Centrum - Great Report On Logistic Players and Indian Logistics

India - Logistics
Allcargo Global Logistics
Transport Corporation of India
Aegis Logistics
Siddhartha Khemka Mahantesh Sabarad

siddhartha.khemka@centrum.co.in mahantesh.sabarad@centrum.co.in
91 22 6724 9855
December 2008
+91 22 6724 9857
Please refer to important disclosures/disclaimers inside.
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Logistics Sector 2
Table of contents
Companies
Allcargo Global Logistics 5
Investment Rationale 6
Containerised cargo volumes to remain buoyant 6
Focus on CFS / ICD business to improve profitability 9
Equipment hiring division to enhance service portfolio 11
Investment Risks 12
Financial Analysis 13
Valuation : Attractive at current levels 15
Financial Statements 17
Transport Corporation of India 22

Increasing trend towards outsourcing logistics activities 23
TCI well-placed to capitalise on emerging opportunities 24
Focus on high margin business to improve profitability 25
Special initiatives to make the book lean and improving RoI 27
Investment Risks 28
Valuation: Attractively valued at three-year low 31
Aegis Logistics 38
Higher capacity in liquid to help ride oil consumption boom 39
Retailing of auto-gas - a future growth driver 42
Investment Risks 45
Valuation: Robust growth visibility, attractive valuations 48
Sector Overview 55
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Logistics Sector 4
INDIA
11 December 2008
Initiating Coverage Allcargo Global Logistics
BUY Testing global waters

Allcargo Global Logistics is set to benefit from the increasing trend towards
CMP: Rs450* containerisation, in our view. Post ECU Line acquisition, the company has taken several
Target Price: Rs630 initiatives to improve its overall profitability and has also increased its focus on high margin
CFS and equipment hiring businesses. We initiate coverage with a Buy rating and target
Key Data price of Rs630, a 40% upside from current levels.
Bloomberg Code AGLL IN Containerised cargo volumes to grow despite global slowdown
Reuters Code ALGL.BO We expect containerised cargo volumes to expand 4.6% to 1,353mn tonnes in CY10 from 1,130mn
O/S Shares (mn) 22.4 tonnes in CY06. Container volumes (mn tonnes) have grown at 9.8% CAGR over CY86-CY06,
Diluted Shares (mn) 26.5 notwithstanding the intervening recessionary phases, with containers as percentage of world's
total seaborne trade having increased from 4.8% in 1986 to 15.2% in 2006. Further its non-vessel
Market Cap (Rs bn/US$ mn) 10.2/207.7 operating common carrier (NVOCC) business is expected to remain impervious to the volatility in
52 Wk H / L (Rs) 1,025/272 shipping rates as freight is a pass-through element of cost.
Daily Vol. (3M NSE Avg.) 18,982 Global presence through ECU Line
Face Value (Rs) 10 Allcargo's acquisition of Belgium-based ECU Line has two-fold benefits. One, it has widened its
1 US$ = Rs49.0 geographical reach, making it the second largest cargo consolidator globally and two, it
Source: Bloomberg complements Allcargo's focus on LCL (less than container) cargo. The company is undertaking
initiatives to improve margins in this business from 3.5% currently to over 5% over next few years.
We expect LCL cargo volumes to remain steady, as freight from full load is expected to shift to part
Shareholding Pattern (%) load, on the back of economic slowdown.
Public & Others, 4.6 Foreign, 11.5 Focus on high-margin CFS/ICD business to improve profitability
Non Promoter Corp. Allcargo is focusing on the container freight station (CFS) business to improve its overall margins.
Hold., 2.4 It plans to open inland container depots (ICDs) at six new locations while expanding capacities at
Jawaharlal Nehru Port Trust (JNPT) and Chennai CFS at a combined capex of Rs3bn. The CFS
division enjoys higher margins (PBIT margin of 47.6% in CY07) vs the MTO business (9.4%).
Allcargo has entered into a stake sale deal with Blackstone to fund this capex, which is linked to the
Promoters, 81.5
company's CY08 EBIDTA performance and is likely to fetch it about Rs2,424mn-Rs2,954mn.
Attractive valuations, Buy with target price of Rs630
As on 30th September 2008 The imminent trade slowdown has created a negative sentiment among logistics companies,
which explains the significant de-rating in Allcargo's valuations. The correction seems
One Year Indexed Stock Performance unwarranted and we see room for appreciation, as we expect Allcargo's performance to remain
120 robust given its global revenue streams and focus on LCL cargo. We rate the stock as a Buy with a
110 target price of Rs630. Allcargo trades at 4.5x CY09E EV/EBITDA vs 4.9x-7.2x for global peers.
100
90 Key Financials
80
70 Y/E Dec (Rs mn) 9MCY06 CY07 CY08E CY09E CY10E
60
Net Sales 8,952 16,135 20,483 23,415 25,687
50
40 % Growth 230.1 80.2 26.9 14.3 9.7
30
20
EBIDTA 799 1,424 2,175 2,729 3,068
Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 EBIDTA Margin (%) 8.9 8.8 10.6 11.7 11.9
ALLCARGO GLOBAL NIFTY Net Profit after Minority Interest 604 766 1,143 1,437 1,671
Source: Bloomberg, Centrum Research PAT Margin (%) 6.7 4.7 5.6 6.1 6.5
EPS Diluted (Rs) 22.8 28.9 43.2 54.2 63.1
P/E diluted (x) 19.7 15.6 10.4 8.3 7.1
Price Performance (%) 1M 6 M 1 Yr
EV/EBIDTA (x) 15.3 8.8 5.8 4.2 3.6
Allcargo Global (2.4) (32.7) (51.7) EV/Sales (x) 1.4 0.8 0.6 0.5 0.4
Nifty (6.4) (38.1) (53.4)
RoE (%) 21.7 17.7 19.5 17.7 16.8
Source: Bloomberg, Centrum Research
RoCE (%) 19.5 15.9 17.7 16.3 15.1
*As on 10 December 2008 Note: The company changed its financial year from Apr-Mar to Jan-Dec from CY06 during which the
financials are only for 9 months. Source: Company, Centrum Research
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Investment Rationale
Containerised cargo volumes to remain buoyant
Container volumes slated to grow 4.6% over We expect containerised cargo volumes to expand despite the global economic slowdown,
FY06-10E despite current economic which in turn would impact trade. In our estimate, Container volumes (mn tonnes) will likely
slowdown rise 4.6% to 1,353mn tonnes in CY10 from 1,130mn tonnes in CY06. It grew 9.8% CAGR over
CY86-CY06 (as depicted in Exhibit 1), notwithstanding the intervening recessionary phases,
with containers as percentage of world's total seaborne trade having increased from 4.8% in
1986 to 15.2% in 2006. In TEU terms too, container volumes increased at 12.3% CAGR from
49mn TEUs in 1996 to over 129mn TEUs in 2006 and is estimated to touch 157mn TEUs in
2008. Drewry Shipping Consultants, a London-based independent maritime consulting and
publishing organisation, has forecast container trade to grow to 219mn TEUs in 2012, 287mn
TEUs in 2016, and over 371mn TEUs in 2020.
Exhibit 1: World container trade volumes (mn tonnes) Exhibit 2: Containerised traffic to increase
(% of world trade) (Million TEUs) World Container Traffic (1999-2020)
(Volume)
1,600 Recessionary Phases 18 400
1,400 16 350
1,200 14
300
12
1,000 250
10
800 200
8
600 150
6
400 100
4
200 2 50
- 0 0
2001
2011
2005
2003
2013
2002
2012
2007
2017
2008
2018
1999
2000
2009
2010
2019
2020
2006
2004
2014
2015
2016
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007E
2008E
2009E
2010E
Source: Clarkson Research Studies, Centrum Research Source: Drewry Shipping Consultant
Major growth drivers in container shipping volumes

Advances in international division of labour and decentralisation of production
processes: This has led developed countries like the US and Europe to outsource production
to low-wage countries. For instance, China became the world market leader in many
industrial products within only a few years (eg, refrigerators, air conditioning equipment and
other consumer goods). It has also expanded its leadership in textiles and clothing. We
believe these countries will continue to be dependent on high technology imports in future,
especially from Asian countries like China and India, which will lead to increasing container
transport.
Liberalisation of world trade: Lower customs duties and the dismantling of non-tariff trade
barriers act as catalysts for international trade. China's entry into the WTO at the end of 2001
was an important milestone in this respect. It immensely boosted trade in the entire region.
Trade imbalances: Economic consideration leads to use of containers for unusual goods that
do not appear suitable for this form of transport (eg, certain agricultural products, chemicals
and building materials). This is particularly valid for transport between countries with trade
imbalances. As a result of the trade surplus China has with the US, the demand for container
capacity on the routes from China to the US is higher than in the opposite direction. In many
cases, it is more economical to load containers with 'unusual' goods on the return journey
than to transport them empty.
Innovation and customisation: This too has led to growth in containerisation. Reefer
containers have been introduced to transport temperature-sensitive goods. Containers have
been modified to handle liquid and dry bulk cargo as well. These are equipped for proper
loading and discharge of specialised cargo.
Economic benefits of containerisation
Loading and unloading time has shortened vs that taken to load traditional cargo ships
v
Economies of scale has enabled the use of faster and larger ships, increased port
v
handling capacities and has lead to the development of larger ports
Continuous improvement in productivity of ships and ports, Improved working ratio of
v
ships
Reduction in inland transportation cost, better opportunities for onward transport
v
Savings in packing cost
v
Less transit time and consequent lower inventory cost
v
Less damage and pilferage of cargo
v
NVOCC business not impacted by volatility in shipping rates

We believe any sharp movements in freight rates will not have a bearing on NVOCC players,
which operate on fixed absolute margins on the volumes handled, given that freight costs are
pass-through elements. The sharp decline in shipping rates currently being witnessed should
improve margins, in our view, as revenues decrease and absolute margins remain constant.
Freight is a major revenue component of NVOCC operations, which involves handling both
export and import cargo. This is the charge for carrying cargo by the sea route and is
dependent on the commodity, port, weight of the cargo, etc. Freight cost is linked to the
movement in the freight rates and is decided by shipping lines from time to time. An NVOCC
player prices these costs into its customer billing.
LCL cargo movement to benefit from macro headwinds

Due to the current global financial crisis, the manufacturing and trade businesses are
witnessing a slowdown. However, this slowdown is unlikely to impact LCL cargo volumes as
compared to full container loads. This is because, freight often witnesses a transition from full
load to part load during a slowdown in trade, as people start buying in smaller quantities.
Also, given that air freight rates are high, some air cargo is also expected to shift to
containerised route to save costs. Hence, we believe volumes for cargo consolidation under
the NVOCC business is likely to remain steady, as more FCL cargo shifts towards LCL.
Acquisition of ECU Line to widen global reach

ECU Line expected to expand global reach The acquisition of Belgium-based ECU Line has widened Allcargo's geographical spread
and maintain container volumes for Allcargo across Europe, Latin America, Middle East, and Africa. We believe the acquisition
with its higher focus on LCL cargo complements Allcargo's MTO business as it would be able to leverage ECU Line's network to
service clients across the world. ECU Line has more than 120 offices in 60 countries and a
franchisee and agent network across 203 locations in 120 countries. This all-cash deal at
€22.8mn in Jun’06 catapulted Allcargo to world's second largest cargo consolidator position.
Global revenue footprint

Allcargo's consolidated revenue (including ECU Line) is fairly diversified across geographies.
The company has a presence in Europe, Middle East, Africa and Latin America, which we
believe provides a natural hedge through a geographically diversified revenue stream.
Exhibit 3: Allcargo's revenue break-up by geography (CY07)

Australia & New Zealand Africa
3% 2%
Mediterranean
9% Allcargo (India)
20%
America Europe
15% 35%
ECU (NVOCC)
Far East 80%
16%
India
20%
Source: Company, Centrum Research

LCL business throughput to remain significant
We believe the global economic slowdown is unlikely to impact Allcargo's NVOCC business,
given that the company focuses on LCL cargo (70% of the total containers handled in CY07 by
ECU Line) and its geographical reach is spread across Europe, Latin America Middle East, and
Africa. We estimate more cargo to be transported in LCL mode due the slowdown in trade, as
people start buying in smaller quantities. Allcargo's volumes will likely remain steady, as its
NVOCC business is focused towards LCL consolidation where it has a leadership position.
Exhibit 4: ECU Line throughput Exhibit 5: Allcargo's standalone MTO throughput

(quarterly volumes handled in TEUs) (volumes handled in TEUs)
(TEUs) (TEUs)
60,000 40,000
50,000 35,000
17,063 16,095 30,000
14,414 16,575 14,740 16,856
40,000 13,139
25,000 16,323
15,430 15,748
30,000 20,000 12,481
11,798
9,388
37,136
35,561
35,782
34,521
15,000
34,683
10,388
32,925
20,000
19,788
16,989
10,000
14,536
13,509
13,410
12,077
11,412
10,000
9,662
5,000
- -
Q1CY07 Q2CY07 Q3CY07 Q4CY07 Q1CY08 Q2CY08 FY04 FY05 FY06 9MCY06 CY07 CY08E CY09E CY10E
LCL FCL LCL FCL
Operating leverage to improve ECU performance

Post acquisition, Allcargo retained the management and employees of ECU Line and has
taken steps to boost the latter's financial performance. While ECU Line has a higher gross
profit margin (~32% in CY07), its EBIDTA margin at 4.3% is very low due to high employee and
SG&A expenses. We expect the company to benefit from this operating leverage on expected
growth in sales and control in SG&A and employee costs, which would boost EBIDTA margin
from 3.5% currently to over 5% over the next few years. To achieve the operating leverage,
Allcargo it has taken several steps such as tie-up with Econocaribe in US, outsourcing back-
end business processes and support functions to India and setting-up a global freight buying
office in Hong Kong.
Tie-up with Econocaribe for US-EU corridor

The company does not own offices in the US and operates through an agent. It has tied up
with Econocaribe (the world's third largest NVOCC player) for the US-EU corridor. We believe
this strategy will benefit Allcargo as a direct presence would have otherwise required huge
investments to set-up operations.
Outsourcing of business processes to India

International trade requires huge documentation and processing to enable smooth flow of
goods through countries. Allcargo has a tie-up with WNS in India to outsource its back-end
business processes and support functions like accounts, budgetary review, documentation,
etc. This has not only helped reduce manpower at ECU Line, but has also lowered the cost of
operations. We believe lower cost of support operations in India would result in huge cost
savings for ECU Line over the next few years.
Global freight buying office in Singapore

The company, under ECU Line, has set up a global freight buying office in Singapore to
centralise processes and gain preferential rates from shipping lines on the back of higher
committed volumes. It has also established a Business Analyst team in India to offer corporate
account management, MIS and analysis support and freight buying support to ECU Line.

