vis-à-vis the freight segment. The company can post Earnings per share (EPS) of Rs. 11.60 in FY15E and Rs. 14.40 in FY16E. It is expected that the company’s surplus scenario is likely to continue for the next three years & will keep its growth story intact for the coming quarters also.

KEY FINANCIALSFY14FY15EFY16EFY17E
SALES ( Crs)2,228.002,468.002,830.003,350.00
NET PROFIT (₹ Cr)72.0087.00109.00138.00
EPS ()9.5011.6014.4018.30
PE (x)26.4021.6017.4013.70
P/BV (x)3.903.002.702.30
EV/EBITDA (x)12.8010.908.907.60
ROE (%)14.6014.1015.4017.10
ROCE (%)14.9014.2016.4018.00


*As the author of this blog I disclose that I do not hold Transport Corporation of India Ltd in my any of the portfolios.

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Monday, October 13, 2014

SNOWMAN LOGISTICS LTD : LOGISTICS THE DIFFERENT WAY !!!

Scrip Code: 538635 SNOWMAN
CMP:  Rs.  85.75; Buy at current levels. Short Term Taget : Rs. 100.00;
Medium to Long Term Target: Rs. 125; 
STOP LOSS – Rs. 78.89; Market Cap: Rs. 1,427.30 Cr; 52 Week High/Low: Rs. 103.80 / Rs. 47.00.
Total Shares: 16,64,49,395 shares; Promoters : 6,72,54,119 shares – 40.41 %; Total Public holding : 9,91,95,276 shares – 59.59 %; Book Value: Rs. 17.83; Face Value: Rs. 10.00; EPS: Rs. 1.81; Dividend: 00.00 %; P/E: 47.37 times; Ind. P/E: 55.21; EV/EBITDA: 24.18.
Total Debt: Rs. 90.64 Cr; Enterprise Value: Rs. 1,534.03 Cr.

SNOWMAN LOGISTICS LIMITED: Snowman Logistics Limited was founded in 1993 and is based in Bengaluru, India. The company was formerly known as Snowman Frozen Foods Limited and changed its name to Snowman Logistics Limited in March 17, 2011. Snowman Logistics Limited is a subsidiary of Gateway Distriparks Limited. The company came out with an IPO on August 2014 offering 4.20 Cr equity shares of Rs. 10 each for Rs. 47 per share raising Rs. 197.40 Cr. The object of offer for sale was to set up a new temperature controlled and ambient warehouse, to provide long term working capital and for other general corporate purposes. The shares got listed on Indian bourses on September 12, 2014 with a staggering at Rs. 79.80. Snowman Logistics Limited is an integrated temperature controlled logistics service provider with 23 temperature controlled warehouses across 14 locations in India. It has a storage capacity of 58,543 warehousing pallets and 3,000 ambient pallets. The company also owns and leases reefer and ambient vehicles. As of March 31, 2014, it operated 370 reefer vehicles consisting of 307 leased and 63 owned vehicles. In addition, the company offers primary and secondary distribution services; consignment agency services; and value added services, such as kitting, labelling, sorting, stuffing, and de-stuffing of containers, repacking, and bulk breaking. It serves corporate customers in dairy, ice-creams, chocolates, and poultry and meat industry sectors. It also offers services to Confectioneries including chocolate and baked products; Fruits and vegetables; Healthcare and pharmaceutical products; and Industrial products such as x-ray, and photo-imaging, films. It operates in two segments, Temperature Controlled Services and Ambient Distribution. The company offers warehousing solutions that cover ambient, chilled, frozen, and blast freezing facilities. Snowman Logistics Limited is locally compared with Allcargo Logistics Ltd, Blue Dart Express Ltd, Container Corporation of India Ltd, Gati Ltd, Gateway Distriparks Ltd, Sical Logistics Ltd, Kesar Terminals & Infrastructure Ltd, North Eastern Carrying Corporation Ltd, Shreyas Shipping & Logistics Ltd, Patel Integrated Logistics Ltd, Global Vectra Helicorp Ltd globally compared with Kawanishi Warehouse Co, Ltd of Japan, Sugimura Warehouse Co Ltd of Japan, Royal Mail Plc of London, Postal Services mail Plc of London, Deutsche Post AG of Germany, PostNL N.V. of Netherlands, Hanjin Transportation Co., Ltd of South Korea, Pos Malaysia Berhad of Malaysia, Singapore Post Ltd of Singapore, Yusen Logistics Co Ltd, Hyundai Glovis Co Ltd of Korea, Atlas Air Worldwide Holdings of USA, Bpost NV-SA Brussels, Belgium, Kintetsu World Express Inc of Japan, UPS – United parcel Service Inc of USA, Fedex Corp of USA, Air transport Services Group of Ohio, Hub Group Inc of Illinois, Xpo Logistics Inc of USA, Echo Global Logistics Inc of Illinois, Uti Worldwide Inc of British Virgin Islands,  Chichibu Railway Co., Ltd of Japan, Kobe Electric Railway Co., Ltd of Japan, Keifuku Electric Railroad Co., Ltd.

