Centrum - Great Report on Logistic Players and Indian Logistics

Please refer to important disclosures/disclaimers inside.

December 2008Siddhartha [email protected]+91 22 6724 9857

Mahantesh [email protected] 91 22 6724 9855

India - Logistics

Aegis Logistics

Allcargo Global Logistics

Transport Corporation of India

2

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Logistics Sector

Table of contents

CompaniesAllcargo Global Logistics


Aegis Logistics

Sector Overview

Investment RationaleContainerised cargo volumes to remain buoyant

Focus on CFS / ICD business to improve profitability

Equipment hiring division to enhance service portfolio

Investment Risks

Financial Analysis

Valuation : Attractive at current levels

Financial Statements

Investment RationaleIncreasing trend towards outsourcing logistics activities

TCI well-placed to capitalise on emerging opportunities

Focus on high margin business to improve profitability

Special initiatives to make the book lean and improving RoI

Investment Risks

Financial Analysis

Valuation: Attractively valued at three-year low


Investment RationaleHigher capacity in liquid to help ride oil consumption boom

Retailing of auto-gas - a future growth driver

Investment Risks

Financial Analysis

Valuation: Robust growth visibility, attractive valuations


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4Logistics Sector

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BUY


11 December 2008

CMP: Rs450*

INDIA

Key Data

Shareholding Pattern (%)

As on 30th September 2008

Source: Bloomberg, Centrum Research


Source: Bloomberg

One Year Indexed Stock Performance

Bloomberg Code AGLL IN

Reuters Code ALGL.BO

O/S Shares (mn)

Diluted Shares (mn)

22.426.5

Market Cap (Rs bn/US$ mn) 10.2/207.7

52 Wk H / L (Rs) 1,025/272

Daily Vol. (3M NSE Avg.) 18,982

Face Value (Rs) 10

1 US$ = Rs49.0

Price Performance (%) 1M 6 M 1 Yr

Allcargo Global (2.4) (32.7) (51.7)Nifty (6.4) (38.1) (53.4)

Target Price: Rs630

Allcargo Global Logistics is set to benefit from the increasing trend towards containerisation, in our view. Post ECU Line acquisition, the company has taken several 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 price of Rs630, a 40% upside from current levels.

Containerised cargo volumes to grow despite global slowdownWe expect containerised cargo volumes to expand 4.6% to 1,353mn tonnes in CY10 from 1,130mn tonnes in CY06. Container volumes (mn tonnes) have grown at 9.8% CAGR over CY86-CY06, 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 operating common carrier (NVOCC) business is expected to remain impervious to the volatility in shipping rates as freight is a pass-through element of cost.

Global presence through ECU LineAllcargo's acquisition of Belgium-based ECU Line has two-fold benefits. One, it has widened its geographical reach, making it the second largest cargo consolidator globally and two, it 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 load, on the back of economic slowdown.

Focus on high-margin CFS/ICD business to improve profitabilityAllcargo is focusing on the container freight station (CFS) business to improve its overall margins. 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 company's CY08 EBIDTA performance and is likely to fetch it about Rs2,424mn-Rs2,954mn.

Attractive valuations, Buy with target price of Rs630The imminent trade slowdown has created a negative sentiment among logistics companies, which explains the significant de-rating in Allcargo's valuations. The correction seems unwarranted and we see room for appreciation, as 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. Allcargo trades at 4.5x CY09E EV/EBITDA vs 4.9x-7.2x for global peers.

Testing global waters

*As on 10 December 2008

Key Financials

Initiating Coverage

Siddhartha [email protected]+91 22 6724 9857

Y/E Dec (Rs mn) 9MCY06 CY07 CY08E CY09E CY10E

Net Sales% GrowthEBIDTAEBIDTA Margin (%)Net Profit after Minority InterestPAT Margin (%)EPS Diluted (Rs)P/E diluted (x)EV/EBIDTA (x)EV/Sales (x)RoE (%)RoCE (%)

Please refer to important disclosures/disclaimers inside.


Foreign, 11.5

Non Promoter Corp.

Hold., 2.4

Promoters, 81.5

Public & Others, 4.6

2030405060708090

100110120

Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08

ALLCARGO GLOBAL NIFTY

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

8,952 16,135 20,483 23,415 25,687230.1 80.2 26.9 14.3 9.7

799 1,424 2,175 2,729 3,0688.9 8.8 10.6 11.7 11.9604 766 1,143 1,437 1,6716.7 4.7 5.6 6.1 6.5

22.8 28.9 43.2 54.2 63.119.7 15.6 10.4 8.3 7.115.3 8.8 5.8 4.2 3.6

1.4 0.8 0.6 0.5 0.421.7 17.7 19.5 17.7 16.819.5 15.9 17.7 16.3 15.1

6Allcargo Global Logistics

Investment RationaleContainerised cargo volumes to remain buoyantWe expect containerised cargo volumes to expand despite the global economic slowdown, which in turn would impact trade. In our estimate, Container volumes (mn tonnes) will likely 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)

-

200

400

600

800

1,000

1,200

1,400

1,600

1986

1987

1988

1989

1990

1991

1992

1993

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1997

1998

1999

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2003

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2005

2006

2007

E20

08E

2009

E20

10E

0

2

4

6

8

10

12

14

16

18(Volume) (% of world trade)

Recessionary Phases

Source: Clarkson Research Studies, Centrum Research

Exhibit 2: Containerised traffic to increase

Source: Drewry Shipping Consultant

World Container Traffic (1999-2020)

0

50

100

150

200

250

300

350

400

(Million TEUs)

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

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2015

2016

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2019

2020

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.