Focus on CFS / ICD business to improve profitability
Allcargo is now focussing more on the CFS/ICD business, given that its CFS division enjoys
CFS division, which enjoys higher PBIT margins
(47.6% in CY07) compared to the MTO business higher margins compared to the traditional NVOCC business. Although this division
(9.4%) is expected to post a revenue CAGR of contributed only 5.8% to consolidated revenue in CY07, PBIT contribution was much higher
30.8% over CY07-10E at 34.5%. We estimate 30.8% revenue CAGR from the CFS/ICD business over CY07-10E from
Rs934mn to Rs2,091mn. To enable this, the company has planned ICDs at six new locations
and expand capacities at JNPT and Chennai at a combined capex of Rs3bn. We believe this
diversification would help it cater to the increasing trade from other ports, while reducing its
dependence on JNPT. While it has already secured land at Pithampur (near Indore),
Bangalore, Nagpur and Hyderabad, it is still looking for a land at Ahmedabad.
Allcargo offers integrated port-based logistics and related support services through its CFSs
and ICDs. The CFS' main role is to facilitate temporary storage, stuffing and de-stuffing of
containers, customs clearance of cargo and maintenance of container units. The two primary
revenue streams under this business are ground rent and handling & storage charges. CFS
revenues are driven primarily by imports; hence shipping lines are the main customers in this
business.
Exhibit 6: Future CFS/ ICD locations planned

Proposed Location Expected Total Area (acres) Ownership Capacity (TEUs)
Pithampur, Indore Sep 2008 14 Owned 30,000
Dadri, Greater Noida Jan 2009 10 JV 84,000
Chennai Phase II Dec 2008 14 Owned 34,000
Nagpur Jun 2010 45 Leased 36,000
Hyderabad Jun 2010 30 Leased 36,000
Bangalore Jun 2010 12 Owned 36,000
Ahmedabad Jun 2010 -
We expect CFS volumes to register 30.1% CAGR from 127,434 TEUs in CY07 to 280,840 TEUs in
CY10E. The company has entered into a joint venture with Container Corporation of India
(Concor) to share ICDs at Dadri, Greater Noida. It is expanding its CFS at Chennai by
developing the surplus land to increase the capacity from 50,000TEUs to 85,000TEUs. The
company also expanded capacity at its JNPT facility by 24,000TEUs to 144,000TEUs per
annum during Q2CY08.
Exhibit 7: Projected CFS / ICD capacity (in '000 TEUs pa) Exhibit 8: Containers handled to increase 1.5x (in '000 TEUs pa)
(Thousands) (Thousands)
600 300 281
250
500 36 250
36
400 36
200 187
84 84
300 30 30
30 50 50 150 127
200 50
50 84 84
50
50 83
100 77
100
120 120 120 144 144 144
0 50
FY06 9MCY06 CY07 CY08E CY09E CY10E
0
JNPT Chennai Mundra Pithampur (Indore)
FY06 9MCY06 CY07 CY08E CY09E CY10E
Dadri (NCR) Nagpur Hyderabad Bangalore

CFS at India's largest container handling port
Allcargo has established CFS facilities at India's major container handling ports like JNPT,
Chennai and Mundra. JNPT is the largest container port handling 61% of the container traffic
in India followed by Chennai Port with 17% traffic. Allcargo's CFS at JNPT has been able to
maintain a high 90-95% capacity utilisation over last few years due to its strength in quality
services, infrastructure, equipment and high-end technology. Moreover, its strong
relationship with shipping lines in the NVOCC business has helped it secure good volumes.
JNPT operates three container terminals, which together handled over 4mn TEUs in FY08. The
port is planning to develop a fourth terminal to facilitate the increasing container traffic and
is awaiting government clearance. The new terminal with a planned capex of Rs45bn will
have an annual capacity to handle 4.4mn TEUs by itself. The first phase of this project is slated
to be operational by 2013-14.
Exhibit 9: Contribution of major ports to container volumes in India (FY08)

FY08
Cochin Kandla Others
4% 2% 5%
Allcargo's Contribution in CY07
Kolkata (No of containers handled)
4%
Tuticorin CFS TEU
7% JNPT 114,601
JNPT Chennai 8,539

Chennai 61% Mundra 4,294
17%
Total 127,434
JNPT Chennai Tuticorin Kolkata Cochin Kandla Others
Source: IPA, Company, Centrum Research
Deal with Blackstone to fund capex

Allcargo entered into a stake sale deal with Blackstone Group LP in March 2008 to fund its CFS
expansion initiatives entailing an investment of around Rs3bn over the next few years.
The company issued 1,081,081 6% fully and compulsorily convertible debentures (FCCD),
1,513,514 warrants and 1,000 equity shares. Post conversion, the deal which is linked to the
company's performance, is likely to fetch Rs2,424mn to Rs2,954mn. The FCCD as well as the
warrants are due for conversion into the same number of equity shares by September 2009.
Exhibit 10: Blackstone deal structure

Instrument Number of % holding Conversion Price Total Amount
shares (fully diluted) (Rs) (Rs mn)
FCCD 1,081,081 4.33 934 1,010
Equity shares 1,000 0 934 1
Warrants * 1,513,514 6.07 934 - 1,284 1,414 – 1,943
Total shareholding 2,595,595 10.4 2,424 – 2,954
*Conversion Price is linked to consolidated EBIDTA of CY08
EBIDTA CY08 Conversion Price Amt payable Total Amt including FCCD &
(Rs mn) (Rs) (Rs mn) Equity shares (Rs mn)
upto 1,900 934 1,414 2,424
1,900 – 2,000 1,109 1,678 2,689
2,000 – 2,100 1,209 1,830 2,841
> 2,100 1,284 1,943 2,954

While this stake sale will result in a dilution of up to 10.40% of the equity, Blackstone already
has 1.18mn shares (as on Sept 30, 2008) which amounts to 4.71% of the total outstanding
shares on a fully diluted basis bought from the open market during the Q1CY08. Post
conversion Blackstone's total equity share holding (15.11%) would increase above the 15%
limit and would trigger an open offer.
We believe that given the low free float of the stock (92.7% of current holding is with the
promoters and financial institutions), both Allcargo and Blackstone would avoid making an
open offer. Hence, we expect Blackstone to reduce its current shares in due course to limit its
overall holding within in the SEBI limit.
Equipment hiring division to enhance service portfolio

The company's increased focus on its equipment division, by virtue of the recently merged
Exhibit 11: Equipment fleet
project and equipment business of Transindia Freight Services (a promoter-owned company)
Equipment Dec-07 Jun-08 with itself, is also expected to yield attractive returns. Allcargo issued 2.1mn equity shares as
Cranes 18 51 consideration to the shareholders of TransIndia in a share swap ratio of 518:100.
Forklifts 40 51
The acquisition is a perfect fit to Allcargo's existing CFS and MTO businesses with an
Reach stackers 6 18 established client base. The division was primarily engaged in the business of transporting
Trailers 233 333 containers and project related cargo; hiring out cranes, trailers and other infrastructure
Source: Company, Centrum Research equipments as well as port handling equipments (general cargo and containerised cargo).
While the project cargo business is kept under the MTO segment, and the container handling
equipments under the respective CFS, the company has kept the crane hiring business as a
separate segment.
Capex of Rs1bn to increase crane capacity

The crane-hiring division is expected to benefit directly from the increased spending in
Exhibit 12: Sectoral allocation of fleet
infrastructure development in India. Allcargo has a fleet of 51 cranes with capacities ranging
Sector % of fleet
from 25–750 tonnes. It has lined up an aggressive capex plan of Rs1bn to increase its fleet to
Oil & Gas 56 75 by end CY08 and has secured the funding through Axis Bank. The crane hiring business is
Windmills 21 lucrative with high operating margins at 43.5% and an asset turnover ratio of 0.48x. We
Infrastructure 10 estimate this division to generate 32.3% revenue CAGR from Rs242mn to Rs560mn over
Cement 8 CY07-09E.
CFS 5
Allcargo's crane fleet is fairly diversified and includes all terrain cranes, crawler, telescopic and
Source: Company, Centrum Research lattice boom cranes. The division's diversified user base across industries such as power, oil
and gas refineries, wind energy, steel and cement hedges it against a downtrend in any
particular sector.
Project cargo business to see increased traction

Allcargo, which has been in the project cargo handling business since 2004, is likely to
witness increased traction with the merger of TransIndia. TransIndia has the necessary
equipment (trucks, special trailers etc) and manpower to successfully execute such projects.
We believe that the infrastructure led growth, especially in sectors such as oil & gas and power
will increase the demand for such specialised transport solutions, and will benefit Allcargo.
Project cargo handling contributed ~ 5% to Allcargo's standalone revenues in CY07
(Rs186mn) with operating margins of ~ 14–15%. However, it has seen significant increase in
the current year with H1CY08 revenue at Rs330mn (14% contribution to standalone
revenue), EBIT of Rs62mn (19% margins). It has invested Rs80mn to increase capacities and
towards equipment purchases and currently has an order book of Rs1,080mn to be executed
over the next 18-24 months.
Project cargo is a specialised activity involving transportation of high value specialised

equipment like oil field equipment, power plants, compressor stations and other over-
dimensional cargo that cannot be containerised on a turnkey basis. It involves transportation
of cargo from factory to project site through multiple modes (road, sea, rail) including
customs clearance, project registration, route surveys, etc.
Investment Risks
A severe economic downtrend could hamper trade across countries and impact LCL
v
cargo volumes against our expectation.
Fall in infrastructure spend and delays in development by government and private

v
players could impact infrastructure capacities and slow trades, impacting growth in
future.
Capex plan for CFS/ICDs funded through Blackstone could be hurt with the company
v
not converting the outstanding warrants and delaying the capacity expansion, given
the prevailing financial market conditions.

Financial Analysis
Exhibit 13: Consolidated segmental estimates
Segmental Revenue (Rs mn) CY07 CY08E CY09E CY10E
MTO 14,959 18,677 21,055 23,036
CFS 934 1,414 1,842 2,091
Equipment Hire 242 392 518 560
Total Revenue 16,135 20,483 23,415 25,687
Revenue contribution (%)
MTO 92.7 91.2 89.9 89.7
CFS 5.8 6.9 7.9 8.1
Equipment Hire 1.5 1.9 2.2 2.2
Segmental PBIT (Rs mn)
MTO 738 1,208 1,411 1,589
CFS 444 683 909 999
Equipment Hire 105 118 166 190
Unallocated expenses (85) (200) (235) (250)
Other Income 51 64 77 90
PBIT 1,254 1,872 2,328 2,618
PBIT Margins (%)
MTO 4.9 6.5 6.7 6.9
CFS 47.6 48.3 49.3 47.8
Equipment Hire 43.5 30.0 32.0 34.0
Total PBIT margin (%) 7.8 9.1 9.9 10.2
PBIT Contribution (%)
MTO 57.3 60.1 56.8 57.2
CFS 34.5 34.0 36.6 36.0
Equipment Hire 8.2 5.9 6.7 6.9
Source: Company, Centrum Research Estimates
16.8% revenue CAGR over CY07-10E

We expect 16.8% consolidated revenue CAGR over CY07-10E on back of growth in MTO
business including ECU Line, expansion of CFS network and increased traction in equipment
hiring division.
The MTO business (including ECU Line) is expected to clock 15.4% CAGR over CY07-10E as we
expect business from project cargo and domestic MTO operations to grow while operations
from the mature European market to continue steadily.
Exhibit 14: Projected revenue growth

(Rs mn)
27,500
25,687
25,000
23,415
22,500
20,483
20,000
17,500 16,135
15,000
12,500
10,000
CY07 CY08E CY09E CY10E
MTO CFS Equipment Hire

Profitability margins to improve
Going forward, we expect consolidated EBIDTA margins to improve from 8.8% in CY07 to
11.9% in CY10E. We believe this expansion would be mainly driven by the initiatives
undertaken by the company to improve ECU Line's margins. Apart from this increasing
contribution from high-margin CFS and equipment hiring business will also drive overall
profitability.
Exhibit 15: improving profitability margins

(%)
14
11.7 11.9
12 10.6
10 8.8
6
6.1 6.5
4 5.6
4.7
2
0
EBIDTA margin (%) NPM %
29.7% net profit CAGR over CY07-10E

We expect 29.7% consolidated net profit CAGR from Rs766mn in CY07 to Rs1,671mn in
CY10E. Apart from expansion in margins, growth in key business segments is likely to
contribute towards this jump.
Expansion of CFS/ICD operations, increasing fleet under crane hiring services and project
cargo businesses, which enjoy higher margins, are likely to benefit Allcargo to improve
profitability. We estimate Allcargo's consolidated EPS to improve from Rs29 in CY07 to Rs63 in
CY10E.
Exhibit 16: Consolidated net profit and EPS

(Rs mn) (Rs)
1,800 63.1 70
1,600 54.2 60
1,400
43.2 50
1,200
1,000 40
28.9
800 30
600
1,437 1,671 20
400 766 1,143
10
200
- 0
Adj Net Profit (Rs mn) EPS Diluted (Rs) (RHS)