Investment Rationale:
Snowman Logistics Ltd is the most preferred integrated temperature controlled warehouse and transport logistics company in the organized sector enjoying lion market share. The company has been also providing additional services like repacking of products for direct marketing in retail market to the manufacturers, exporters and adding value addition of services to its clients that include Hindustan Unilever, Cadbury, McCain, Baskin Robbins, Ferrero Rocher, Taj Hotels, etc. and has PAN India presence at 14 locations with 23 warehouses and fleet of 370. Currently 242 cities are covered and plans more cities to be added to the network each year. During FY14, Snowman Logistics Ltd.’s warehouses were running at 82 % utilization while the trucking business was running at 100 % utilization. Gateway Distriparks Limited is the promoter and the largest shareholder of the company. Snowman Logistics offers blast freezing facilities at its temperature controlled warehouses in Bengaluru, Mevalurkuppam, (near Chennai), Visakhapatnam, Serampore (near Kolkata), Taloja (near Mumbai), Ahmedabad, Palwal (near Delhi), and Mubarakpur (near Chandigarh). Its integrated ‘Source to Stores’ operations comprise warehousing, primary distribution and secondary distribution and value-added services including kitting, labeling, sorting and bulk breaking. India falls under the category of low cold chain adoption countries i.e. countries with less than 10 % of produce passing through a cold chain, reflecting a significant potential for growth in Cold Chains. Temperature Controlled Logistics (TCL) provider in India is largely fragmented and generally focuses on a single region or focuses on any one aspect of the logistics chain such as storage or transportation. Consequently, there are very few integrated temperature controlled logistics service providers who have the ability to service customers on a pan-India basis. It is estimated that the current market share of organized players is only around 6 % to 7 % in the temperature controlled warehousing segment and about 15 % to 20 % in the temperature controlled transportation. So, the potential for growth in organized services in this sector is immense. It is expected that the organized outsourced temperature controlled services to grow at around 20 % p.a as against an overall market growth of around 15 % and in terms of volume, the existing capacity is estimated to be around 30 million MT of temperature controlled warehousing and around 7,000 – 8,000 in Reefer Vehicles. From the existing cold warehousing capacity, 75 % is dedicated to potatoes while 23 % is classified as ‘Multipurpose’ i.e. catering to multiple commodities across dairy products, frozen foods, fruits and vegetables and the balance 2 % is used across meat and seafood. 


Temperature Controlled Logistics (TCL) is responsible for preserving the quality to enable their availability during an off – season or making them available at locations far from the production/ processing locations. The temperature sensitive products like dairy & perishable products is stored & preserved in a custom built temperature controlled warehouses. These temperature controlled warehouse generally consists of temperature zones which are capable of warehousing goods in the range of –25ºC to +20ºC. Similarly, temperature controlled distribution entails primary and secondary transportation of temperature sensitive products from source to stores using temperature controlled containerized trucks and cargo trains. Certain containerized trucks are also modified to enable installation of temperature controlled zones. Businesses which utilize cold chains in India include dairy, poultry and meat, seafood, ready – to eat, chocolates, healthcare and pharmaceuticals, industrial products and fruit and vegetables. India’s temperature controlled logistics industry is estimated to be around Rs. 12,000 Cr to Rs. 15,000 Cr and is expected to grow at 15 % to 20 %, year on year, for the next 3 to 4 years to Rs. 22,000 Cr to Rs. 25,000 Cr. The growth is expected to be driven by an increase in the consumption of temperature sensitive perishables; Greater use of temperature controlled logistics in categories such as pharmaceuticals and fruits and vegetables and from the increase in the consumption of a gamut of niche and high end products that need to be maintained in temperature controlled environment. Since FY12, Cold Storage business in India has been given the "Infrastructure status", which makes bank financing easier. Also, Snowman Logistics is eligible for 100 % deduction under section 35AD for all capex made till AY13. This investment deduction allowance rate has increased from 100 % to 150 % in AY14. The tax benefits given to warehousing income under section 80 (I) (B) along with subsidy schemes will also be helpful for the company to aggressively pursue capex and growth. Snowman Logistics has asset light business model, given that 83 % of its entire fleet is on lease. Similarly for Warehouse division, company usually leases out the land on a long term basis and constructs its own building used for storage purposes. Snowman Logistics owns, both land and building at 9 of these 23 temperature controlled warehouses. This asset light strategy has helped the company to quickly scale up its businesses, thereby generating quicker pay-back period for investment made and higher Return on Networth. Management has maintained that money raised from issue proceeds would be deployed for capacity expansion, thereby restricting any further RoNW expansion in FY15E.