Container volumes slated to grow 4.6% over F Y 0 6 - 1 0 E d e s p i te c u r re n t e co n o m i c slowdown


Economic benefits of containerisationvLoading and unloading time has shortened vs that taken to load traditional cargo ships vEconomies of scale has enabled the use of faster and larger ships, increased port

handling capacities and has lead to the development of larger ports vContinuous improvement in productivity of ships and ports, Improved working ratio of

ships vReduction in inland transportation cost, better opportunities for onward transport vSavings in packing cost vLess transit time and consequent lower inventory cost vLess damage and pilferage of cargo

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 headwindsDue 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 reachThe acquisition of Belgium-based ECU Line has widened Allcargo's geographical spread across Europe, Latin America, Middle East, and Africa. We believe the acquisition 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)

America15%

Far East16% India

20%

Europe35%

Australia & New Zealand3%

Africa2%

Mediterranean9%

ECU (NVOCC)80%

Allcargo (India)

20%

Source: Company, Centrum Research

ECU Line expected to expand global reach and maintain container volumes for Allcargo with its higher focus on LCL cargo


LCL business throughput to remain significantWe 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(quarterly volumes handled in TEUs)

Exhibit 5: Allcargo's standalone MTO throughput(volumes handled in TEUs)

11,4

12

13,5

09

12,0

77

9,66

2

13,4

10

14,5

36

16,9

89

19,7

88

9,38812,481

11,79810,388

15,430 15,74816,323

16,856

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

FY04 FY05 FY06 9MCY06 CY07 CY08E CY09E CY10E

(TEUs)

LCL FCL


Operating leverage to improve ECU performancePost 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 corridorThe 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 IndiaInternational 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.

32,9

25

34,5

21

37,1

36

35,5

61

34,6

83

35,7

82

13,139 14,41417,063 16,095 16,575 14,740

-

10,000

20,000

30,000

40,000

50,000

60,000

Q1CY07 Q2CY07 Q3CY07 Q4CY07 Q1CY08 Q2CY08

(TEUs)

LCL FCL


Focus on CFS / ICD business to improve profitabilityAllcargo is now focussing more on the CFS/ICD business, given that its CFS division enjoys higher margins compared to the traditional NVOCC business. Although this division contributed only 5.8% to consolidated revenue in CY07, PBIT contribution was much higher 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)

120 120 120 144 144 144

50 50 84 8450 5050 503030 3084 84

363636

0

100

200

300

400

500

600

FY06 9MCY06 CY07 CY08E CY09E CY10E

(Thousands)

JNPT Chennai Mundra Pithampur (Indore)

Dadri (NCR) Nagpur Hyderabad Bangalore


83 77

127

187

250

281

0

50

100

150

200

250

300

FY06 9MCY06 CY07 CY08E CY09E CY10E

(Thousands)

Exhibit 8: Containers handled to increase 1.5x (in '000 TEUs pa)

CFS division, which enjoys higher PBIT margins (47.6% in CY07) compared to the MTO business (9.4%) is expected to post a revenue CAGR of 30.8% over CY07-10E


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

Others5%

JNPT61%

Kandla2%

Cochin4%

Kolkata4%

Tuticorin7%

Chennai17%

JNPT Chennai Tuticorin Kolkata Cochin Kandla Others

Allcargo's Contribution in CY07 (No of containers handled)

CFS TEU

JNPT 114,601

Chennai 8,539

Mundra 4,294

Total 127,434

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

% holding Total Amount (fully diluted) (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

EBIDTA CY08 (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

Instrument Number of shares

Conversion Price (Rs)

Conversion Price (Rs)

Amt payable (Rs mn)

Total Amt including FCCD & Equity shares (Rs mn)

*Conversion Price is linked to consolidated EBIDTA of CY08


10


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.

11

Equipment hiring division to enhance service portfolioThe company's increased focus on its equipment division, by virtue of the recently merged project and equipment business of Transindia Freight Services (a promoter-owned company) with itself, is also expected to yield attractive returns. Allcargo issued 2.1mn equity shares as consideration to the shareholders of TransIndia in a share swap ratio of 518:100.

The acquisition is a perfect fit to Allcargo's existing CFS and MTO businesses with an established client base. The division was primarily engaged in the business of transporting containers and project related cargo; hiring out cranes, trailers and other infrastructure equipments as well as port handling equipments (general cargo and containerised cargo).

Exhibit 11: Equipment fleet Equipment Dec-07 Jun-08Cranes 18 51Forklifts 40 51Reach stackers 6 18Trailers 233 333


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 infrastructure development in India. Allcargo has a fleet of 51 cranes with capacities ranging from 25–750 tonnes. It has lined up an aggressive capex plan of Rs1bn to increase its fleet to 75 by end CY08 and has secured the funding through Axis Bank. The crane hiring business is lucrative with high operating margins at 43.5% and an asset turnover ratio of 0.48x. We estimate this division to generate 32.3% revenue CAGR from Rs242mn to Rs560mn over CY07-09E.

Allcargo's crane fleet is fairly diversified and includes all terrain cranes, crawler, telescopic and 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.

Exhibit 12: Sectoral allocation of fleetSector % of fleet

Oil & Gas 56

Windmills 21

Infrastructure 10

Cement 8CFS 5


Project cargo business to see increased tractionAllcargo, 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.

Allcargo Global Logistics 12

Investment Risks vA severe economic downtrend could hamper trade across countries and impact LCL

cargo volumes against our expectation.

vFall in infrastructure spend and delays in development by government and private players could impact infrastructure capacities and slow trades, impacting growth in future.

vCapex plan for CFS/ICDs funded through Blackstone could be hurt with the company not converting the outstanding warrants and delaying the capacity expansion, given the prevailing financial market conditions.