Valuation Analysis
Attractive at current levels
The imminent trade slowdown has created a negative sentiment among logistics companies,
which explains the de-rating in Allcargo's valuations. The stock underwent volatile
movements in October 2008, having fallen sharply from Rs719 to Rs276 and subsequently
recovered thereafter. The stock currently trades at 8.4x one-year rolling forward P/E and 4.3x
EV/EBITDA. A valuation correction of this magnitude is unwarranted and we see room for
appreciation. Despite the risks associated with global trade slowdown, we expect Allcargo's
performance to remain robust given its global revenue streams and focus on LCL cargo. We
rate the stock as a Buy with a target price of Rs630, which provides a potential upside of 40%
from current levels.
Exhibit 17: One year forward rolling PE & EV/EBIDTA at attractive levels
25 PE 14 EV/EBIDTA
20 12
10
15
8
10 6
4
5
2
0 0
Oct-08
Dec-07
Dec-08
Oct-08
Dec-07
Dec-08
Apr-08
Sep-08
Jan-08
Sep-08
Apr-08
Jul-08
Jun-08
Jan-08
Aug-08
Feb-08
Jun-08
Aug-08
Mar-08
Jul-08
Feb-08
Mar-08
Nov-07
Nov-08
Nov-07
Nov-08
May-08
May-08
Peer comparison
We have valued Allcargo closely with international peers such as Panalpina and K+N, which
trade at 4.9x and 7.2x EV/EBITDA. We have valued Allcaro at a P/E of 10x CY10E earnings,
based on Panalpina's CY09 P/E (Bloomberg consensus estimates) and arrived at a target price
of Rs630. This implies an EV/EBITDA of 5.1x CY10E, which is at a 4% premium to Panalpina, as
Allcargo is expected to generate a higher RoE of 17.7%.
Exhibit 18: Peer Comparison (in US$ mn)

Company Year Sales EBITDA Net Income Book Value Per Return on Price/EPS EV/EBITDA
Adjusted Share Equity Adjusted
Kuehne + Nagel Dec-09 20831 1054 608 23.8 23.3 13.5 7.2
Panalpina Dec-09 9570 255 133 42.8 13.2 10 4.9
Gateway Distriparks Mar-10 121 40 23 1.4 16.4 6.6 3.7
Allcargo Dec-09 478 56 29 7.2 17.7 8.3 4.2
Source: Bloomberg consensus estimates, Allcargo-Centrum Research Estimates (USD/INR at 49.0)

Company Background
Allcargo Global Logistics is a leading logistics service provider involved in MTO, NVOCC, CFS
and ICD facilities, project-cargo and infrastructure equipment-handling businesses.
It commenced operations in 1993 as a shipping and freight-forwarding agency and

transitioned to an MTO in 1998 by offering logistics services such as consolidation of LCL
(less-than-container load) and FCL (full container load) cargo. Its acquisition of Belgium-
based ECU Hold NV in 2006 provided the company a global footprint.
In 2003, the company integrated forward into CFS operations and currently operates CFS at
three ports– JNPT - Mumbai, Chennai and Mundra.
In January 2007, the company acquired Hindustan Cargo from Thomas Cook and entered
into the air-freight business.
To expand its business under the infrastructure support services, Allcargo acquired the
project and equipment division of TransIndia Freight Services (a promoter-owned company)
in October 2007.
(NVOCC is a freight forwarder that does not own a shipping vessel, but books space on ships
and sell it in smaller quantities, consolidating freight for transport in standard containers).
Exhibit 19: Management Background

Management Details Designation Brief Profile
Mr. Shashi Kiran Shetty Chairman & Managing Director B.Com graduate. He started his career in the logistics industry in 1978. Worked
(Promoter) with Forbes Gokak, a Tata group company, where he gained experience in port
related operations. He started his own business in 1982. In 1993, incorporated All
Cargo Movers (India) (now known as Allcargo Global Logistics Ltd) and entered
into freight forwarding and LCL consolidation business
Mr. Adarsh Hegde Executive Director A Mechanical Engineer with over 20 years of experience in MTO, CFS and Project
Cargo business.
Mr. Umesh Shetty Executive Director A Bachelor of Commerce graduate and has more than 17 years of experience in
the fields of cargo and logistic business.
Mr. Ashit Desai Director – Corporate Affairs An engineer and MBA from IIM-Ahmedabad and has more that twenty two years
of work experience in various capacities including MTO business, the CFS
projects, strategic planning and corporate affairs.
Mr. Akhil Gupta Executive Director Mr. Gupta holds a B.Tech in Chemical Engineering (IIT-Delhi) and MBA from
Graduate School of Business, Stanford University. He is the Senior Managing
Director and Chairman of Blackstone India and represents Blackstone on
Allcargo's board.
Source: Company

Financial Statements
Profit & Loss Account (Consolidated)
Y/E Dec (Rs mn) 9MCY06 CY07 CY08E CY09E CY10E
Revenue 8,952 16,135 20,483 23,415 25,687
% Growth 230.1 80.2 26.9 14.3 9.7
Operating Expenses 6,125 10,397 13,293 15,197 16,715
% of Net Sales 68.4 64.4 64.9 64.9 65.1
Employee cost 1,079 2,692 3,069 3,499 3,849
% of Net Sales 12.0 16.7 15.0 14.9 15.0
Other Expenses 949 1,622 1,946 1,990 2,055
% of Net Sales 10.6 10.1 9.5 8.5 8.0
Total expenditure 8,153 14,711 18,308 20,686 22,619
EBIDTA 799 1,424 2,175 2,729 3,068
EBIDTA Margin (%) 8.9 8.8 10.6 11.7 11.9
% Growth 37.2 78.1 52.8 25.5 12.4
Depreciation 79 252 367 478 539
EBIT 721 1,171 1,808 2,251 2,529
EBIT Margin (%) 8.0 7.3 8.8 9.6 9.8
Interest Expenses 53 123 198 225 178
EBT 668 1,048 1,610 2,026 2,350
Other Income 52 51 64 77 90
Extraordinary (Income) / Expenses - reported 76 3 4 0 0
PBT 796 1,103 1,670 2,103 2,440
% of sales 8.9 6.8 8.2 9.0 9.5
% Growth 47.0 38.5 51.5 25.9 16.0
Tax-Total 175 239 351 473 553
Tax Rate (%) - Total 22.0 21.6 21.0 22.5 22.7
PAT (reported) 621 864 1,319 1,630 1,887
Exceptional item (post tax) (1) 0 0 0 0
Net Profit before Minority Interest 620 864 1,319 1,630 1,887
PAT Margin 6.9 5.4 6.4 7.0 7.3
% Growth 27.5 39.4 52.6 23.6 15.8
Minority Interest 16 98 176 193 216
Net Profit after Minority Interest 604 766 1,143 1,437 1,671
PAT Margin % 6.7 4.7 5.6 6.1 6.5
% Growth 24.1 26.9 49.3 25.7 16.3
Note: The company changed its financial year from Apr-Mar to Jan-Dec from CY06 during which the financials are only for nine months period.

Balance Sheet (Consolidated)
SOURCES OF FUNDS
Shareholders’ Funds
Equity Share Capital 211 239 239 265 265
FCCDs 1,010
Advance Against warrants 0 0 294 0 0
Reserves & Surplus 3,737 4,483 5,431 9,020 10,386
Total Net worth 3,948 4,722 6,974 9,284 10,650
Secured Loans 685 1,250 1,340 1,410 1,480
Unsecured Loans 91 12 50 28 6
Total Loan Funds 776 1,263 1,390 1,438 1,486
Deferred Tax Liability - Net -13 44 64 94 134
Minority Interest 53 86 261 455 671
Total 4,763 6,114 8,690 11,272 12,942
APPLICATION OF FUNDS
Gross Block 3,408 5,581 7,631 9,011 10,061
Accumulated Depreciation (670) (1,144) (1,511) (1,989) (2,528)
Capital WIP 340 405 490 300 100
Net Fixed Assets 3,078 4,842 6,610 7,322 7,633
Investments 578 65 125 138 150
Sundry Debtors 1,861 2,271 3,086 3,849 4,504
Cash and Bank Balances 450 631 786 1,850 2,468
Loans and Advances 808 719 1,024 1,264 1,500
Other current assets 0 15 20 23 26
Total Current Assets, Loans and Advances 3,120 3,637 4,918 6,987 8,498
Current Liabilities 1,945 2,290 2,765 2,927 3,031

Provisions 73 145 204 254 313
Total Current Liabilities & Provision 2,018 2,435 2,969 3,181 3,344
Net Current Assets 1,102 1,202 1,949 3,806 5,153

Miscellaneous expenses 6 6 6 6 6
Total 4,763 6,114 8,690 11,272 12,942

Cash Flow Statement (Consolidated)
Cash from Operations
Profit after Tax 604 766 1,143 1,437 1,671
Depreciation 79 252 367 478 539
Provision for deferred tax 44 91 20 30 40
Misc Expenditure w/off (91) 47 58 143 157
Cash Flow before WC Changes 636 1,155 1,589 2,087 2,407
Net Increase in Current Liabilities 1,763 417 534 212 163
Net Increase in Current Assets (2,261) (336) (1,125) (1,006) (893)
Net Cash from Operation 138 1,236 997 1,293 1,678
Cash from Investing
Capital Expenditure (2,106) (2,141) (2,135) (1,190) (850)
Sale / (Purchase) of Investments 242 537 (61) (12) (12)
Net Cash from Investing (1,864) (1,604) (2,195) (1,202) (862)
Cash from Financing
Increase / (Decrease) in Loan Funds 551 487 128 48 48
Increase / (Decrease) in Equity Capital 1,307 156 1,304 1,120 0
Dividend Paid (92) (94) (78) (196) (246)
Net Cash from Financing 1,765 549 1,353 972 (198)
Net Cash increase/(decrease) 38 181 155 1,064 618
Cash & Bank
Opening Cash Balance 412 450 631 786 1,850
Closing Cash Balance 450 631 786 1,850 2,468

Ratio Analysis (Consolidated)
Y/E Dec 9MCY06 CY07 CY08E CY09E CY10E
O/s Shares (mn) 21 24 24 26 26
Fully diluted shares (mn) 26 26 26 26 26
PER SHARE RATIO (Rs)
EPS 28.7 32.0 47.9 54.2 63.1
EPS Diluted 22.8 28.9 43.2 54.2 63.1
CEPS 32.4 42.6 63.2 72.3 83.4
BVPS 187.5 197.6 291.9 350.6 402.1
DPS 4.3 4.5 7.2 8.1 10.1
Cash/Share 21.4 26.4 32.9 69.9 93.2
FCFPS (93.5) (37.9) (47.6) 3.9 31.3
VALUATION RATIO (x)
P/E 19.7 15.6 10.4 8.3 7.1
P/CEPS 13.9 10.6 7.1 6.2 5.4
P/BVPS 2.4 2.3 1.5 1.3 1.1
P/FCFS (4.8) (11.9) (9.4) 115.2 14.4
Dividend yield (%) 1.0 1.0 1.6 1.8 2.2
EV/EBIDTA 15.3 8.8 5.8 4.2 3.6
EV/Sales 1.4 0.8 0.6 0.5 0.4
Mcap to Sales 1.3 0.7 0.6 0.5 0.5
GROWTH RATIO (%)
Revenues 230.1 80.2 26.9 14.3 9.7
EBIDTA 37.2 78.1 52.8 25.5 12.4
EBIT 38.5 62.5 54.3 24.5 12.3
Net Profit 24.1 26.9 49.3 25.7 16.3
EPS 8.4 11.8 49.3 13.4 16.3
PROFITABILITY RATIO (%)
EBIDTA 8.9 8.8 10.6 11.7 11.9
EBIT 8.0 7.3 8.8 9.6 9.8
Net Profit 6.7 4.7 5.6 6.1 6.5
RETURN RATIO (%)
ROE 21.7 17.7 19.5 17.7 16.8
ROCE 19.5 15.9 17.7 16.3 15.1
WORKING CAPITAL RATIO (Days)
Debtors Turnover 43.1 46.7 47.7 54.1 59.3
Creditors Turnover 44.3 47.9 45.0 44.4 42.3
Working Capital Turnover 34.0 26.1 28.1 44.9 63.7
OTHER RATIO (%)
Interest coverage 6.2 8.4 8.9 8.0 5.6
Debt/ Equity (x) 0.2 0.3 0.2 0.2 0.1
Current Ratio (x) 1.5 1.5 1.7 2.2 2.5
Other Income contribution 6.5 4.7 3.8 3.7 3.7
Dividend payout 15.1 14.1 15.0 15.0 16.0
Asset Turnover (x) 1.9 2.6 2.4 2.1 2.0
Capital Turnover 189.5 269.6 244.9 218.4 211.7

EV based common-sized valuation
Allcargo Global Logistics (CY10E)
EV 100 CMP (Rs) 450
M Cap 109 Revenue 235 EV/Sales 0.4x

Networth 97 EBIDTA 28 EV/EBIDTA 3.6x
Premium 12 PAT 15 P/E 7.1x
Net Debt (9) EBIDTA mg 11.9%

Debt 14 PAT mg 6.5% P/B 1.1x
Cash 23
EBIT 23 D/E 0.1x
Capital Employed 118 Depreciation 5
NFA 70 Post-Tax Interest 1

Investments 1 NOPAT 17 RoCE 14.0%
NCA 47
Transport Corporation of India (FY11E)
EV 46 CMP (Rs) 38

Premium (9) PAT 5 P/E 5.2x
Net Debt 20 EBIDTA mg 7.0%

Cash 2
EBIT 9 D/E 0.7x

NCA 28
Aegis Logistics (FY11E)
EV 18 CMP (Rs) 67


Cash 4
EBIT 9 D/E 0.4x

NCA 13
INDIA
11 December 2008
Initiating Coverage Transport Corporation of India
BUY Well integrated