Outlook and Valuation: 
Snowman Logistics Limited is an integrated temperature controlled logistics service provider, promoted by Gateway Distriparks Ltd which in itself is one of the largest players in the organized temperature controlled logistics. Gateway Distriparks holds 40.4 % (post issue) in Snowman Logistics Ltd. Gateway Distriparks’s expertise as a major logistics player in India augurs well for Snowman Logistics as it instils confidence among Snowman’s customers besides providing leverage in institutional and banking relationship for Snowman’s business operations. A strong promoter and sound investor base reinforces Snowman logistics as a major brand in a largely unorganised temperature controlled logistics industry. Snowman Logistics Ltd caters to numerous customers ranging from HUL to McCain foods and from Suguna Foods to Ferrero India Pvt Ltd to Hotel Taj. Many of Snowman’s customers are competitors in their respective industry and Snowman’s ability to cater to each one of them in an unbiased and professional manner is a testament to the fact that contributions from its top clients have remained largely unchanged in the past three years. Snowman’s top 20 clients contributed nearly 56.75 % in FY11, 49.92 % in FY12, 39.02 % in FY13 and 44.1 % in Fy14, respectively in terms of revenue. The company garnered Rs. 197.40 Cr through its IPO during the month of August 2014. The company intends to use the part of the net IPO proceeds to setup six temperature controlled warehouses and 2 ambient warehouses across six cities. The estimated cost of construction of these warehouses is around Rs. 140 Cr. This will increase the pallet capacity from 61,000 to 85,000 (1 pallet = 1 Tonne) by FY15. The company intends to use the IPO funds of Rs. 197.40 Cr to retire its bridge loan and will meet the remaining capex of Rs. 128.28 Cr. Long term working capital requirements of Rs. 8.41 Cr will also be met from the IPO proceeds. The left over amount will be utilised for general corporate purposes after meeting the issue related expenses. The demand for perishable products is expected to increase in the coming years thus creating the need for larger warehouses and bigger fleet size to carry the products to the end customer. With new capacity coming on stream, Snowman Logistics will be able to garner greater market share from the anticipated pickup in demand. On Financial side, the company enjoys robust EBIDTA margin of 25 % and is likely to post 42.2 % revenue and 45.3 % EBITDA CAGR over FY14-16E. The company has adopted an asset light business model which has helped to keep fixed assets low, resulting in improvement in return ratios. As of FY14, 13 of the 23 warehouse land and 307 out of 370 reefer vehicles are on lease. Return ratios like RoE/RoCE have improved from 8.5 %/3.8 % in FY10 to 13.3 %/8.4 % in FY14. Snowman Logistics has a healthy balance sheet as the business throws up positive operating cash flow. And once these warehouses is fully operational, maintenance capex and overhead expenses would be stable and will increase revenues. This can throw up significant cash flows and will help margin expansion. Snowman Logistics is the only player in the organized segment in India, thus should command a scarcity premium in terms of valuation. Snowman Logistics offers a robust business model with one of the highest temperature controlled warehousing capacity, largest fleet size, national presence and market dominant position. At the CMP of Rs. 85.75, the stock is trading at its all-time high P/E of 61.25 x FY14E, 50.44x FY15E and 35.72x FY16E. The Company can post EPS of Rs. 1.40 for FY15E & Rs. 17.0 of FY16E & for FY17E it can post an EPS of around Rs. 2.40. Given the attractive valuations with the pan India presence, robust growth prospects and with excellent client base, one can buy into this Stock with a target price of Rs. 100 for the short term and for the medium to long term it should be Rs. 125.00.

KEY FINANCIALSFY14AFY15EFY16EFY17E
SALES ( Crs)153.40193.80254.50331.20
NET PROFIT (₹ Cr)22.5022.6027.4040.00
EPS ()1.401.401.702.40
PE (x)34.7034.5028.5019.50
P/BV (x)3.501.801.701.60
EV/EBITDA (x)23.6015.8012.309.50
ROE (%)10.105.205.908.00
ROCE (%)6.506.507.409.40

I would buy SNOWMAN LOGISTICS LTD for Medium to Long term for target of Rs. 125.00 and for the shorter term the target would be Rs. 100.00. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of ₹ 78.89 on every purchase(Why Strict stop loss of 8 % ?) - Click Here


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