Financial AnalysisExhibit 13: Consolidated segmental estimatesSegmental Revenue (Rs mn) CY07 CY08E CY09E CY10E

MTO 14,959 18,677 21,055 23,036CFS 934 1,414 1,842 2,091Equipment Hire 242 392 518 560Total Revenue 16,135 20,483 23,415 25,687

Revenue contribution (%)MTO 92.7 91.2 89.9 89.7CFS 5.8 6.9 7.9 8.1Equipment Hire 1.5 1.9 2.2 2.2

Segmental PBIT (Rs mn)MTO 738 1,208 1,411 1,589CFS 444 683 909 999Equipment Hire 105 118 166 190Unallocated expenses (85) (200) (235) (250) Other Income 51 64 77 90PBIT 1,254 1,872 2,328 2,618

PBIT Margins (%)MTO 4.9 6.5 6.7 6.9CFS 47.6 48.3 49.3 47.8Equipment Hire 43.5 30.0 32.0 34.0Total PBIT margin (%) 7.8 9.1 9.9 10.2

PBIT Contribution (%)MTO 57.3 60.1 56.8 57.2CFS 34.5 34.0 36.6 36.0Equipment 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

25,687

23,415

20,483

16,135

10,000

12,500

15,000

17,500

20,000

22,500

25,000

27,500(Rs mn)

CY07 CY08E CY09E CY10E

MTO CFS Equipment Hire


13


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

8.8

10.611.7 11.9

4.75.6

6.1 6.5

0

2

4

6

8

10

12

14


(%)

EBIDTA margin (%) NPM %

29.7% net profit CAGR over CY07-10EWe 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

766 1,143 1,437 1,671

28.9

43.2

63.1

54.2

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800


(Rs mn)

0

10

20

30

40

50

60

70(Rs)

Adj Net Profit (Rs mn) EPS Diluted (Rs) (RHS)



14


Valuation AnalysisAttractive at current levelsThe 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


Peer comparisonWe 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 Adjusted

Book Value Per Share

Return on Equity

Price/EPS Adjusted

EV/EBITDA

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)

15

0

5

10

15

20

25

No

v-0

7

Dec

-07

Jan

-08

Feb

-08

Mar

-08

Ap

r-0

8

May

-08

Jun

-08

Jul-

08

Au

g-0

8

Sep

-08

Oct

-08

No

v-0

8

Dec

-08

PE EV/EBIDTA

0

2

4

6

8

10

12

14

No

v-07

Dec

-07

Jan

-08

Feb

-08

Mar

-08

Ap

r-08

May

-08

Jun

-08

Jul-

08

Au

g-0

8

Sep

-08

Oct

-08

No

v-08

Dec

-08


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(Promoter)

Mr. Adarsh Hegde Executive Director

Mr. Umesh Shetty Executive Director

Mr. Ashit Desai Director – Corporate Affairs

Mr. Akhil Gupta Executive Director

B.Com graduate. He started his career in the logistics industry in 1978. Worked 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

A Mechanical Engineer with over 20 years of experience in MTO, CFS and Project Cargo business.

A Bachelor of Commerce graduate and has more than 17 years of experience in the fields of cargo and logistic business.

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. 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

16

17

Financial StatementsProfit & Loss Account (Consolidated)



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.

18

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


19

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


20


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 valuationAllcargo 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 23EBIT 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%






NCA 28

Aegis Logistics (FY11E)

EV 18 CMP (Rs) 67










NCA 13


BUY


11 December 2008

CMP: Rs38*

INDIA

Key Data





Source: Bloomberg


Bloomberg Code TRPC IN

Reuters Code TCIL.BO

O/S Shares (mn)

Diluted Shares (mn)

72.572.5


52 Wk H / L (Rs) 185/30


Face Value (Rs) 2

1 US$ = Rs49.0


Transport Corp (19.7) (53.6) (73.0)Nifty (6.4) (38.1) (53.4)

Target Price: Rs51

We believe Transport Corporation of India (TCI) is well-placed to capitalise the opportunities arising from increasing trend towards outsourcing logistics activities. A 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 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 rating and target price of Rs51, a 34% upside from current levels.

Increasing outsourcing trend in logistics With companies cutting costs, there has been an increasing trend in outsourcing of logistics activities to specialist and third party logistics (3PL) players. The growth in outsourcing trend is also fuelled by change in the mindset of corporates with companies now focusing on their core competencies and outsourcing the entire supply chain management.

Well-placed to capitalise on emerging opportunitiesTCI is well-placed to capitalise on the emerging opportunities in the supply chain management space and offers a wide range of value-added services. We estimate the company to register 14.5% revenue and 17.1% PAT CAGR over FY08-11E. Its transportation division, which is the backbone for 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.

Focus on high-margin segments to improve profitabilityThe company 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 transportation business over the years from 66% in FY04 to 54% in FY08. 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 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.

Well integrated


Key Financials

Initiating Coverage

Y/E March (Rs mn)Net Sales % GrowthEBIDTA EBIDTA Margin (%)PAT (Rs mn)PAT Margin (%)EPS Diluted (Rs)P/E diluted (x)EV/EBIDTA (x)EV/Sales (x)RoE (%)RoCE (%)

FY07 FY08 FY09E FY10E FY11E



Foreign, 14.5

Institutions, 1.4

Non Promoter Corp. Hold., 1.8

Promoters, 67.5


20

40

60

80

100

120

140


TRANSPORT CORP NIFTY

Note: Financials for FY07 are standalone and figures from FY08 onwards are consolidated Source: Company, Centrum Research

10,853 12,428 14,112 16,205 18,66220.0 14.5 13.6 14.8 15.2700 858 912 1,086 1,2986.5 6.9 6.5 6.7 7.0306 330 317 402 5302.8 2.7 2.2 2.5 2.84.2 4.5 4.4 5.5 7.39.0 8.4 8.7 6.9 5.26.8 5.8 5.5 4.7 3.80.4 0.4 0.4 0.3 0.3