We believe Transport Corporation of India (TCI) is well-placed to capitalise the
CMP: Rs38* opportunities arising from increasing trend towards outsourcing logistics activities. A
Target Price: Rs51 focus on its high margin divisions should help the company in transforming its business and
in boosting profitability. TCI is a leading integrated supply chain and logistics solution
Key Data company providing a complete range of services like transportation, supply chain, express
distribution, cold chain and coastal shipping. We initiate coverage on the stock with a Buy
Bloomberg Code TRPC IN rating and target price of Rs51, a 34% upside from current levels.
Reuters Code TCIL.BO
Increasing outsourcing trend in logistics
O/S Shares (mn) 72.5 With companies cutting costs, there has been an increasing trend in outsourcing of logistics
Diluted Shares (mn) 72.5 activities to specialist and third party logistics (3PL) players. The growth in outsourcing trend is
Market Cap (Rs bn/US$ mn) also fuelled by change in the mindset of corporates with companies now focusing on their core
2.7/55.6
competencies and outsourcing the entire supply chain management.
52 Wk H / L (Rs) 185/30
Well-placed to capitalise on emerging opportunities
Daily Vol. (3M NSE Avg.) 11,429 TCI is well-placed to capitalise on the emerging opportunities in the supply chain management
Face Value (Rs) 2 space and offers a wide range of value-added services. We estimate the company to register 14.5%
1 US$ = Rs49.0 revenue and 17.1% PAT CAGR over FY08-11E. Its transportation division, which is the backbone for
Source: Bloomberg
all other services, provides adequate network and infrastructure built across the country over last
five decades. The company leveraged this infrastructure to develop its express and supply chain
management businesses.
Shareholding Pattern (%) Focus on high-margin segments to improve profitability
Public & Others, The company has transformed its business model over the years to focus on high-margin
Foreign, 14.5
14.8 businesses like supply chain, express cargo and shipping. This reduced its contribution from the
Institutions, 1.4
high-volume low-margin transportation business over the years from 66% in FY04 to 54% in FY08.
Non Promoter
Corp. Hold., 1.8 We expect this to fall further to 49% by end FY10. The Supply Chain Solutions (SCS) division, which
has high entry barriers, is expected to lead the growth on the back of its huge warehousing
capabilities and post 24% revenue CAGR over FY08-11E.
Attractive valuations, Buy with target price of Rs51
Promoters, 67.5
At CMP, the stock trades at 6.9x FY10E consolidated EPS of Rs5.5 and 5.2x FY11E EPS of Rs7.3. On an
EV/EBIDTA basis, the stock is available at 4.7x FY10E and 3.8x FY11E. The stock looks attractive on a
As on 30th September 2008 one-year forward rolling P/E of 7.3x, which is it at a three-year low given the expected
improvement in its RoCE. We estimate TCI to generate an RoCE of 11.7% in FY11E, up from 8.7% in
FY09E, as the company restructures its businesses and achieves a greater contribution from the
One Year Indexed Stock Performance XPS, SCS and Seaways divisions. This underpins our Buy rating on the stock with a target price of
140
Rs51, implying a P/E of 7x FY11E EPS, and 4.6x EV/EBIDTA.
120
100 Key Financials

80 Y/E March (Rs mn) FY07 FY08 FY09E FY10E FY11E
60 Net Sales 10,853 12,428 14,112 16,205 18,662
40
% Growth 20.0 14.5 13.6 14.8 15.2
EBIDTA 700 858 912 1,086 1,298
20
Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 EBIDTA Margin (%) 6.5 6.9 6.5 6.7 7.0
TRANSPORT CORP NIFTY PAT (Rs mn) 306 330 317 402 530
Source: Bloomberg, Centrum Research PAT Margin (%) 2.8 2.7 2.2 2.5 2.8
EPS Diluted (Rs) 4.2 4.5 4.4 5.5 7.3
P/E diluted (x) 9.0 8.4 8.7 6.9 5.2
Price Performance (%) 1M 6 M 1 Yr EV/EBIDTA (x) 6.8 5.8 5.5 4.7 3.8
Transport Corp (19.7) (53.6) (73.0) EV/Sales (x) 0.4 0.4 0.4 0.3 0.3
Nifty (6.4) (38.1) (53.4) RoE (%) 25.5 18.7 13.7 15.4 17.8
RoCE (%) 11.1 9.6 8.7 10.0 11.7
Note: Financials for FY07 are standalone and figures from FY08 onwards are consolidated
*As on 10 December 2008 Source: Company, Centrum Research

+91 22 6724 9857 91 22 6724 9855
Increasing trend towards outsourcing logistics activities
Demand for integrated logistics service With companies cutting costs, we are seeing increasing trend in outsourcing of logistics
providers is expected to increase given the activities to specialist and third party logistics (3PL) players . The growth in outsourcing trend
trend towards outsourcing by companies to
cut cost and improve performance is also fuelled by the change in the mindset of companies with companies now focusing on
their core competencies and outsourcing not only logistics requirements, but the entire
supply chain management.
The logistics industry in India is highly fragmented with a large number of players providing
services in individual segments like transportation, warehousing, freight forwarding, etc.
Outsourcing in logistics had not really taken off due to limited number of integrated players
which could provide end-to-end solutions.
Economic advantages of outsourcing logistics activities to 3PL players

Negligible capital expenditure required to set up standalone logistics infrastructure
v
Access to world-class processes, products, services and technologies
v
Increases flexibility and improves ability to react quickly to changes in the business
v
environment
Allows companies to focus on their core business
v
Improves productivity, efficiency and customer service
v
Lower operating costs
v
Exchange of fixed costs with variable costs
v
Access to resources not available in one's own organisation, or too costly to invest in
v
Integrated logistics vs mere transportation providers

We believe demand for integrated 3PL solution providers has grown dramatically over the
last several years and increasingly become an effective way to reduce costs and spread risks
for traditional, vertically integrated firms. In addition to basic transportation, logistics players
currently provide value-added services such as warehousing, inventory management,
freight forwarding, express services, etc. Traditionally, logistics simply meant transporting
goods from one place to another. Thus, companies outsourced only transportation activities
and preferred to retain other logistics functions in-house.
Exhibit 20: Traditional and enhanced value proposition by Kuehne + Nagel
Enhanced value proposition §

Improved delivery
performance
Customer’s §
Reduced inventory
Supplier Customer §
Reduced fulfillment cycle
Customer
time
customer
§
Increased overall
productivity
§
Lowered supply chain costs
Overall supply chain visibility and optimization for the customer §
Improved order fill rates
§
Improved capacity
utilisation
Traditional 3PL value proposition
Customer’s §
Transport cost reduction
Supplier Customer §
Operational efficiency
Customer
customer
Cost Cost
reduction reduction
Source: Kuehne + Nagel Investors presentation (April 27, 2007)
Transport Corp. of India 23

Simplified tax regime to boost warehouse outsourcing
The introduction of value-added tax (VAT) and goods and service tax (GST) will provide
additional opportunities for logistics service providers. Manufacturers will be able to operate
on a hub-and-spoke model and outsource their entire inventory management and
warehousing activities to logistics service providers with state-of-the-art warehouses at key
locations. Large regional warehouses are being set up at central locations, which can be used
to supply cargo to different states in the region. Prior to this, a multi-layered tax system
dissuaded manufacturers from outsourcing functions like inventory management,
distribution, warehousing, etc. Companies therefore maintained small warehouses and
depots in every state to show movement of goods within the organisation and reduce the
CST (Central Sales Tax) burden. This resulted in higher costs of inventory, manpower,
infrastructure and other overheads.
Well-placed to capitalise on emerging opportunities

TCI’s infrastructure backbone provides TCI is well-placed to capitalise on the emerging outsourcing opportunities in the entire
support to offer integrated logistics services supply chain management space. We estimate the company to register 14.5% revenue and
17.1% PAT CAGR over FY08-11E. It is the largest integrated supply chain and logistics
solutions provider in India and offers an array of value- added services.
Exhibit 21: Presence across the logistics segments

Freight XPS SCS Coastal Shipping
Service Bulk, FTL, LTL, project cargo Express door-to-door Consulting, cold chain, Coastal cargo, stevedoring,
service, high value warehousing, distribution, NVOCC services
documents and parcels
Industry Scenario Fragmented, mature, Growth, niche, cost Nascent, High growth,
low margins efficiency, knowledge based, single High margins
window
Entry Barriers Low High Very high High
Financials FY08 (Rsmn)
Revenue 6,695 3,224 1,825 627
PBIT (inc other inc) 215 205 106 101
PBIT margins (%) 3.2 6.4 5.8 16.0
Capital Employed 1,403 852 882 921
Its transportation division, which forms the backbone for all the other services, provides
adequate network and infrastructure throughout the country and has been built over last
five decades. The company leveraged this infrastructure to develop its express and supply
chain management businesses.

Exhibit 22: Extensive infrastructure backbone for integrated services
Resources Particulars
Branch network §
Network of over 1,200 company owned branches
§
3000 vendor & franchisee associates
Human resource §
6,500 professionals on rolls and a additional 20,000 outsourced
Trucking fleet §
Operates 7,000 trucks on a daily basis of which 1,200 owned trucks & trailers
Warehousing capacity §
7.5mn sq. ft. of warehousing space
Coastal ships §
Fleet of 6 ocean going vessels with a total capacity of 20,000 DWT
(deadweight-tonne)
Technology §
In-house ERP: Electronic Data Interchange (EDI) capable
§
Vehicle tracking system through GPS
§
Web based Track and Trace
Dedicated leased space §
Leased trains & dedicated space from Indian Railways
§
Leased cargo space from airlines
TCI has a warehousing capacity of more than 7.5mn sq ft, which makes it one of the largest
private 3PL warehousing logistics company in India. This enables it to offer complete supply
chain solutions like inbound, outbound, reverse logistics, including transportation and
custom clearance, besides inventory management, packaging, bar coding, invoicing, bill
collection, etc. It also provides consultancy services to companies in designing their logistics
strategy, re-engineering their logistics, distribution network planning and logistics audit.
The company has also invested heavily in technology. It has a vehicle tracking system that
helps it to consolidate cargo at various locations. For its XPS division it has in place a
consignment tracking system that helps clients to track their consignments using web-based
intelligent systems.
Focus on high margin business to improve profitability

TCI has transformed its business model over the years to focus on high-margin businesses like
supply chain, express cargo and shipping. This reduced its contribution from the high-
volume low-margin transport business from 66% in FY04 to 54% in FY08 and we estimate this
to fall further to 47% by FY11. The Supply Chain Solutions (SCS) division, which has high entry
barriers, is expected to lead the growth on the back of its huge warehousing capabilities and
post 24% revenue CAGR over FY08-11E.
Exhibit 23: Business transformation over the years

(%)
2 1 1 1
100
12 8 5 5 5 6
16 4
5 15 16 17 19
80 10
8
23
24 24 26 27
60 27 28
40
61
52 53 53 51 49 47
20
0
FY05 FY06 FY07 FY08 FY09E FY10E FY11E
Freight Express Supply chain Costal Shipping Trading (Fuel stn)

SCS division to lead the growth on the back of warehousing capabilities
TCI is ramping-up its warehousing facilities, to meet the growing demand for its SCS services.
It currently has a capacity of 7.5mn sq ft and plans to increase it to 10mn sq ft by FY10. It has
acquired land at Chennai, Mumbai, Nagpur and Delhi and already commenced construction
at Pune. We believe these investments in warehouses and other infrastructure would
increase TCI's competitiveness and generate revenues at 24% CAGR from Rs1,825mn in FY08
to Rs3,478mn in FY11E in its SCS division. As a 3PL service provider, TCI is heavily focused on
the fast-growing SCS division. This division offers state-of-the-art warehousing and
inventory management services and operates a fleet of 550 specially designed containers
and trucks. It caters to clients across key industry verticals namely – auto, pharma, FMCG,
retail, telecom and consumer durables.
Exhibit 24: Warehouse capacity plans of major 3PL companies (mn sq ft)
Company Current capacity Planned Capacity Expected by year
TCI 7.5 10.0 2010
Safexpress 3.0 10.0 2010
DRS Logistics 1.5 5.0 2010
Indo Arya 2.0 3.5 2010
Blue Dart 1.0 2.0 2010
Gati 1.0 2.0 2009
TNT 0.5 2.0 2010
ProLogistics 7.5 2011
TranSmart 10.5 2013
Total 16.5 52.5
Source: Industry, Centrum Research
The company is also focusing on the retail growth in India to reduce its dependence on the
auto sector, which currently contributes around 60% of SCS' revenue. It plans to acquire
refrigerated containers, specially designed vehicles and is also creating temperature-
controlled storage space within its warehouses.
Exhibit 25: TCI provides 3PL warehousing services

Started Location Client Area (sq ft) Activity
Mar-06 Gurgaon, Tata Motors 69,000 Spare parts distribution of passenger car
?
Haryana business unit (PCBU) for North India
70% of the inbound materials from Pune
?
and rest from Gurgaon
Dec-06 Hoshiarpur, International 110,000 Vendor managed Inventory warehouse
?
Punjab Tractors Manage Inventory for spare parts
?
functions on a "5th day inventory level"
?
Mar-08 Panvel, Major Tyre 90,000 Excise / customs bonded warehouse

?
Mumbai Manufacturer Exports of tyres, inbound logistics
?
Source: Company
Exhibit 26: TCI shipping fleet details
Ship Name Capacity (DWT) JV to have presence in lucrative European coastal shipping business
TCI Surya 4,508 In June 2008, TCI entered into a shipping JV with Danish firm Scan Trans, the world's 7th
largest coastal shipping company. The company invested Rs38mn in the 50:50 JV which owns
TCI XPS 4,442
a 3480DWT ship deployed in European waters.
TCI Arjun 3,194
In the European Union, coastal shipping accounts for 43% share of cargo transportation and
TCI Shakti 2,158
is rising further. The JV has helped TCI enter the lucrative European costal shipping business.
TCI Lakshmi 2,298 Moreover, the company has already received a dividend of around Rs7mn from the JV in FY08,
Total Owned 16,600 the first year with only 6-7 months of operation.
Ann-Sofie Scan (JV) 3,480 Currently, TCI owns a fleet of five vessels with a total capacity of 16,600 DWT, apart from the
Total (owned + JV) 20,080 3,480 DWT ship in Europe on account of the JV. The company also plans to buy one ship every
Source: Company year for the next two years and all are expected to be second-hand ships. This would likely
result in strong revenue growth from the coastal shipping business.
The addition of ships/tonnage will boost the revenue and gain international exposure. We
expect the company to benefit and leverage from its international experience in pursing
future opportunities in costal shipping business. We like the costal shipping business as it
remains unaffected from the international trade pattern as well as the revenues are not linked
to international freight indices. Further, the division had the highest PBIT margins of ~16% in
FY08 as compared to express (6.4%) and SCS (5.8%).
Project cargo business

