We have released 3rd Oct’20: Special situation opportunity on the proposed de-listing of shares of Allcargo Logistics Ltd (NSE Code – ALLCARGO). The same has also been produced below. For details and other updates, please log into the website at the following link – https://katalystwealth.com/index.php/my-account/
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Date: 3rd Oct’20
CMP – 124.15 (BSE); 123.80 (NSE)
Rating – Positive – 3% weightage; this is not an investment advice (refer rating interpretation)
Allcargo Logistics (NSE – ALLCARGO)
Allcargo Logistics was incorporated in 1993 by the Chairman Mr. Shashi Kiran Shetty. The company was listed on both the BSE & NSE in June 2006.
The company provides services like global multimodal transport operations (MTO), container freight stations (CFS), inland container depots, Project & engineering solutions (P&E), Logistics Parks and warehousing and Supply Chain Management (through an associate entity).
In FY 20, MTO accounted for bulk share of the revenue of the company at 88%, followed by 6% from CFS and 5% from P&E.
Allcargo is the largest private sector integrated multinational logistics company in India and has the largest and widest CFS/ICD network.
The company is also building state-of-the-art strategically located logistics parks across India and has entered into a definitive transaction with the Blackstone Group on 13th January, 2020, wherein Blackstone would acquire Allcargo’s warehousing subsidiaries at Telangana, Tamil Nadu, Karnataka, Gujarat, Goa and Maharashtra for a consideration of Rs. 380 Crores through a combination of debt and equity. Allcargo would remain a minority stake holder in these warehousing subsidiaries at 10% post the transfer.
Post the completion of the deal, the company endeavours to reduce the debt on the consolidated books considerably.
De-listing Offer from the Promoters
On 24th Aug’20, the Board received a letter from the members of the Promoter Group, Mr. Shashi Kiran Shetty and TEPL, wherein they expressed their intention to acquire all equity shares held by the public shareholders of the Company and voluntarily delist the Equity Shares from the Stock Exchanges.
The promoters hold 70.01% stake in the company.
On 5th Sep’20, the Board granted its approval to the delisting proposal.
The floor price for the delisting offer has been determined as Rs 92.58 per share.
The company has also sent the postal ballot notice to the shareholders for their approval.
Important Points with respect to the de-listing offer
Allcargo Logistics got listed in 2006 and over the last 10 years the stock has mostly traded in the range of 80-180 with a high of around 220 and a low of 35.
In the last 5 years the sales of the company have grown from Rs 5,600 crore + in FY 15 to Rs 7,300 crore + in FY 20.
The PAT has remained largely stable around Rs 220-240 crore.
The company has been consistently paying dividends since the last 7-8 years and the dividend pay-out over the last 2 years amounted to 30% +.
On the front of balance sheet, the company hasn’t diluted equity in the last several years. In fact, before FY 20 the company had deleveraged and reduced its borrowings from around Rs 1000 crore in FY 14 to around Rs 600 crore in FY 19; however, with the acquisition of 46.86% stake in Gati and expansion into setting up of logistic parks across India, the company has taken on additional debt and the borrowings increased to around Rs 1,600 crore at the end of FY 20.
The deal with Blackstone group will help the company reduce its borrowings.
Overall, financially the stock is relatively better placed in comparison to several other delisting opportunities initiated in the past.
Rationale behind this opportunity
In the past many de-listing cases, shareholders have tendered shares at 50-100% + premium to the floor prices and in some of the cases promoters have accepted such prices.
Recently, Hexaware Technologies successfully completed the delisting offer where in the floor price was Rs 264.97, the indicative offer price was Rs 285 and the stock is ultimately getting delisted at Rs 475 per share.
As mentioned above, over the last 10 years Allcargo has mostly traded in the range of 80-180 with a high of around 220. Before the covid-19 induced market correction, the stock was trading in the range of 90-120.
Considering the recent stock price range, the floor price of 92.58 and the higher price range of 160-200, we believe the shareholders are unlikely to tender shares below 160-170 odd levels or even higher.
We believe promoters must have taken into account the tendering pattern in the last several cases and may find acceptable if the discovered price is around 160-180 odd levels.
However, here again, we would not like to participate in the reverse book building (RBB) and rather take advantage of appreciation in the stock price (if at all) in the run up to RBB.
We expect the downside to be capped at around 100-105 per share while the stock can appreciate to 150-160 odd levels in the run up to RBB.
We are still some steps away from the reverse book building; if the promoters backtrack on the de-listing proposal or the shareholder’s approval does not come through, there would be a rush to exit from the stock and one may not be able to exit before the stock has corrected by 15-20%.
The company recently acquired 46.86% stake in Gati Ltd and the same has a poor track record of operating performance and incurred losses in FY 20. With the acquisition of stake in Gati and other expansion activities, the borrowings of Allcargo have increased substantially and that could have a negative bearing on the performance and the expected delisting price of Allcargo Logistics.
Disclosure: I do not have any holding in Allcargo Logistics Ltd.
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Positive – Expected return of ~15% + on annualized basis in medium to long term for investment recommendations and in short term for Special situations
Neutral – Expected Absolute return in the range of +/- 15%
Negative – Expected Absolute return of over -15%
Coverage closure – No further update on the stock
% weightage – allocation in the subject stock with respect to equity investments
Short term – Less than 1 year
Medium term – Greater than 1 year and less than 3 years
Long term – Greater than 3 years
Research Analyst Details
Name: Ekansh Mittal Email Id: [email protected] Ph: +91 727 5050062
Analyst ownership of the stock: No
Details of Associates: Not Applicable
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