25.5 18.7 13.7 15.4 17.811.1 9.6 8.7 10.0 11.7

Transport Corp. of India

Investment Rationale Increasing trend towards outsourcing logistics activities With companies cutting costs, we are seeing increasing trend in outsourcing of logistics activities to specialist and third party logistics (3PL) players . The growth in outsourcing trend 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 playersvNegligible capital expenditure required to set up standalone logistics infrastructure vAccess to world-class processes, products, services and technologiesvIncreases flexibility and improves ability to react quickly to changes in the business

environmentvAllows companies to focus on their core business vImproves productivity, efficiency and customer servicevLower operating costsvExchange of fixed costs with variable costsvAccess to resources not available in one's own organisation, or too costly to invest in

Integrated logistics vs mere transportation providersWe 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

Overall supply chain visibility and optimization for the customer

§ Improved delivery performance

§ Reduced inventory

§ Reduced fulfillment cycle time

§ Increased overall productivity

§ Lowered supply chain costs

§ Improved order fill rates

§ Improved capacity utilisation

Supplier Customer Customer’s

Customercustomer

Traditional 3PL value proposition

Cost

Cost reduction

reduction

§ Transport cost reduction §

Operational efficiency

Supplier Customer

Customer’s

Customercustomer

Source: Kuehne + Nagel Investors presentation (April 27, 2007)

23

Demand for integrated logistics service providers is expected to increase given the trend towards outsourcing by companies to cut cost and improve performance


Simplified tax regime to boost warehouse outsourcingThe 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 is well-placed to capitalise on the emerging outsourcing opportunities in the entire 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-doorservice, high valuedocuments and parcels

Consulting, cold chain,warehousing, distribution,

Coastal cargo, stevedoring,NVOCC services

Nascent, High growth, knowledge based, singlewindow

High margins

Entry Barriers Low High Very high High

Revenue 6,695 3,224 1,825 627

PBIT (inc other inc) 215 205 106 101

PBIT margins (%) 3.2 6.4 16.0

Capital Employed 1,403 852 882

5.8

921

Industry Scenario Fragmented, mature, low margins

Growth, niche, costefficiency,

Financials FY08 (Rsmn)


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.

24

TCI’s infrastructure backbone provides support to offer integrated logistics services


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 profitabilityTCI 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

6152 53 53 51 49 47

23

24 24 26 27 27 28

8 1015 16 17 195

45 5 5 6

16 12 82 1 1 1

0

20

40

60

80

100

(%)

FY05 FY06 FY07 FY08 FY09E FY10E FY11E

Freight Express Supply chain Costal Shipping Trading (Fuel stn)


25


SCS division to lead the growth on the back of warehousing capabilitiesTCI 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.

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, Haryana

Tata Motors 69,000

Dec-06 Hoshiarpur, Punjab

International Tractors

110,000

Mar-08 Panvel, Mumbai

Major TyreManufacturer

90,000

?Spare parts distribution of passenger car business unit (PCBU) for North India

?70% of the inbound materials from Pune and rest from Gurgaon

?Vendor managed Inventory warehouse?Manage Inventory for spare parts?functions on a "5th day inventory level"

?Excise / customs bonded warehouse?Exports of tyres, inbound logistics

Source: Company

Exhibit 24: Warehouse capacity plans of major 3PL companies (mn sq ft)

JV to have presence in lucrative European coastal shipping business 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 a 3480DWT ship deployed in European waters.

In the European Union, coastal shipping accounts for 43% share of cargo transportation and is rising further. The JV has helped TCI enter the lucrative European costal shipping business. Moreover, the company has already received a dividend of around Rs7mn from the JV in FY08, the first year with only 6-7 months of operation.

Currently, TCI owns a fleet of five vessels with a total capacity of 16,600 DWT, apart from the 3,480 DWT ship in Europe on account of the JV. The company also plans to buy one ship every 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.

Ship Name Capacity (DWT)

TCI Surya 4,508

TCI XPS 4,442

TCI Arjun 3,194

TCI Shakti 2,158

TCI Lakshmi 2,298

Total Owned 16,600

Ann-Sofie Scan (JV) 3,480Total (owned + JV) 20,080

Exhibit 26: TCI shipping fleet details

Source: Company

26


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 businessWith 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 RoITCI 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 warehousesThe 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 divisionTCI 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

25.5

18.7

13.715.4

17.8

11.19.6 8.7

10.011.7

1

6

11

16

21

26

31


(%)

ROE ROCE Source: Company, Centrum Research

27


Investment RisksHigher 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 economyThe 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.

28


Financial AnalysisExhibit 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 FY08-11EWe 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

18,662

16,20514,112

12,46410,867

02,0004,000

6,0008,000

10,00012,00014,000

16,00018,00020,000


(Rsmn)

Freight XPS SCS Seaways Others


29


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

6.56.9

6.5 6.7 7.0

2.8 2.72.2 2.5

2.8

1

2

3

4

5

6

7

8


(%)

EBIDTA margin (%) NPM %


30


Valuation AnalysisAttractively valued at three-year lowAt 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


31

0

5

10

15

20

25

30

35

40

45

Nov

-07

Dec

-07

Jan-

08

Feb

-08

Mar

-08

Apr

-08

May

-08

Jun-

08

Jul-0

8

Aug

-08

Sep

-08

Oct

-08

Nov

-08

Dec

-08


Company BackgroundTransport 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

XPS (Express)

Supply Chain Solutions

Global

Seaways

Transystem Logistics International

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.

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.

A Single-window enabler providing customised supply chain solutions. Dedicated verticals for Auto, Retail, Telecom, Electricals, Pharmaceuticals, FMCG and Cold Chain.

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.

Specialised in coastal shipping. Scheduled services from East coast to Andaman and Nicobar

A TCI-Mitsui JV, sole logistics partner for Toyota Kirloskar Motors in India.