With an eye on the fast-growing over size/weight cargo business in India, TCI has acquired
specialised trucks and axles. The company acquired 30 axles from China and 4 Volvo trucks at
a capex of around Rs60mn during FY08. These axles are modular in nature and can be used
together or in parts. They can together handle up to 350 tonne loads.
As these are specialised and customised transportation solution, it has higher margins as
compared to the normal trucking business. Moreover these equipments which were bought
during March 2008 would be fully employed during FY09. The company has further ordered
another 10 axles from China and 20 from Goldhofer, Germany to be delivered within 10-11
months.
Special initiatives to make the book lean and improve RoI

TCI has been plagued by low RoCE (FY08 - 9.6%) due to the high investments in land and
motor vehicles combined with low margin trucking business. The company has to depend on
branches, hubs and warehouses for its transportation, express and SCS operations. As such, it
has taken initiatives to make its book lean by transferring these assets into SPVs and thus have
higher returns.
SPVs to develop warehouses

The management plans to achieve a total warehousing space of 10 mn sq ft by 2010. Due to
the capital-intensive and long gestation nature of the warehousing business, the company is
adopting a new strategy for its future development. It plans to create separate special
purpose vehicles (SPVs), where it will induct strategic investors to own the land and develop
them into warehouses. After which it intends to lease them back to the parent company on a
long-term basis.
Real estate division

TCI plans to commercially exploit few of its branch offices or warehouses which have come
within the municipal limits with the urban development. It has initially finalised plans to
develop three of these properties. It plans to develop a group housing project in Delhi over
180,000 sq ft for which it has already submitted drawings to MCD for approvals. At Chennai,
the plans are to develop a budget hotel and service apartment. The Bangalore property will
be developed into residential apartments with a hypermarket.
Exhibit 27: Return ratios to improve over a longer time

(%)
31
25.5
26
21 18.7 17.8
15.4
16 13.7
11
11.1 11.7
6 9.6 10.0
8.7
1
FY07 FY08 FY09E FY10E FY11E
ROE ROCE
Investment Risks
Higher fuel costs
Though most of the transportation contracts are on a fuel pass-through basis, sometimes
they cannot be passed on to the customers immediately and/or entirely and could impact
the operating margins of the company
Delay in raising funds

The company has a capex plan of Rs2bn for the next two years, for which it is looking at selling
an equity stake as well as raising debt. Given the current credit crisis, the company might face
difficulty in raising the funds might delay the capex program, thus impacting future growth
potential.
Slowdown in the economy

The growth of the logistics sector is closely related to GDP growth. The growth in
manufacturing and agricultural activities creates greater need for logistics. A slow down in
manufacturing activities would directly affect the growth in movement of inbound and
outbound goods and adversely impact the logistics sector.

Financial Analysis
Exhibit 28: Segmental analysis
Segmental Revenue (Rs mn) FY08 FY09E FY10E FY11E
Freight 6,695 7,298 7,996 8,766
XPS 3,224 3,740 4,414 5,208
SCS 1,825 2,226 2,783 3,478
Seaways 627 740 888 1,066
Others 93 108 124 144
Total Revenue 12,464 14,112 16,205 18,662
Segmental PBIT (Rs mn)

Freight 215 147 161 177
XPS 205 224 274 333
SCS 106 129 167 216
Seaways 101 133 178 234
Others 62 63 73 84
Un allocable expenses (22) (21) (26) (31)
PBIT (inc other income) 667 676 827 1,013
PBIT Margins (%)

Freight 3.2 2.0 2.0 2.0
XPS 6.4 6.0 6.2 6.4
SCS 5.8 5.8 6.0 6.2
Seaways 16.0 18.0 20.0 22.0
Total PBIT margin (%) 5.4 4.8 5.1 5.4
14.5% consolidated revenue CAGR over FY08-11E

We expect TCI to register 14.5% consolidated revenue CAGR from Rs12,428mn to
Rs18,662mnover FY08-11E on back of the growth in the XPS and SCS division. The company
has focused on the express and supply chain divisions as the future growth driver. It has
invested in developing warehousing capabilities, distribution and consolidation centres,
customised containers & trucks, cold chain services. We believe the company is set to benefit
from the capex and infrastructure set up in the last few years.
Exhibit 29: Revenue contribution over the years

(Rsmn)
20,000 18,662
18,000
16,205
16,000 14,112
14,000 12,464
12,000 10,867
10,000
8,000
6,000
4,000
2,000
0
Freight XPS SCS Seaways Others

Profitability margins to remain under pressure
We expect the profitability margins remain under pressure in the next two years as the
company undertakes initiatives to improve them over the long-term. Hike in the fuel and
interest cost is likely to decrease the margins in FY09E. We expect EBIDTA margins to decline
from 6.9% in FY08 to 6.5% in FY09E before improving again to 7.0% in FY11E. The net profit
margin is similarly expected to decline to 2.2% in FY09E and then stabilizing at 2.8% in FY11E.
Exhibit 30: profitability margins trend

(%)
8
6.9 7.0
6.5 6.5 6.7
7
2 2.8 2.7 2.8

2.2 2.5
1
EBIDTA margin (%) NPM %

Valuation Analysis
Attractively valued at three-year low
At CMP, the stock trades at 6.9x FY10E consolidated EPS of Rs5.5 and 5.2x FY11E EPS of Rs7.3.
On an EV/EBIDTA basis, the stock is available at 4.7x FY10E and 3.8x FY11E. The stock looks
attractive on a one-year forward rolling P/E of 7.3x, which is it at a three-year low given the
expected improvement in its RoCE. We estimate TCI to generate an RoCE of 11.7% in FY11E,
up from 8.7% in FY09E, as the company restructures its businesses and achieves a greater
contribution from the XPS, SCS and Seaways divisions. This underpins our Buy rating on the
stock with a target price of Rs51, implying a P/E of 7x FY11E EPS, and 4.6x EV/EBIDTA.
The stock has been historically trading above 20x one-year forward rolling P/E but since
March 2008 has fallen to around 10x. The stock saw a build-up post April 2007 as the company
was exploring options to develop some of its properties in prime locations like Delhi,
Bangalore and Ahmedabad. It was planning to shift some of its warehouses to less expensive
destinations and reap the advantage of the real estate boom in India. It witnessed a sudden
spurt in December 2007 and reached a peak of Rs185 on January 1, 2008 on back of
speculation that the company is about to make a deal for the second equity stake sale.
However, that was not to be the case and hence the stock fell. With no imminent real estate
deal in the picture, the stock drifted lower. We expect the stock to trade at the current 7x PE
multiple
Exhibit 31: One- year forward rolling P/E at three year low
45
40
35
30
25
20
15
10
5
0
Mar-08
May-08
Sep-08
Apr-08
Jan-08
Aug-08
Oct-08
Jun-08
Feb-08
Jul-08
Nov-07
Nov-08
Dec-07
Dec-08

Company Background
Transport Corporation of India (TCI) is the largest integrated supply chain and logistics
solutions provider in India, having a 15% market share of the organised transportation
industry. Set up in 1958 and part of the TCI Group, the company has over five decades of
experience in the sphere of cargo transportation. The group moves goods valued at more
than 2.5% of India's GDP by value of cargo.
It operates in six business verticals: TCI freight (transportation), XPS (express), supply chain
solutions (SCS), Seaways (coastal shipping), Power (windmills) and Global (international).
Exhibit 32: Details and functions of TCI's various divisions

Divisions Activities
Freight Full Truck Load, Less than Truck Load, parcel service, project cargo, over dimensional/weight cargo services. It has a strong
infrastructure in terms of extensive and strategically located branch network and trained work force.
XPS (Express) Express distribution service offering door to door time definite solution. XPS surface, XPS Air and XPS Courier divisions to
provide a single window for all express delivery solutions.
Supply Chain Solutions A Single-window enabler providing customised supply chain solutions. Dedicated verticals for Auto, Retail, Telecom,
Electricals, Pharmaceuticals, FMCG and Cold Chain.
Global Offers freight forwarding, customs clearance, transportation, and warehousing activities through offices in Singapore,
Hong Kong, Indonesia, Thailand, Nepal and Bhutan and 7 branches in India.
Seaways Specialised in coastal shipping. Scheduled services from East coast to Andaman and Nicobar
Transystem Logistics A TCI-Mitsui JV, sole logistics partner for Toyota Kirloskar Motors in India.
International
Source: Company

Y/E March (Rs mn) FY07* FY08 FY09E FY10E FY11E
Net Sales 10,853 12,428 14,112 16,205 18,662
% Growth 20.0 14.5 13.6 14.8 15.2
Material & supplies 879 219 207 197 187
% of Net Sales 8.1 1.8 1.5 1.2 1.0
Employee cost 464 607 734 864 1,008
% of Net Sales 4.3 4.9 5.2 5.3 5.4
Operating Expenses 8,064 9,779 11,209 12,908 14,848
% of Net Sales 74.3 78.7 79.4 79.7 79.6
Administrative Expenses 573 711 782 859 1,004
% of Net Sales 5.3 5.7 5.5 5.3 5.4
Repairs & Maintenance 173 255 268 292 317
% of Net Sales 1.6 2.0 1.9 1.8 1.7
EBIDTA 700 858 912 1,086 1,298
EBIDTA Margin (%) 6.5 6.9 6.5 6.7 7.0
% Growth 30.8 22.5 6.3 19.0 19.6
Depreciation 199 233 281 311 336
EBIT 501 625 631 775 963
EBIT Margin (%) 4.6 5.0 4.5 4.8 5.2
EBT 398 455 415 524 700
Extraordinary (Income)/Expense - Reported 0 0 0 0 0
PBT 440 497 460 576 750
% of sales 4.1 4.0 3.3 3.6 4.0
% Growth 18.7 13.0 (7.5) 25.2 30.3
Tax-Total 134 168 142 174 220
Tax Rate (%) - Total 30.6 33.7 31.0 30.2 29.4
Profit after tax 306 330 317 402 530
PAT Margin 2.8 2.7 2.2 2.5 2.8
% Growth 13.9 7.8 (3.7) 26.5 31.9
Shares O/S (million) 67.51 72.51 72.51 72.51 72.51

EPS (Rs) 4.53 4.55 4.38 5.54 7.31
EPS Diluted (Rs) 4.22 4.55 4.38 5.54 7.31
* Note: Financials up-to FY07 are standalone as the company started reporting consolidated figures from FY08 onwards

Y/E March (Rs mn) FY07* FY08 FY09E FY10E FY11E
SOURCES OF FUNDS
Total Net worth 1,879 2,751 3,002 3,321 3,739
Secured Loans 2,171 2,426 2,526 2,626 2,476
Total Loan Funds 2,186 2,439 2,541 2,641 2,501
Deferred Tax Liability - Net 264 289 299 309 319
Total 4,329 5,479 5,842 6,271 6,559
Gross Block 3,552 4,170 4,560 5,015 5,395
Accumulated Depreciation (918) (1,133) (1,417) (1,728) (2,063)
Capital WIP 26 53 63 40 20
Net Fixed Assets 2,660 3,091 3,206 3,327 3,351
Investments 56 81 87 93 110
Inventories 7 10 5 6 9
Sundry Debtors 1,543 1,959 2,320 2,664 3,068
Cash and Bank Balances 153 245 235 272 269
Loans and Advances 345 633 696 844 920
Total Current Assets, Loans and Advances 2,048 2,847 3,256 3,785 4,266
Current Liabilities 310 363 502 684 852

Provisions 125 180 205 250 316
Total Current Liabilities & Provision 435 543 707 934 1,168
Net Current Assets 1,613 2,305 2,549 2,851 3,098
Exchange Difference on Consolidation 1
Miscellaneous Expenditure 2
Total 4,329 5,479 5,842 6,271 6,559

Y/E March (Rs mn) FY07* FY08# FY09E FY10E FY11E
Profit after Tax 306 317 402 530
Depreciation 199 281 311 336
Provision for deferred tax 37 10 10 10
Dividend Paid (47) (66) (83) (112)
Misc Items 0 3 0 0
Cash Flow before WC Changes 495 545 640 764
Net Increase in Current Liabilities 26 164 227 234
Net Increase in Current Assets (501) (418) (492) (484)
Net Cash from Operation 20 291 374 514
Cash from Investing
Capital Expenditure (985) (397) (432) (360)
Sale / (Purchase) of Investments 5 (6) (6) (17)
Net Cash from Investing (980) (403) (438) (377)
Cash from Financing
Increase / (Decrease) in Loan Funds 1,055 102 100 (140)
Increase / (Decrease) in Equity Capital 0 0 0 0
Net Cash from Financing 1,055 102 100 (140)
Net Cash increase/(decrease) 94 (10) 36 (3)
Cash & Bank
Opening Cash Balance 59 245 235 272
Closing Cash Balance 153 235 272 269
Note: # Cash flow for FY08 is unavailable as the company shifted its financial from standalone to consolidated basis

