The rapid growth of e-commerce, foreign direct investment, implementation of Goods and Services Tax (GST) may help logistics industry achieve higher growth rate in the coming years. A recent ICRA report pointed out that a growth rate of 9-10% may be achieved in the medium term aided by government thrust on building multi-modal transportation infrastructure.
In an emerging economy, the logistics industry plays a vital role in moving raw materials, inventory and goods across the country. The industry comprises inbound and outbound segments of the manufacturing and outbound supply chains.
With the implementation of latest IT and technology solutions, moving towards hub and spoke arrangements can contribute towards better efficiency for the industry. Amidst the positive trends seen, here is a look at the potential of some of the players in logistics.
Allcargo Logistics Ltd (BSE:532749, NSE: ALLCARGO) Category: Mid Cap
Allcargo Logistics was established in 1993 by Shashi Kiran Shetty as a shipping agency house providing freight forwarding services. It comes under the Avvashya Group and now provides global multimodal transport operations pan India container freight stations, inland container depots, third party logistics, warehousing, ship owning and chartering. It operates across 160 nations through 300 or more offices.
Recently, the company had set a revenue target of US$2 bn by 2020. It is going to increase its focus in domestic space by entering the last-mile delivery space and aims to treble domestic revenue to Rs 1500 cr by 2020, according to Chairman Shashi Kiran Shetty.
The company, a global leader in the LCL (less than container load) and FCL (full container load) segment through its European arm ECU Worldwide, will also invest around Rs 1,000 crore to double its exim warehousing/ CFS stations and logistics park capacity to 10 million sqft by 2020.
It reported a net profit growth of 4.18% at Rs 63.57 cr while earnings per share (EPS) has risen to Rs 2.49. Sales rose 6.44% to Rs 1,483.43 cr. On a returns perspective, it is trailing behind peers on monthly, quarterly and half-yearly basis with negative returns. Financial ratios present a mixed picture with return on equity of 12.93% and assets of 7.82% and net profit margin of 4.15% which is above industry average. Liquidity and cash flow ratios are a cause for concern. It is trading at a Price Earnings Multiple (PE) of 38.27 suggestive of moderate to high pricing by market.
On technical charts, Relative Strength Index (RSI) of 54.39 is neutral to bullish, while MACD line has witnessed a bullish crossover and Average Directional Index of 13 indicates range bound trading. It is trading close to 50 DMA of 169.95.
Target: 185 Duration : 5 weeks Strategy: Buy/Hold
Snowman Logistics Ltd (BSE: 538635, NSE: SNOWMAN) Category: Small Cap
Snowman Logistics Ltd was established in 1993 and is now a leading integrated temperature controlled logistics service provider operating across locations servicing customers on a pan-India basis. They have temperature controlled warehouses adjacent to cities with a large potential for sourcing and consumption of temperature sensitive products in larger cities such as Mumbai, Chennai, Bengaluru and Kolkatta. It has a total warehousing capacity of 103,600 pallets. New facilities are being set up at Krishnapatnam and Sricity, which will become operational in 2017-18. For the year 2016-17, it reported a loss of Rs 4.93 cr as against a profit of Rs 20.61 cr. The company continues to be hopeful on economic growth prospects and implementation of GST which will be good for logistics.
The June quarter results are also not encouraging. On a returns perspective, monthly returns of 4% are comparable with peers but quarterly and half- yearly returns aren’t encouraging.
On technical charts, RSI of 63.25 is bullish while MACD has witnessed a bullish crossover while ADX of 15.25 indicates range bound trading while stochastic indicator of 31 indicates bearish trend. Currently, trading above 50 DMA of 51.44.
Target : 67 Duration : 6 weeks Strategy: Buy/Hold
VRL Logistics Ltd (BSE: 539118, NSE: VRLLOG) Category: Mid Cap
VRL Logistics was founded in 1976 by Dr Vijay Sankeshwar in Gadag, a small town in North Karnataka with a single truck. From a humble beginning it has grown into a nationally renowned logistics and transport company which is a also currently the largest fleet owner of commercial vehicles in India with 4360 vehicles. The promoter is now assisted by his son Anand Sankeshwar and the company has also entered Limca Book of Records for being the largest fleet owner of commercial vehicles.
The company saw its net profit fall to Rs 70.47 cr in 2016-17 compared to Rs 104.24 cr the previous year although total income rose to Rs 1812.38 cr. In June quarter, net profit has risen 27.47% to Rs 33. 74 cr while sales rose 7.99% to Rs 491.87 cr. On a returns perspective, 10.68% on a quarterly basis and 2.15% on is better than peers. It is trading at a PE of 40, which means a higher valuation by market.
On technical charts, RSI of 49.89 is neutral while ADX of 13.90 indicates range bound trade and trading close to 50 DMA of 357.50. MACD has witnessed a bearish crossover while stochastic indicators are bearish.
Target : 390 Duration: 6 weeks Strategy: Hold/Buy
TCI Express Ltd (BSE: 540212, NSE: TCIEXP) Category: Mid Cap
TCI Express was established in 1996 and now is a fully integrated logistics company. It enables speed movement of cargo with hub and spoke arrangement, GPS enabled vehicles, large fully containerised fleet of vehicles connecting over 3000 pick-up and 1500 delivery locations.
In June quarter net profit rose 37.74% to Rs 12.12 cr while sales rose 14.88% to Rs 203.17 cr. On a returns perspective,11% monthly, 5% quarterly, 24.81% half-yearly outperforms competitors. Financial ratios present a mixed picture with return on equity at 25.44% and liquidity quite low, so also cash flows.
On technical charts,RSI of 60.57 is bullish, while MACD has witnessed a bullish crossover and ADX of 28 denotes uptrend and stochastic indicators are bullish. Currently trading above 50 DMA of 525.
Target: 600 Duration: 4 weeks Strategy: Buy/Hold
With the government announcing 25% increase in allocation for infrastructure, more investments are to come in roads, ports, and automation. Dedicated rail freight corridor and GST implementation are seen spurring the growth of the logistics industry. The government is setting up 35 multi-modal logistics parks near to manufacturing centres and ports.
The industry suffers from poor integration of transport networks, lack of technology upgradation, different regulations in different places and lack of trained man power. With more perishable goods being transported the requirement for temperature cooled vehicles is also huge.
However, these challenges can be overcome as huge opportunities are there to the tapped for existing players and they are continuing to expand.