Source: Company

32

33


Source: Company, Centrum Research* 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

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

34




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

35



Note: # Cash flow for FY08 is unavailable as the company shifted its financial from standalone to consolidated basis


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

36




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 3.8EV/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


37Transport Corp. of India


EV 219 CMP (Rs) 450










NCA 103


EV 100 CMP (Rs) 38










NCA 62


EV 40 CMP (Rs) 67










NCA 28


BUY

Aegis Logistics

11 December 2008

CMP: Rs67*

INDIA

Key Data





Source: Bloomberg


Bloomberg Code AGIS IN

Reuters Code AEGS.BO

O/S Shares (mn)

Diluted Shares (mn)

19.919.9


52 Wk H / L (Rs) 404/44


Face Value (Rs) 10

1 US$ = Rs49.0


Aegis Logistics (16.2) (67.4) (77.5)Nifty (6.4) (38.1) (53.4)

Target Price: Rs102

Aegis Logistics is a leading player in oil and gas logistics and is well-placed to benefit from the expanding business opportunities in this space. Its foray into autogas retail 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 and the company's foray into service contracts with oil marketing companies are key growth drivers that would boost the company's revenues going forward. We initiate coverage on the stock with a Buy rating and target price of Rs102, which provides 52% upside from current levels.

Capacity expansion in liquid logistics to help ride the oil consumption boomAegis will likely benefit from its brownfield and greenfield capacity expansions meant to cater to the rising demand for liquid logistics. We estimate this division to register 11.9% 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. It 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 port. It also benefits from the huge petroleum traffic handled at the Mumbai Port, second highest after Kandla.

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 logical extension to its bulk 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. 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.

Robust growth visibility, attractive valuationsAt 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 stock with a Buy rating and target price of Rs102 at 3x FY11E EPS and 2.4x EV/EBIDTA. 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.

Niche player


Initiating Coverage

Key Financials


Y/E March (Rs mn) FY07 FY08 FY09E FY10E FY11E

Net Sales% GrowthEBIDTAEBIDTA Margin (%)PATPAT Margin (%)EPS Diluted (Rs)P/E diluted (x)EV/EBIDTA (x)EV/Sales (x)RoE (%)RoCE (%)



Foreign, 7.3Institutions, 2.6

Non Promoter Corp. Hold., 5.3

Promoters, 63.3


20

70

120

170

220

270


AEGIS LOGISTICS NIFTY

2,404 3,893 5,400 6,428 7,58955.6 61.9 38.7 19.0 18.1299 683 786 925 1,110

12.4 17.5 14.6 14.4 14.6215 384 449 544 6789.0 9.9 8.3 8.5 8.9

10.8 19.3 22.6 27.3 34.16.2 3.5 3.0 2.5 2.05.9 3.1 2.7 2.3 1.80.7 0.5 0.4 0.3 0.3

19.9 28.3 26.2 26.0 26.615.6 20.5 19.0 19.8 21.0

Aegis Logistics

Investment RationaleHigher capacity in liquid to help ride oil consumption boomAegis will likely benefit from its brownfield and greenfield capacity expansions meant to cater to the rising demand for liquid logistics. We estimate this division to register 11.9% 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

vIt plans to expand its current capacity at Trombay by building additional storage facilities 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.

vAegis has also been allotted land near the Haldia Port to develop a greenfield liquid 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

vIn June 2006, the company acquired a 75% stake in Sealord Containers, an Adani Group company, and developed a total capacity of 75,000kl, near Trombay in Mumbai. This facility became fully operational in Sep 2007.

vFurther, in Mar 2007, it acquired a 100% stake in Konkan Storage Systems at Kochi and developed a liquid storage capacity of 51,000kl. This facility was operational by March 2008.

Exhibit 33: Increasing capacity in liquid logistics ('000 kl)

0

100

200

300

400


39

162 162 162 162 162 162 162

75 75 75 75 75

51 51 51 51

56 56

40

FY06 FY07 FY08 FY09E FY10E FY11E FY12E

Trombay I Trombay II (Sealord) Kochi Trombay III Haldia

Liquid logistics revenue expected to register 11.9% CAGR over FY08-11E on back of higher storage capacity

Aegis Logistics

Locational advantageAegis 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#

POL (mnT) 168.94 37.07

Chemicals (mnT) 4.89 0.96

Total in (mnT) 173.83 38.04

Total in (mnKL) @ 139.06 30.43

Aegis Throughput (mnKL) @ 2.3 1.9

Market share (%) 1.7% 6.2%

Port mn tonnes

Kandla 38.2

Mumbai 37.1

Kolkata 22.4

New Mangalore 21.8

Visakhapatnam 19.8

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).

40

Aegis Logistics

Exhibit 36: Consumption and gross import of crude oil in India (mn tonnes)

103 107113

122127 130

147156

7479 82

9096 99

112122

50

70

90

110

130

150

170

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)

743 730 932 9391535 1439277 488

494 733

591 552689

713818

859

1167 1225

702972

10371270

1005 1346

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

FY02 FY03 FY04 FY05 FY06 FY07

Chemicals Import Chemicals Export PetChem Import PetChem Export

Source: Ministry of Chemicals & Fertilisers, Centrum Research

41

Aegis to benefit from increasing consumption of oil and gas in IndiaWe 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.

Aegis Logistics

Exhibit 38: Fast roll-out of auto-gas stations

314

38

80

100

124

0

20

40

60

80

100

120

140

FY06 FY07 FY08 FY09E FY10E FY11E


Focus on tier II citiesAegis 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: Company42

Retailing of auto-gas - a future growth driver We view automotive LPG (auto gas) retailing as the future growth driver for Aegis, as this is a 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.