Y/E March FY07 FY08 FY09E FY10E FY10E
O/s Shares (FV-Rs 2) (mn) 68 73 73 73 73
EPS Diluted 4.5 4.5 4.4 5.5 7.3
EPS Diluted 4.2 4.5 4.4 5.5 7.3
CEPS 7.5 7.8 8.3 9.8 11.9
BVPS (adjusted for revaluation reserve) 19.6 30.3 33.8 38.2 43.9
DPS 0.6 0.6 0.8 1.0 1.4
Cash/Share 2.3 3.4 3.2 3.8 3.7
FCFPS (14.3) (10.1) (1.5) (0.8) 2.1
VALUATION RATIO (x)
P/E 9.0 8.4 8.7 6.9 5.2
P/CEPS 5.1 4.9 4.6 3.9 3.2
P/BVPS 1.9 1.3 1.1 1.0 0.9
P/FCFS (2.7) (3.8) (26.0) (47.9) 17.9
Dividend yield (%) 1.6 1.6 2.1 2.6 3.6
EV/EBIDTA 6.8 5.8 5.5 4.7 3.8
EV/Sales 0.4 0.4 0.4 0.3 0.3
Mcap to Sales 0.3 0.2 0.2 0.2 0.1
GROWTH RATIO (%)
Revenues 20.0 14.5 13.6 14.8 15.2
EBIDTA 30.8 22.5 6.3 19.0 19.6
EBIT 43.1 24.7 1.0 22.8 24.3
Net Profit 13.9 7.8 (3.7) 26.5 31.9
EPS 13.9 0.4 (3.7) 26.5 31.9
EBIDTA 6.5 6.9 6.5 6.7 7.0
EBIT 4.6 5.0 4.5 4.8 5.2
Net Profit 2.8 2.7 2.2 2.5 2.8
RETURN RATIO (%)
ROE 25.5 18.7 13.7 15.4 17.8
ROCE 11.1 9.6 8.7 10.0 11.7
Inventory Turnover 0.4 0.3 0.2 0.1 0.1
OTHER RATIO (%)
Debt/ Equity (x) 1.2 0.9 0.8 0.8 0.7
Current Ratio (X) 4.7 5.2 4.6 4.1 3.7
Dividend payout 13.3 13.2 18.3 18.1 18.5
Asset Turnover (x) 2.5 2.3 2.4 2.6 2.8

EV 219 CMP (Rs) 450


Cash 49
EBIT 51 D/E 0.1x

NCA 103
EV 100 CMP (Rs) 38


Cash 5
EBIT 19 D/E 0.7x

NCA 62

EV 40 CMP (Rs) 67


Cash 9
EBIT 20 D/E 0.4x

NCA 28
INDIA
11 December 2008
Initiating Coverage Aegis Logistics
BUY Niche player

Aegis Logistics is a leading player in oil and gas logistics and is well-placed to benefit
CMP: Rs67* from the expanding business opportunities in this space. Its foray into autogas retail
Target Price: Rs102 also holds promise, given the increasing focus on use of eco-friendly fuels. An
expansion into liquid logistics, a strong presence in Mumbai with locational advantage
Key Data and the company's foray into service contracts with oil marketing companies are key
Bloomberg Code AGIS IN growth drivers that would boost the company's revenues going forward. We initiate
AEGS.BO coverage on the stock with a Buy rating and target price of Rs102, which provides 52%
Reuters Code
upside from current levels.
O/S Shares (mn) 19.9
Diluted Shares (mn) 19.9 Capacity expansion in liquid logistics to help ride the oil consumption boom
Market Cap (Rs bn/US$ mn) Aegis will likely benefit from its brownfield and greenfield capacity expansions meant to
1.3/27.2
cater to the rising demand for liquid logistics. We estimate this division to register 11.9%
52 Wk H / L (Rs) 404/44 CAGR overFY08-FY11E. The company has expanded its capacity well in time to reap the
Daily Vol. (3M NSE Avg.) 4,666 advantages of the increased demand from importers of crude oil and petroleum products. It
Face Value (Rs) 10 increased its total storage capacity 1.8x from 162,000kilolitres (kl) at the end of FY07 to
288,000kl in FY08. Moreover, its terminal at Trombay is strategically located near the Mumbai
1 US$ = Rs49.0 port. It also benefits from the huge petroleum traffic handled at the Mumbai Port, second
Source: Bloomberg
highest after Kandla.
Shareholding Pattern (%) Auto gas retailing - a future growth driver

We view retailing of automotive LPG (auto gas) as a future growth driver for Aegis, as it is a
Foreign, 7.3
Institutions, 2.6 logical extension to its bulk gas trading business. We estimate the company to post 27.4%
Public & Others, 21.5
Non Promoter Corp.
revenue CAGR in its gas-division over FY08-11E, with the auto gas division contributing
Hold., 5.3 almost 33% of this revenue at Rs6,631mn in FY11E. We expect the number of outlets to
increase to 80 by FY09 and to 124 by FY11 from 51 stations as of end Oct 2008. We believe that
the focus on tier II cities coupled with a franchise based model will help it in successfully
rolling-out the gas stations. Further, we also expect the company's profitability to improve, as
margins in this business are higher compared to industrial gas trading business.
Promoters, 63.3
Robust growth visibility, attractive valuations
As on 30th September 2008
At CMP the stock trades at 2.5x its FY10E EPS of Rs27.3 and 2.0x its FY11E EPS of Rs34.1. Robust
growth and attractive valuations make us positive on the stock. We initiate coverage on the
One Year Indexed Stock Performance stock with a Buy rating and target price of Rs102 at 3x FY11E EPS and 2.4x EV/EBIDTA. We have
270 conservatively valued the stock at 3x FY11E earnings, given the impact on overall margins
due to higher contribution from its low margin gas trading business.
220
170 Key Financials

120 Y/E March (Rs mn) FY07 FY08 FY09E FY10E FY11E
70 Net Sales 2,404 3,893 5,400 6,428 7,589
% Growth 55.6 61.9 38.7 19.0 18.1
20
Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 EBIDTA 299 683 786 925 1,110
AEGIS LOGISTICS NIFTY EBIDTA Margin (%) 12.4 17.5 14.6 14.4 14.6
Source: Bloomberg, Centrum Research PAT 215 384 449 544 678
PAT Margin (%) 9.0 9.9 8.3 8.5 8.9
EPS Diluted (Rs) 10.8 19.3 22.6 27.3 34.1
Price Performance (%) 1M 6 M 1 Yr P/E diluted (x) 6.2 3.5 3.0 2.5 2.0
Aegis Logistics (16.2) (67.4) (77.5) EV/EBIDTA (x) 5.9 3.1 2.7 2.3 1.8
Nifty (6.4) (38.1) (53.4) EV/Sales (x) 0.7 0.5 0.4 0.3 0.3
Source: Bloomberg, Centrum Research RoE (%) 19.9 28.3 26.2 26.0 26.6
RoCE (%) 15.6 20.5 19.0 19.8 21.0
*As on 10 December 2008 Source: Company, Centrum Research

+91 22 6724 9857 91 22 6724 9855
Higher capacity in liquid to help ride oil consumption boom
Liquid logistics revenue expected to register Aegis will likely benefit from its brownfield and greenfield capacity expansions meant to
11.9% CAGR over FY08-11E on back of higher cater to the rising demand for liquid logistics. We estimate this division to register 11.9%
storage capacity CAGR overFY08-FY11E. The company has expanded its capacity well in time to reap the
advantages of the increased demand from importers of crude oil and petroleum products.
The company plans to leverage its expertise and strong relationship with key clients at
Mumbai to other port locations as well. It has adopted a mix of organic as well as in-organic
initiatives to grow its business. Its total storage capacity increased 1.8x from 162,000kl at the
end of FY07 to 288,000kl in FY08.
Organic initiatives
It plans to expand its current capacity at Trombay by building additional storage facilities
v
of 55,000kl at a capex of Rs700-750mn. The clearance for this project is expected within
six months and will be operational in Fy11.
Aegis has also been allotted land near the Haldia Port to develop a greenfield liquid
v
storage terminal. This terminal is likely to have an initial capacity of 40,000kl and work on
this project is likely to start in Fy11.
Inorganic initiatives
In June 2006, the company acquired a 75% stake in Sealord Containers, an Adani Group
v
company, and developed a total capacity of 75,000kl, near Trombay in Mumbai. This
facility became fully operational in Sep 2007.
Further, in Mar 2007, it acquired a 100% stake in Konkan Storage Systems at Kochi and
v
developed a liquid storage capacity of 51,000kl. This facility was operational by March
2008.
Exhibit 33: Increasing capacity in liquid logistics ('000 kl)
400
40
56 56
300
51 51 51 51
200 75 75 75 75 75
100
162 162 162 162 162 162 162
0
FY06 FY07 FY08 FY09E FY10E FY11E FY12E
Trombay I Trombay II (Sealord) Kochi Trombay III Haldia

Aegis Logistics 39
Locational advantage
Aegis provides logistics services from the Mumbai Port, which is strategically located on the
western coast and is in the heartland of India's chemical and petroleum belt. During FY08,
Mumbai port handled 37.1mn tonnes of petrol, oil and lubricants (POL) products, the second
highest among the major ports in India, slightly behind Kandla which handled 38.2mn
tonnes. We estimate Aegis market share in Mumbai port at around 6-7% during FY08. This is
significant considering that most capacities are for captive use by PSU oil companies and are
not available in the open market.
Exhibit 34: Aegis share in liquid logistics (FY08) Exhibit 35: POL traffic handled by top 5 major ports(FY08)
#
FY08 India (Major ports)* Mumbai Port Port mn tonnes
POL (mnT) 168.94 37.07 Kandla 38.2
Chemicals (mnT) 4.89 0.96 Mumbai 37.1
Total in (mnT) 173.83 38.04 Kolkata 22.4
Total in (mnKL) @ 139.06 30.43 New Mangalore 21.8
@
Aegis Throughput (mnKL) 2.3 1.9 Visakhapatnam 19.8
Market share (%) 1.7% 6.2% All major ports 168.9
Source: * IPA, # Mumbai Port Trust, @ Centrum Research Estimates Source: IPA
Aegis also operates a liquid storage terminal at Trombay, which is connected to three jetties
at Mumbai port with total storage capacity of 162,000kl. It has added a second site 'Sealord
Containers' having a capacity of 75,000kl p.a. We believe this provides a strategic advantage
to the company, given its proximity with the country's two major refineries - Hindustan
Petroleum Corporation (HPCL) and Bharat Petroleum Corporation (BPCL). Aegis forms a
critical part of the companies' supply chain, which are connected with dedicated pipelines to
provide quality logistic support with fast turnaround time.
Mumbai Port also has a significant market share in India's overall chemical export-import
(exim) trade. It handled about 16.2% (0.74mn tonnes) of India's total chemicals and
petrochemicals exim volumes during FY07 (4.56mn tonne). We believe this share has
significantly increased in FY08 with Mumbai port handling around 0.96mn tonnes of
chemical volumes (India's total chemical exim volume is estimated at around 4.89mn
tonnes).
Aegis Logistics 40
Aegis to benefit from increasing consumption of oil and gas in India
We believe Aegis is well placed to benefit from the increased consumption of oil & petroleum
products in India. The country imports almost 78% of its crude oil requirement and with
increasing consumption, this will lead to a substantial increase in demand for logistics
support services like terminal handling, storage and distribution.
We expect Aegis to benefit from the India's increasing chemical exim trade, which has
significantly increased from 2.4mn tonnes in FY02 to 4.6mn tonnes in FY07 (13.6% CAGR).
Given the company's expertise in handling specialty chemicals, we believe it is well suited to
benefit from this increased chemical trade.
Exhibit 36: Consumption and gross import of crude oil in India (mn tonnes)
170
156
147
150
127 130
130 122 122
113 112
103 107
110 99
96
90
90 79 82
74
70
50
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
Consumption Gross Imports
Source: Ministry of Petroleum & Natural Gas, Centrum Research
India is currently the world's fifth largest energy consumer, and according to the 'World
Energy Outlook 2007' published by International Energy Agency, before 2025, India will
overtake Japan to become the world's third-largest net importer of oil, after the United States
and China.
Exhibit 37: India's major chemical and petrochemical Exim volumes ('000 tonne)
5,000
4,500
4,000 1346
1005
3,500
3,000 1270
1037 1167 1225
2,500 972
2,000 702 859
818 591 552
1,500 713
689 494 733
1,000 277 488
1535 1439
500 743 730 932 939
-
FY02 FY03 FY04 FY05 FY06 FY07
Chemicals Import Chemicals Export PetChem Import PetChem Export
Source: Ministry of Chemicals & Fertilisers, Centrum Research
Aegis Logistics 41
Retailing of auto-gas - a future growth driver
Aggressive roll out of auto-gas station to fuel We view automotive LPG (auto gas) retailing as the future growth driver for Aegis, as this is a
27.4% revenue CAGR in the gas division over
FY08-11E logical extension of its bulk gas trading business and would help in increasing volumes. Auto-
gas retailing is estimated to boost the company's profitability, as margins in this business are
higher compared to the industrial gas trading business. We estimate the company to post
27.4% revenue CAGR in its gas-division over FY08-11E, with the auto-gas division
contributing almost 33% of this revenue at Rs6,631mn in FY11E. The company recorded an
impressive 57.7% YoY revenue growth in FY08 at Rs3,022mn and Rs1,916mn in FY07. We
expect the company to increase its number of outlets to 80 by FY09 and 124 by FY11 from 51
stations as of end Oct 2008. After the initial test run, it ramped up aggressively to 38 stations
by FY08 from around 14 stations as of end FY07. The company forayed into retailing of LPG for
automotive fuel under the brand name 'Aegis Autogas' in FY06.
Exhibit 38: Fast roll-out of auto-gas stations
140
124
120
100
100
80
80
60
38
40
20 14
3
0
FY06 FY07 FY08 FY09E FY10E FY11E
Focus on tier II cities
Aegis focused only on tier II cities for setting up its retail auto-gas stations. This helps it avoid
competition from the subsidised CNG, which is currently available only in large metros like
Mumbai, Delhi and Ahmedabad, etc. It also helps it avoid competition from PSU oil
companies, which have most of their LPG retailing outlets in metros and major cities.
Exhibit 39: Aegis auto-gas stations in operation (as of March 31, 2008)
Gujarat Maharashtra Karnataka
Anand Akola Davangere
Bavla Alandi Hassan
Bhavnagar Chinchwad Shimoga
Bilimora Dhule Tumkur
Dahod Ichalkaranji Udupi
Kadodara Islampur
Mehsana Jalgaon Rajasthan
Morbi Kolhapur Bhim
Navsari Panvel Fatehnagar
Pardi Phaltan Rajsamand
Patan Ratnagiri
Sanad Sangli Madhya Pradesh
Sayajipura, Vadodara Solapur Neemuch
Surat
Valsad
Vijapur, Mehsana
Source: Company
Aegis Logistics 42
Franchise model to increase presence without significant capex
Aegis has adopted the franchise route to roll-out its retail network of auto-gas stations. The
company currently operates all its gas stations under the franchise based dealer-owned-
dealer-operated (DODO) model. Further, it has signed up more than 100 contracts for future
franchise roll-outs. We believe this would help the company in accelerating its network
expansion without significant capital expenditure. The dealers also benefit from the Aegis'
brand name and uninterrupted supply of gas.
Typically a dealer's pay-back period is 3-4 years depending on the volume of sales (Exhibit 3).
A dealer is required to invest around Rs4-5mn (excluding land) on developing and installing
the infrastructure for the auto-gas dispensing station. The company provides a fixed margin
of around 5% (Rs1.75 per litre) to the dealer and assure un-interrupted supply of gas. Apart
from this, dealers also benefit from Aegis' brand name and expertise.
Exhibit 40: Payback period analysis