Aggressive roll out of auto-gas station to fuel 27.4% revenue CAGR in the gas division over FY08-11E

Aegis Logistics

Franchise model to increase presence without significant capexAegis 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

Mn tonnes Litres

1st Year 400 720,000 1,500 1.75 1.26

2nd Year 600 1,080,000 2,250 1.75 1.89

3rd Year 800 1,440,000 3,000 1.75 2.52

4th Year 1,000 1,800,000 3,750 1.75 3.15Total cash inflow (Rsmn) 8.82

Return (Rsmn)

Expected cashflow for a dealer

Sales per station p.a. No of cars catchment area*

Dealer’s Margin (Rs/ltr)

*Assumptions for calculating cars required in catchment areaAverage 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

43

Aegis Logistics

Governmental thrust on use of green fuel to boost demand of auto gasAnother 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 fuelsDue 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.

Parameter Auto LPG CNG

Fuel Quality Stable Quality, since produced in Refineries under controlled conditions.

Varying composition since it is supplied direct from 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 conditions.

Due to impurities, adverse engine performance under high speed and heavy load conditions.

Availability Can be made available in any part of the Country by installing Storage facility.

Available only on select cities where pipeline has been laid.

Cost of Dispensing infrastructure

Rs 4mn at an existing Retail Outlet Rs 15mn at an existing Retail Outlet.

Cost of conversion Rs 15,000 to Rs 25,000 Rs 35,000 to Rs 40,000 (3 /4 wheelers)

Source: IOC, Centrum Research

44

Exhibit 42: Advantages of auto-gas over CNG

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 IndiaSales

(‘000 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

Sales per station p.a. (tonne)

Year No of LPG Stations % growth

Source: IOC, IAC, Centrum Research

Aegis Logistics

Investment RisksDiversion of liquid traffic to other major portsUnder 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 pricesPetrol 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 fuelDomestic 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 concernsThe 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.

45

Aegis Logistics

Financial Analysis


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 FY08-11EWe 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


46

Exhibit 43: Consolidated segmental estimates

1,916 3,209 4,619 5,491 6,631

488

683

781

938

958

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000


(Rs mn)

Gas division Liquid Logistics

Aegis Logistics

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

215 384 449 544 678

9.9%

8.5%

8.9%

8.3%

9.0%

100

200

300

400

500

600

700

800

FY07 FY08 FY09E FY10E FY11E8

8

9

9

10

10(%)

Net Profit NPM (RHS)


47

Aegis Logistics

Valuation AnalysisRobust growth visibility, attractive valuationsAt 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


48

02468

101214161820

Nov

-07

Dec

-07

Jan-

08

Feb

-08

Mar

-08

Ap

r-08

May

-08

Jun-

08

Jul-0

8

Aug

-08

Sep

-08

Oct

-08

Nov

-08

Dec

-08

PEEV/EBIDTA

0

2

4

6

8

10

12

Nov

-07

Dec

-07

Jan-

08

Feb

-08

Mar

-08

Ap

r-08

May

-08

Jun-

08

Jul-0

8

Aug

-08

Sep

-08

Oct

-08

Nov

-08

Dec

-08

Aegis Logistics

Company BackgroundAegis 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 DivisionAegis 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 DivisionThe 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

Opportunities Threats

· Over 30 years of experience in handling chemical and petroleum products

· Niche player in the logistics value chain and only listed player in liquid and gas logistics.

· Strategic location of Mumbai facility

· 2nd largest private player in auto-gas distribution after Reliance Industries.

· Highly dependent on Mumbai Port's traffic for liquid logistics services

· PSU oil companies dominate the auto-gas retailing market and are the price maker

· Dependent on franchise model to expand its retail auto-gas business

· Devolvement of various private ports to provide an opportunity to expand its liquid logistics services

· Key clients like HPCL & BPCL are developing refineries at new locations can provide an opportunity for O&M (operation & mgt.) contracts

· Increasing consumption of oil & gas. India likely to become the world's 3rd-largest net importer of oil by 2025

· Emphasis on green and alternate fuel to benefit auto-gas business

· Diversion of liquid traffic to other major ports

· Rise in crude oil prices coupled with continued petrol subsidy may make use of auto-gas unviable

· Use of domestic LPG for automotive consumption

· Availability of cheaper fuels like natural gas once gas pipelines are laid across the country.

49

Source: Company

50




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

51




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

52





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

53



Aegis Logistics

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 7.5Cash/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


54Aegis Logistics


EV 550 CMP (Rs) 450

M Cap 599 Revenue 1,291 EV/Sales 0.4x





Cash 124

EBIT 127 D/E 0.1xCapital Employed 650 Depreciation 27



NCA 259


EV 251 CMP (Rs) 38










NCA 156


EV 100 CMP (Rs) 67










NCA 70


55

Sector OverviewExhibit 48: Logistics contributed to the thrust in GDP

CAGR 14%

Largely unorganisedLargest public sector mover – IR ~17%

Private sector share ~ 75%

Rs2,462bnRs1,282bn

Road

Rail

Sea

Air

Services

Storage69%

17%

4%

2% 7% 1%

65%

19%

4%

3%8% 1%

2001-02 2006-07

2006-07 2011-12

Rs2,462bn Rs6,628bnCAGR 22%

Transformation in - Railway haulage – entry of private players

- Services to boom by outsourcing (Warehousing, CFS, ICD,

3PL)

69%

17%

4%

2% 7% 1%

60%23%

3%

2%

10% 2%

Road

Rail

Sea

Air

Services

Storage

Source: CSO, Centrum Research

Exhibit 49: Rail led transformation to alter logistics pie

Source: CSO, Centrum Research

Logistics Sector

Logistics in India is largely road movement. With rapid road-building under NHDP, road transport more than doubled during FY02-07

Crucial initiatives that allowed private players & flexible freight pricing will enable rail to take the lead ahead

56

20,5628,714Total

16997Gas

22448Storage

31068Airports

880141Ports

1,437648Water Supply and Sanitation

2,5331,115Irrigation (incl. Watershed)

2,6181,197Railways (incl. MRTS)

2,5841,034Telecommunication

3,1421,449Roads and Bridges

6,6652,919Electricity (incl. NCE)

11th Plan10th PlanSectors

20,5628,714Total

22448Storage

31068Airports

880141Ports

1,197Railways (incl. MRTS)

1,449Roads and Bridges

11th Plan10th PlanSectors

Logistics Infrastructure will receive Rs7,173bn impetus

6.5% 7.5%

With a terminalYear @ 8.8% of GDP

Logistics cost as a % of GDP

10 th Plan 11 th Plan

Exhibit 50: th11 Plan impetus will provide the transformation

Source: Planning Commission (Rsbn at 2006-07 price)

Exhibit 51: Weeding out inefficiencies can uncover hidden cost

Logistics Cost in India as a % of GDP

Captured cost Un captured cost

6.0%

0.1%

0.4%

6.0%

0.1%

0.5%

Freight

Storage

Services

Freight

Storage

Services

1.8% MTO

0.1% Logistics Park, CFS

0.3% 3PL, SCM

2.0%

0.7%

0.2%

3.1%Transit delays

Transit inefficiencies

Wastage

Regulatory hurdles

- Ushering of GST

- Abolition of Octroi

- High-tech storage soln

- Integrated warehouses

- Organised freight

- High tonnage trucks & rakes

- Containerisation

6.5% 8.8%

FY07 FY12

6.0%

Key enablers

of GDP of GDP

Producer

Packing Freightre

delivery

Consum

er

Warehousing packing

AirSeaRail

Road

LoadingStuffingClearing

CWC, SWCCFS, ICDTank fieldLogistics park

Transshipment

UnloadingDe-stuffingClearing

Incidental services

Exhibit 52: The logistics value chain

Logistics Sector

With an estimated share of 6.5% of GDP, we expect logistics to account for 7.5% share of

ththe GDP during the 11 Plan

We expect enablers to weed out “un-captured” costs that add to the burden borne by the economy

Logistics is a fairly simple chain entrapped in a wide array of services. When synchronized these services ensure a smooth flow of goods



3,142

2,618

57

Road

Rail

Port (import)

Originating freight

13.6 mn ton/day(2011-12)

8.5 mn ton/day

4.0 mn ton/day

1.1 mn ton/day

110 mn tonStorage

requirement

550 mn sq.ft.Warehousing

space400 mn sq.ft

(2007-08)150 mn sq.ft

Development potential ahead

~ 10 day inventory(excluding items like

perishables, coal,minerals, etc)

cer

Exhibit 53: Logistics services to grow on storage space backbone

Exhibit 54: Multi-specialty services hover on the space

150 mn sq.ft.

Tank fields

Food grains Cold chain

storage

CFS, ICD

Logistics park Industry specific warehousing

Rs250bn Creation & revamp+ Rs40bn Tech & equip

Oil cos

MTO, F/F

CWC, SWC

3PL, Retail

Rail, MTO

Retail, Auto

Warehousing (Development and Regulation) Act, 2007 vThe government has enacted the Warehousing (Development and Regulation) Act, 2007 to

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.

vWRs will have the potential to unleash a new form of credit in the rural economy which often struggles to cope with providing any reliable form of collateral/ security against credit.

vThe benefits for the farmer are immense as they can now avoid distress sale of their produce 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.

vWR will spur other related activities, like standardization, grading, packaging and insurance 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

As the economy grows, we expect storage space in India to be enhanced by 150mn sqft (up 37.5%) by FY12

Multiple users will occupy the storage space to run their own services. The creation of this infrastructure will entail Rs290bn expenditure



58

0.3 mn ton/dayPrivate players4.0 mn ton/day

Loading on Train

(2011-12) 3.7 mn ton/dayIR + Concor

150 rakesrequirement+ 70 (future)

Infrastructure creation ofRs2,618bn

National Bulk Handling Corp. - Warehouse Project (Rs50bn)

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)

APFE Dev. Authority - Agri Export Centre (Rs25bn)

Exhibit 56: Investment intents seen

Exhibit 55: Rail haulage with private efforts

Exhibit 57: Investment – return matrix

Services

Operations

Infrastructure

Short

Medium

Long

High

Medium

Low

Low Medium High

Expected Bulge

TransportersWarehouses

TransportersWarehouses

GovernmentPvt. players

GovernmentPvt. players

GTA, CHAMTO

GTA, CHAMTO

Investment

Co

mp

etition

Ret

urn

per

iod


Source: Industry, Centrum Research


Logistics Sector

New private train operators are planning to drive-in with about 220 rakes which will run on the augmented rail network

Many projects are taking shape. Not all can be listed. We highlight some of the important ones here

The investment return matrix for the Logistics industry is expected to bulge at centre. The bulge is about higher competition, greater investments and faster returns

59

DisclaimerCentrum Broking Pvt. Ltd.(“Centrum”) is a full-service, Stock Broking Company and is a member of The Stock Exchange, Mumbai (BSE) and National Stock Exchange of India Ltd. (NSE). Our holding company Centrum Capital Ltd. is an investment banker and an underwriter of securities. As a group Centrum has Investment Banking, Advisory and other business relationships with a significant percentage of the companies covered by our Research Group. Our research professionals provide important inputs into the Group's Investment Banking and other business selection processes.