Expected cashflow Sales per station p.a. No of cars Dealer’s Margin Return
for a dealer Mn tonnes Litres catchment area* (Rs/ltr) (Rsmn)
1st Year 400 720,000 1,500 1.75 1.26
nd
2 Year 600 1,080,000 2,250 1.75 1.89
3rd Year 800 1,440,000 3,000 1.75 2.52
th
4 Year 1,000 1,800,000 3,750 1.75 3.15
Total cash inflow (Rsmn) 8.82
*Assumptions for calculating cars required in catchment area
Average running of a car p.a. @ 20 kms per day7200 Kms
Average gas consumption of a car p.a. @ 15 kms per ltr 480 ltr
Expected cash-outflow
Initial investment by dealer (Rsmn) 5
Operating expenditure p.a. (Rsmn) 0.5
Total outflow (over 4 years) (Rsmn) 7
Expected payback period (months) 43
Source: Centrum Research
Aegis Logistics 43
Huge demand for automotive LPG
Automotive LPG is fast gaining acceptance as an alternative fuel due to its cost efficiency,
easy availability and environmental friendliness coupled with the government's thrust on
reducing vehicular pollution.
Exhibit 41: Sales trend of auto gas in India

Year No of LPG Stations Sales % growth Sales per station
(‘000 tonne) p.a. (tonne)
FY04 94 10 106
FY05 120 35 250 292
FY06 200 95 171 475
FY07 300 180 89 600
FY08 560 275 53 491
Source: IOC, IAC, Centrum Research
Governmental thrust on use of green fuel to boost demand of auto gas

Another factor is the encouragement given by the government in promoting eco-friendly
fuels. The Indian judiciary is also actively involved in ensuring implementation of the time-
bound action plan for introduction of clean auto fuels. Use of fuels like LPG & CNG has been
mandated for public transport vehicles in order to reduce the pollution levels in the major
cities like New Delhi, Mumbai, etc.
Benefits of using LPG vs other fuels
Due to infrastructure and availability constraints, the CNG market exists only in select cities
like Delhi, Mumbai, Ahmedabad, etc. Unlike CNG, LPG does not require an elaborate and
expensive pipeline network for its distribution. LPG can be easily transported by road tankers
like liquid fuels and therefore is available across the country. LPG also has certain other
advantages over CNG like high fuel quality, which results in higher engine power, low
refuelling time and smaller tank compared to CNG.
Exhibit 42: Advantages of auto-gas over CNG

Parameter Auto LPG CNG
Fuel Quality Stable Quality, since produced in Refineries under Varying composition since it is supplied direct from
controlled conditions. the wells without any processing.
Delivery Pressure 10 bar 200 bar
Refuelling Time Like petrol, 3 to 4 minutes, liquid handling. High refuelling time of 5 to 10 minutes, depending
on the differential pressure, gaseous handling.
Engine Performance Better than Petrol under high speed and heavy load Due to impurities, adverse engine performance
conditions. under high speed and heavy load conditions.
Availability Can be made available in any part of the Country by Available only on select cities where pipeline has
installing Storage facility. been laid.
Cost of Dispensing Rs 4mn at an existing Retail Outlet Rs 15mn at an existing Retail Outlet.
infrastructure
Cost of conversion Rs 15,000 to Rs 25,000 Rs 35,000 to Rs 40,000
(3 /4 wheelers)
Source: IOC, Centrum Research
Aegis Logistics 44
Investment Risks
Diversion of liquid traffic to other major ports
Under the National maritime development programme (NMDP) the government has taken
several initiatives for development of ports in India. It plans to modernise and upgrade
existing ports while developing new ports through public private partnership. These ports
are being developed by private players in association with leading global port developers
and would have good infrastructure to support movement of traffic through them. As such
there might be some diversion of traffic from existing ports like Mumbai Port to these newer
ports and impact Aegis volume through-put.
Petrol subsidy may reduce differential with LPG prices

Petrol and diesel are subsidised by the government due to political considerations. Retail
prices are decided by the government and are not linked to the global crude prices. However,
retail auto-gas prices follow free pricing and are decided by the PSU oil companies based on
the monthly Gulf contract prices. If the government continues to shield the domestic fuel
prices, the differential between auto-gas and petrol may disappear. This could affect the
viability of auto-gas distributors like Aegis.
Diversion of domestic LPG to automotive fuel

Domestic LPG which is subsidised in India poses a great threat to auto-gas suppliers like
Aegis. Even though use of domestic gas as automotive fuel is illegal, the cost economics over
auto-gas is huge and compelling.
A comparison of the Mumbai prices for both the products as on September 01, 2008, reveal
that auto-gas is around 1.5x costlier than the domestic gas. The price of domestic LPG is Rs
349.50 /14.2 kg cylinder or Rs 13.80 per litre as compared to Rs 35.12 for auto-gas.
We believe that in the past LPG was freely available in most cities, which made its easy for
diversion as auto fuel. However, in the current scenario, oil companies have tightened their
supplies which have made it difficult for people to divert their domestic gas. Also we believe
that use of illegal gas will reduce with increasing public awareness over time and growth of
auto-gas dispensing stations making it easily available across the country.
Environmental concerns
The company is involved in handling of hazardous materials like chemicals, crude oil and
petroleum products near the port area. Hence, any regulations pertaining to the
handling/use of these products in coastal areas on the back of environmental concerns,
could impact the company's business. However, given that the company has been
operational since 1956 and caters to large PSUs, it has all safety regulations in place and is
unlikely to get hampered on environmental grounds, in our view.
Aegis Logistics 45
Financial Analysis
Exhibit 43: Consolidated segmental estimates
Segmental Revenue (Rsmn)
Liquid Logistics division 488 683 781 938 958
Gas Division 1,916 3,209 4,619 5,491 6,631
Total Revenue 2,404 3,893 5,400 6,428 7,589
Revenue contribution (%)

Liquid Logistics division 20.3 17.6 14.5 14.6 12.6
Gas Division 79.7 82.4 85.5 85.4 87.4
Segmental PBIT (Rsmn)

Liquid Logistics division 267 340 375 450 460
Gas Division 100 345 423 499 674
Less Un-allocable expenses 0 (100) (120) (130) (145)
PBIT 366 585 677 819 989
PBIT Margins (%)

Liquid Logistics division 54.6 49.8 48.0 48.0 48.0
Gas division 5.2 10.7 9.2 9.1 10.2
25% revenue CAGR over FY08-11E

We expect the company to register 24.9% revenue CAGR over FY08-11E on the back of higher
capacity in the liquid logistics division and aggressive roll-out of retail auto-gas stations. We
expect the gas business to contribute 87.4% of consolidated revenue in FY11E vs 82.4% in
FY08. The share of liquid logistics would come down to 12.6% from 17.6% over the same
period.
Exhibit 44: Consolidated revenues to grow

(Rs mn)
8,000
7,000 958
6,000 938
5,000 781
4,000
683
3,000
2,000 488
1,000
1,916 3,209 4,619 5,491 6,631
-
Gas division Liquid Logistics
Aegis Logistics 46
21% net profit CAGR over FY08-11E
We expect 20.8% net profit CAGR over FY08-11E, while margins are like to dip from 9.9% in
FY08 to 8.3% in FY09E and then improve to 8.9% in FY11E. The decrease in margin is expected
on account of increase in the contribution from the gas business, which has lower PBIT
margins (FY08: 10.7%). Also the retail auto-gas business is typically an absolute fixed margin
business where in even if there is a hike in the selling price, the profit amount remains same
thus reducing the overall margins.
During FY08, the liquid logistics business which had a higher margin of 49.8%, contributed
49.7% to PBIT, which we believe will likely fall to 40.6% with PBIT margins of around 48% by
FY11E.
Exhibit 45: Net profit and margin trend

(%)
800 9.9% 10
700
10
600 9.0% 8.9%
500 9
8.5%
400 8.3% 9
300
8
200
215 384 449 544 678
100 8
Net Profit NPM (RHS)
Aegis Logistics 47
Valuation Analysis
Robust growth visibility, attractive valuations
At CMP the stock trades at 2.5x its FY10E EPS of Rs27.3 and 2.0x its FY11E EPS of Rs34.1.
Robust growth and attractive valuations make us positive on the stock. We rate the stock a
Buy with a target price of Rs102 at 3x FY11E EPS and 2.4x EV/EBIDTA.
Historically, the stock has been trading at 6-8x but valuations have bottomed recently on
the back of concerns on high auto LPG retail prices hampering sales. We expect the
company to witness continuous growth, given its two new liquid handling facilities at
Sealord (Mumbai) and Kochi already in place and an upcoming facility expected in FY11E.
However, we have conservatively valued the stock at 3x FY11E earnings, given the impact
on overall margins due to higher contribution from its low margin gas trading business.
Exhibit 46: One year forward rolling PE & EV/EBIDTA
12 EV/EBIDTA
PE
20
18 10
16
14 8
12
6
10
8
4
6
4 2
2
0 0
Oct-08
Dec-07
Dec-08
Apr-08
Sep-08
Jan-08
Jul-08
Jun-08
Aug-08
Feb-08
Mar-08
Nov-07
Nov-08
May-08
Mar-08
May-08
Sep-08
Apr-08
Jan-08
Aug-08
Oct-08
Jun-08
Feb-08
Jul-08
Nov-07
Nov-08
Dec-07
Dec-08
Aegis Logistics 48
Company Background
Aegis Logistics operates in a niche segment of the logistics value chain. The company
provides logistics management services including port-handling and storage facilities for oil,
gas and chemical products. It has over 30 years of experience in handling chemical and
petroleum products. The company also imports, stores and distributes gases such as LPG and
propane for both bulk industrial users as well as retail auto fuel.
Liquid Logistics Division

Aegis provides logistics services to importers and exporters of liquid oil, chemicals and
petroleum products. Aegis has a strong presence in Mumbai port where it is present since
1977. Its first terminal at Mumbai port was established in 1977, and is one of India's largest
private sector facilities. It has the advantage of its strategic location in the western region, the
heart of Indian petrochemical belt. The terminal has a total storage capacity of 162,000kl with
36 tanks of sizes ranging from 1,100kl to 10,000kl.
Gas Division
The company owns and operates 20,000 tonne gas terminal at Trombay, Mumbai through
which it imports, markets and distributes bulk LPG and propane in the western region. The
terminal has two gas tanks which can handle LPG, Propane and Propylene. It also offers gas
storage and handling services to various LPG bulk suppliers on an open user terminal basis.
Exhibit 47: SWOT analysis