Recipients of this report should assume that our Group is seeking or may seek or will seek Investment Banking, advisory, project finance or other businesses and may receive commission, brokerage, fees or other compensation from the company or companies that are the subject of this material/report. Our Company and Group companies and their officers, directors and employees, including the analysts and others involved in the preparation or issuance of this material and their dependants, may on the date of this report or from, time to time have "long" or "short" positions in, act as principal in, and buy or sell the securities or derivatives thereof of companies mentioned herein. Our sales people, dealers, traders and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinion that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. We may have earlier issued or may issue in future reports on the companies covered herein with recommendations/ information inconsistent or different those made in this report. In reviewing this document, you should be aware that any or all of the foregoing, among other things, may give rise to or potential conflicts of interest. We and our Group may rely on information barriers, such as "Chinese Walls" to control the flow of information contained in one or more areas within us, or other areas, units, groups or affiliates of Centrum.

This report is for information purposes only and this document/material should not be construed as an offer to sell or the solicitation of an offer to buy, purchase or subscribe to any securities, and neither this document nor anything contained herein shall form the basis of or be relied upon in connection with any contract or commitment whatsoever. This document does not solicit any action based on the material contained herein. It is for the general information of the clients of Centrum. Though disseminated to clients simultaneously, not all clients may receive this report at the same time. Centrum will not treat recipients as clients by virtue of their receiving this report. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Similarly, this document does not have regard to the specific investment objectives, financial situation/circumstances and the particular needs of any specific person who may receive this document. The securities discussed in this report may not be suitable for all the investors. The securities described herein may not be eligible for sale in all jurisdictions or to all categories of investors. The countries in which the companies mentioned in this report are organized may have restrictions on investments, voting rights or dealings in securities by nationals of other countries. The appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives. Persons who may receive this document should consider and independently evaluate whether it is suitable for his/ her/their particular circumstances and, if necessary, seek professional/financial advice. Any such person shall be responsible for conducting his/her/their own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involved in the securities forming the subject matter of this document.

The projections and forecasts described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. Projections and forecasts are necessarily speculative in nature, and it can be expected that one or more of the estimates on which the projections and forecasts were based will not materialize or will vary significantly from actual results, and such variances will likely increase over time. All projections and forecasts described in this report have been prepared solely by the authors of this report independently of the Company. These projections and forecasts were not prepared with a view toward compliance with published guidelines or generally accented accounting principles. No independent accountants have expressed an opinion or any other form of assurance on these projections or forecasts. You should not regard the inclusion of the projections and forecasts described herein as a representation or warranty by or on behalf of the Company, Centrum, the authors of this report or any other person that these projections or forecasts or their underlying assumptions will be achieved. For these reasons, you should only consider the projections and forecasts described in this report after carefully evaluating all of the information in this report, including the assumptions underlying such projections and forecasts.

The price and value of the investments referred to in this document/material and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide for future performance. Future returns are not guaranteed and a loss of original capital may occur. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. Centrum does not provide tax advise to its clients, and all investors are strongly advised to consult regarding any potential investment. Centrum and its affiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report. Foreign currency denominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived from the investment. In addition, investors in securities such as ADRs, the value of which are influenced by foreign currencies effectively assume currency risk. Certain transactions including those involving futures, options, and other derivatives as well as non-investment-grade securities give rise to substantial risk and are not suitable for all investors. Please ensure that you have read and understood the current risk disclosure documents before entering into any derivative transactions.

This report/document has been prepared by Centrum based upon information available to the public and sources, believed to be reliable. No representation or warranty, express or implied is made that it is accurate or complete. Centrum has reviewed the report and, in so far as it includes current or historical information, it is believed to be reliable, although its accuracy and completeness cannot be guaranteed. The opinions expressed in this document/material are subject to change without notice and have no obligation to tell you when opinions or information in this report change.

This report or recommendations or information contained herein do/does not constitute or purport to constitute investment advice in publicly accessible media and should not be reproduced, transmitted or published by the recipient. The report is for the use and consumption of the recipient only. This publication may not be distributed to the public used by the public media without the express written consent of Centrum. This report or any portion hereof may not be printed, sold or distributed without the written consent of Centrum. Neither this document nor any copy of it may be taken or transmitted into the United State (to U.S.Persons), Canada, or Japan or distributed, directly or indirectly, in the United States or Canada or distributed or redistributed in Japan or to any resident thereof. The distribution of this document in other jurisdictions may be restricted by law, and persons into whose possession this document comes should inform themselves about, and observe, any such restrictions. Neither Centrum nor its directors, employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information.

Logistics Sector

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www.centrum.co.in

CENTRUM BROKING PVT LTD

Contact Details

Harendra Kumar Head Research +91-22-6724 9620 [email protected]

V. Krishnan Sales +91-22-6724 9658 +91 98216 23870 [email protected]

Ashish Tapuriah Sales +91-22-6724 9675 +91 99675 44060 [email protected]

Chirag Vora Sales +91-22-6724 9677 +91 98207 63682 [email protected]

Key to Centrum Investment rankings:

Buy : Expected to outperform Nifty by >15%, Accumulate : Expected to outperform Nifty by +5 to15%, Hold : Expected to outperform Nifty by

-5% to + 5% , Reduce : Expected to underperform Nifty by 5 to 15%, Sell : Expected to underperform Nifty by >15%

60

REGD. OFFICE Address Bombay Mutual Bldg.,2nd Floor, Dr. D. N. Road, Fort, Mumbai - 400 001

Member (NSE, BSE), Depository Participant (CDSL) and SEBI registered Portfolio Manager

Regn NosCAPITAL MARKET SEBI REGN. NO.: BSE: INB 011251130, NSE: INB231251134

DERIVATIVES SEBI REGN. NO.: NSE: INF 231251134 (TRADING & SELF CLEARING MEMBER)CDSL DP ID: 12200. SEBI REGISTRATION NO.: IN-DP-CDSL-20-99

PMS REGISTRATION NO.: INP000000456Website:

Investor Grievance Email ID: [email protected]

+91 98210 86742

Logistics Sector

Documents

Centrum - Great Report on Logistic Players and Indian Logistics