Strength Weakness
· Over 30 years of experience in handling chemical and · Highly dependent on Mumbai Port's traffic for liquid logistics
petroleum products services
· Niche player in the logistics value chain and only listed
· PSU oil companies dominate the auto-gas retailing market and are
player in liquid and gas logistics.
the price maker
· Strategic location of Mumbai facility
· Dependent on franchise model to expand its retail auto-gas business
· 2nd largest private player in auto-gas distribution after
Reliance Industries.
Opportunities Threats
· Devolvement of various private ports to provide an · Diversion of liquid traffic to other major ports
opportunity to expand its liquid logistics services · Rise in crude oil prices coupled with continued petrol subsidy may
· Key clients like HPCL & BPCL are developing refineries make use of auto-gas unviable
at new locations can provide an opportunity for O&M · Use of domestic LPG for automotive consumption
(operation & mgt.) contracts
· Availability of cheaper fuels like natural gas once gas pipelines are
· Increasing consumption of oil & gas. India likely to laid across the country.
become the world's 3rd-largest net importer of oil by
2025
· Emphasis on green and alternate fuel to benefit auto-
gas business
Source: Company
Aegis Logistics 49
Y/E March (Rs mn) FY07 FY08 FY09E FY10E FY11E
Net Sales 2404 3893 5400 6428 7589
% Growth 56 62 39 19 18
Material cost 1692 2667 4025 4805 5756
% of Net Sales 70 69 75 75 76
Employee cost 84 144 165 190 221
% of Net Sales 3.5 3.7 3.1 3.0 2.9
Manufacturing & Other Expenses 328 399 424 509 503
% of Net Sales 14 10 8 8 7
EBIDTA 299 683 786 925 1,110
EBIDTA Margin (%) 12.4 17.5 14.6 14.4 14.6
% Growth -16.5 128.3 15.1 17.7 20.0
Depreciation 38 120 123 126 136
EBIT 261 563 662 799 974
EBIT Margin (%) 10.8 14.5 12.3 12.4 12.8
EBT 228 473 565 692 864
Extraordinary (Income)/Expense - Reported 0 0 0 0 0
PBT 257 496 580 712 879
% of sales 10.7 12.7 10.7 11.1 11.6
% Growth
Tax-Total 46 115 131 169 201
Tax Rate (%) - Total 17.7 23.2 22.6 23.7 22.9
PAT 212 381 449 544 678
Tax adjustment for earlier years (excess) (4) (4) 0 0 0
Adj Profit after tax 215 384 449 544 678
PAT Margin 9.0 9.9 8.3 8.5 8.9
% Growth (28.6) 78.4 16.8 21.1 24.6
Aegis Logistics 50
SOURCES OF FUNDS
Total Net worth 1,166 1,549 1,882 2,298 2,801
Secured Loans 610 993 1,025 1,066 1,070
Total Loan Funds 667 1,039 1,055 1,081 1,099
Deferred Tax Liability - Net 76 236 276 326 381
Total 1,909 2,825 3,214 3,705 4,282
Gross Block 1,336 3,180 3,290 3,360 3,660
Accumulated Depreciation (248) (830) (953) (1,079) (1,215)
Capital WIP 457 19 75 400 250
Net Fixed Assets 1,546 2,370 2,412 2,681 2,695
Investments 30 78 50 50 200
Inventories 65 128 171 201 236
Sundry Debtors 243 415 592 793 998
Cash and Bank Balances 224 235 304 316 443
Loans and Advances 347 211 432 514 607
Total Current Assets, Loans and Advances 878 989 1,499 1,823 2,285
Current Liabilities 492 552 675 771 797
Provisions 54 60 72 78 101
Total Current Liabilities & Provision 546 612 747 849 898
Net Current Assets 332 377 752 974 1,387
Total 1,909 2,825 3,214 3,705 4,282
Aegis Logistics 51
Profit after Tax 215 384 449 544 678
Depreciation 38 120 123 126 136
Provision for deferred tax 3 161 40 50 55
Dividend Paid (48) (105) (116) (128) (175)
Misc Expenditure w/off 1 (3) 12 6 23
Cash Flow before WC Changes 210 557 508 598 717
Net Increase in Current Liabilities 306 67 123 96 25
Net Increase in Current Assets (71) (100) (441) (313) (334)
Net Cash from Operation 446 525 190 382 409
Cash from Investing
Capital Expenditure (913) (945) (166) (395) (150)
Sale / (Purchase) of Investments 139 (47) 28 0 (150)
Net Cash from Investing (774) (992) (138) (395) (300)
Cash from Financing
Increase / (Decrease) in Loan Funds 403 372 17 25 19
Increase / (Decrease) in Equity Capital 0 107 0 0 0
Net Cash from Financing 403 478 17 25 19
Net Cash increase/(decrease) 74 11 69 12 128
Cash & Bank
Opening Cash Balance 149 224 235 304 316
Closing Cash Balance 224 235 304 316 443
Aegis Logistics 52
Y/E March FY07 FY08E FY09E FY10E FY11E
O/s Shares (mn)] 16 20 20 20 20
EPS 13.2 19.3 22.6 27.3 34.1
EPS Diluted 10.8 19.3 22.6 27.3 34.1
CEPS 15.6 25.3 28.8 33.7 40.9
BVPS 71.5 77.8 94.5 115.4 140.7
DPS 2.5 4.5 5.0 5.5 7.5
Cash/Share 13.7 11.8 15.3 15.9 22.3
FCFPS (25.7) (15.8) 7.1 5.8 21.8
VALUATION RATIO (x)
P/E 6.2 3.5 3.0 2.5 2.0
P/CEPS 4.3 2.6 2.3 2.0 1.6
P/BVPS 0.9 0.9 0.7 0.6 0.5
P/FCFS (2.6) (4.2) 9.4 11.6 3.1
Dividend yield (%) 3.7 6.7 7.5 8.2 11.2
EV/EBIDTA 5.9 3.1 2.7 2.3 1.8
EV/Sales 0.7 0.5 0.4 0.3 0.3
Mcap to Sales 0.6 0.3 0.2 0.2 0.2
GROWTH RATIO (%)
Revenues 55.6 61.9 38.7 19.0 18.1
EBIDTA (16.5) 128.3 15.1 17.7 20.0
EBIT (18.7) 115.7 17.7 20.6 21.9
Net Profit (28.6) 78.4 16.8 21.1 24.6
EPS (28.6) 46.1 16.8 21.1 24.6
EBIDTA 12.4 17.5 14.6 14.4 14.6
EBIT 10.8 14.5 12.3 12.4 12.8
Net Profit 9.0 9.9 8.3 8.5 8.9
RETURN RATIO (%)
ROE 19.9 28.3 26.2 26.0 26.6
ROCE 15.6 20.5 19.0 19.8 21.0
Inventory Turnover 10.8 9.0 10.1 10.6 10.5
OTHER RATIO (%)
Debt/ Equity (x) 0.6 0.7 0.6 0.5 0.4
Current Ratio (x) 1.6 1.6 2.0 2.1 2.5
Dividend payout 18.9 23.3 22.2 20.1 22.0
Asset Turnover (x) 1.3 1.4 1.7 1.7 1.8
Aegis Logistics 53
EV 550 CMP (Rs) 450
M Cap 599 Revenue 1,291 EV/Sales 0.4x


Cash 124
EBIT 127 D/E 0.1x

NCA 259

EV 251 CMP (Rs) 38


Cash 14
EBIT 48 D/E 0.7x

NCA 156
EV 100 CMP (Rs) 67


Cash 22
EBIT 49 D/E 0.4x

NCA 70

Aegis Logistics 54
Sector Overview
Exhibit 48: Logistics contributed to the thrust in GDP
2001-02 2006-07
8% 1%
3% 2% 7% 1%
4% 4%
Road
Logistics in India is largely road movement. Rail
With rapid road-building under NHDP, road 17% Sea
transport more than doubled during FY02-07 19%
Air
Services
65%
Storage
69%
Rs1,282bn CAGR 14% Rs2,462bn
Largely unorganised
Largest public sector mover – IR ~17%
Private sector share ~ 75%
Source: CSO, Centrum Research
Exhibit 49: Rail led transformation to alter logistics pie

2006-07 2011-12
10%
2% 7% 1% 2%
2%
4%
3% Road
Crucial initiatives that allowed private players Rail
& flexible freight pricing will enable rail to take 17%
Sea
the lead ahead
23% Air
60% Services
69% Storage
Rs2,462bn CAGR 22% Rs6,628bn
Transformation in
- Railway haulage – entry of private players
- Services to boom by outsourcing
(Warehousing, CFS, ICD,
3PL)
Source: CSO, Centrum Research
Logistics Sector 55
Exhibit 50: 11th Plan impetus will provide the transformation
Sectors
Sectors 10th Plan
Plan 11th Plan
Plan
Electricity (incl. NCE) 2,919 6,665
Logistics cost as a Roadsand
Roads andBridges
Bridges 1,449 3,142
3,142
With an estimated share of 6.5% of GDP, we % of GDP
Telecommunication 1,034 2,584
expect logistics to account for 7.5% share of
the GDP during the 11th Plan Railways (incl. MRTS) 1,197 2,618
2,618
Irrigation (incl. Watershed) 1,115 2,533 7.5%
6.5%
Water Supply and Sanitation 648 1,437
Ports
Ports 141 880 11 th Plan
10 th Plan
Airports
Airports 68 310
Storage
Storage 48 224 With a terminal
Year @ 8.8% of GDP
Gas 97 169
Total 8,714 20,562
Logistics Infrastructure will receive

Rs7,173bn impetus
Source: Planning Commission (Rsbn at 2006-07 price)
Exhibit 51: Weeding out inefficiencies can uncover hidden cost

FY07 Logistics Cost in India as a % of GDP FY12
Captured cost Un captured
cost Key enablers
We expect enablers to weed out “un- 0.3% 3PL, SCM
captured” costs that add to the burden borne Regulatory - Ushering of GST
0.4% Services 0.2% hurdles - Abolition of Octroi 0.5% Services
by the economy
0.1% Logistics
Wastage - High-tech storage soln Park, CFS
0.1% Storage 0.7% 0.1%
- Integrated warehouses Storage
Transit - Organised freight

3.1% 1.8% MTO
delays
6.0% Freight - High tonnage trucks & rakes
2.0% Transit - Containerisation 6.0% Freight
inefficiencies
6.5% 6.0% 8.8%

of GDP of GDP
Exhibit 52: The logistics value chain

Transshipment
Logistics is a fairly simple chain entrapped in a

Ware re
Consumer
wide array of services. When synchronized

Producer
Packing Freight delivery

these services ensure a smooth flow of goods housing packing
Loading CWC, SWC Unloading

Stuffing Air CFS, ICD De-stuffing
Clearing Tank field Clearing
Sea
Logistics park
Rail
Road
Incidental services

Logistics Sector 56
Exhibit 53: Logistics services to grow on storage space backbone
Road 8.5 mn ton/day 110 mn ton

Originating Storage
As the economy grows, we expect storage space in freight
India to be enhanced by 150mn sqft (up 37.5%) by Rail 4.0 mn ton/day requirement
FY12 13.6 mn ton/day
(2011-12)
Port (import) 1.1 mn ton/day
~ 10 day inventory
cer
(excluding items like
perishables, coal,
minerals, etc)
550 mn sq.ft.
400 mn sq.ft 150 mn sq.ft Warehousing
(2007-08) Development potential ahead space
Exhibit 54: Multi-specialty services hover on the space
CWC,
SWC
Multiple users will occupy the storage space to 3PL,
Oil cos Retail
run their own services. The creation of this Food grains
infrastructure will entail Rs290bn expenditure Cold chain
Tank fields
storage
150 mn sq.ft.
Logistics park Industry specific

warehousing
CFS, ICD
MTO, Retail,
F/F Auto
Rail,
MTO
Rs250bn Creation & revamp

+ Rs40bn Tech & equip
Warehousing (Development and Regulation) Act, 2007

The government has enacted the Warehousing (Development and Regulation) Act, 2007 to
v
make warehouse receipts (WR) tradable as a negotiable instrument. These WRs will have a
complete backing from the Warehousing Development & Regulatory Authority (WRDA)
with a view to protect the interests of all those involved in either issue, trade or
collaterisation of these WRs.
WRs will have the potential to unleash a new form of credit in the rural economy which
v
often struggles to cope with providing any reliable form of collateral/ security against
credit.
The benefits for the farmer are immense as they can now avoid distress sale of their produce
v
and spread their financial liabilities over the entire year rather than be a victim to
seasonality of finance. This is particularly more beneficial for commodities not backed by
minimum support prices. The advent of the WR system will result in a lower cost of
financing and an increase in liquidity for agriculture, and is a break from the focus of the last
few decades on targeted lending as a way to energize agricultural credit.
WR will spur other related activities, like standardization, grading, packaging and insurance
v
in the agricultural sector. With the increased storage requirements, warehousing industry
will also get a boost in rural areas fulfilling a part of gap in the logistic chain of agri-business
in the rural sector.
Logistics Sector 57
Exhibit 55: Rail haulage with private efforts
0.3 mn ton/day
4.0 mn ton/day Private players 150 rakes
New private train operators are planning to
drive-in with about 220 rakes which will run
Loading on requirement
on the augmented rail network Train + 70 (future)
(2011-12) 3.7 mn ton/day
IR + Concor
Infrastructure creation of
Rs2,618bn
Exhibit 56: Investment intents seen
National Bulk Handling Corp. - Warehouse Project (Rs50bn)

Many projects are taking shape. Not all can be
listed. We highlight some of the important APFE Dev. Authority - Agri Export Centre (Rs25bn)
ones here
Arshiya International - FTWZ, CFS & Logistics Park (Rs58bn)
V R L Logistics - Transshipment Hub Project (Rs5.4bn)
Transmart (India) - Warehouses Project - (Rs5.0bn)
Allcargo Gobal Logistics - Logistics Park (Rs3.4bn)
Source: Industry, Centrum Research
Exhibit 57: Investment – return matrix
Short GTA, CHA High

MTO Expected Bulge
Services
The investment return matrix for the Logistics
industry is expected to bulge at centre. The
Transporters
bulge is about higher competition, greater
Return period
Warehouses Competition
investments and faster returns
Medium Medium
Operations
Government
Pvt. players
Infrastructure
Long Low
Low Medium High

Investment
Logistics Sector 58
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Logistics Sector 59
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India - Logistics

Allcargo Global Logistics

Transport Corporation of India

Siddhartha Khemka Mahantesh Sabarad

Transport Corporation of India 22

Initiating Coverage Allcargo Global Logistics

BUY Testing global waters

Major growth drivers in container shipping volumes

NVOCC business not impacted by volatility in shipping rates

LCL cargo movement to benefit from macro headwinds

Acquisition of ECU Line to widen global reach

Global revenue footprint

Exhibit 3: Allcargo's revenue break-up by geography (CY07)

Allcargo Global Logistics 7

Exhibit 4: ECU Line throughput Exhibit 5: Allcargo's standalone MTO throughput

Source: Company, Centrum Research

Operating leverage to improve ECU performance

Tie-up with Econocaribe for US-EU corridor

Outsourcing of business processes to India

Global freight buying office in Singapore

Allcargo Global Logistics 8

Exhibit 6: Future CFS/ ICD locations planned

Source: Company, Centrum Research

Allcargo Global Logistics 9

Exhibit 9: Contribution of major ports to container volumes in India (FY08)

JNPT Chennai 8,539

Source: IPA, Company, Centrum Research

Deal with Blackstone to fund capex

Exhibit 10: Blackstone deal structure

Allcargo Global Logistics 10

Equipment hiring division to enhance service portfolio

Capex of Rs1bn to increase crane capacity

Project cargo business to see increased traction

Project cargo is a specialised activity involving transportation of high value specialised

Fall in infrastructure spend and delays in development by government and private

Allcargo Global Logistics 12

16.8% revenue CAGR over CY07-10E

Exhibit 14: Projected revenue growth

Allcargo Global Logistics 13

Exhibit 15: improving profitability margins

29.7% net profit CAGR over CY07-10E

Exhibit 16: Consolidated net profit and EPS

Allcargo Global Logistics 14

Exhibit 18: Peer Comparison (in US$ mn)

Allcargo Global Logistics 15

It commenced operations in 1993 as a shipping and freight-forwarding agency and

Exhibit 19: Management Background

Allcargo Global Logistics 16

Allcargo Global Logistics 17

Current Liabilities 1,945 2,290 2,765 2,927 3,031

Net Current Assets 1,102 1,202 1,949 3,806 5,153

Allcargo Global Logistics 18

Allcargo Global Logistics 19

Allcargo Global Logistics 20

EV 100 CMP (Rs) 450

M Cap 109 Revenue 235 EV/Sales 0.4x

Net Debt (9) EBIDTA mg 11.9%

NFA 70 Post-Tax Interest 1

Transport Corporation of India (FY11E)

M Cap 25 Revenue 1171 EV/Sales 0.3x

Net Debt 20 EBIDTA mg 7.0%

NFA 31 Post-Tax Interest 2