| Allcargo Logistics Limited | ||||||
| Long-term rating placed on ‘Watch Developing’; short-term rating reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has placed its rating on the long-term bank facilities and non-convertible debentures of Allcargo Logistics Limited (Allcargo; part of the Allcargo group) on 'Rating Watch with Developing Implications' and reaffirmed its ‘CRISIL A1+’ rating on the short-term bank facilities.
The rating action follows the recent announcement that the company's board of directors has approved a scheme of demerger, wherein the container freight stations (CFS)/inland container depot (ICD) business will be de-merged into a new company Allcargo Terminals Pvt Ltd (ATL) and the equipment rental, logistics parks and other real estate assets will be demerged into TransIndia Realty & Logistics Parks Ltd (TRL). The three companies will have mirror shareholding. Each shareholder of Allcargo will be issued shares of ATL and TRL in a 1:1 ratio.
As per the proposed scheme, the new Allcargo will house the flagship and globally leading LCL consolidator in the international supply chain business (under the multi-modal transport operations [MTO] segment), express logistics (under subsidiary Gati Ltd [Gati]), contract logistics (under 61% JV, Avvashya CCI Logistics Pvt Ltd [ACCI]), and project management businesses, totaling revenue of Rs 8,145 crore or 96% share of the Allcargo group's revenue for the first six months of fiscal 2022 and ~80% of earnings before interest, taxes, depreciation and amortisation (Ebitda) with operating margin of 5.7%. The new Allcargo will hold only ~54% share of total capital employed with debt primarily comprising working capital debt and cash and equivalent held at ECU Worldwide.
CRISIL Ratings notes that credit risk profile of the new Allcargo will continue to be supported by its leadership position in the MTO business backed by the last-mile connectivity provided by Gati and the contract logistics business. The financial risk profile post demerger would depend on bifurcation of assets and liabilities amongst the three companies as well as conclusion of Blackstone deal.
The group (including Gati) achieved revenue of Rs 8,731 crore in the first-half of fiscal 2022, along with Ebitda of Rs 557 crore and operating margin of 6.4% margin. The growth was led by strong performance in the MTO segment with revenue almost doubling to Rs 7,319 crore, supported by continued strong volume growth and higher realisation on the back of high freight costs. The MTO segment performance is expected to benefit from the acquisition of 65% stake in the Nordicon group in July 2021 at an enterprise value of EUR 32 million.
In the CFS/ICD segment, the group achieved revenue growth of 2% on-year in the first half of this fiscal supported by 49% volume growth while realisations moderated from the peak seen last fiscal. The group also announced acquisition of Speedy Multimodes for Rs 102 crore in November 2021, which will become accretive from the second quarter of this fiscal. Gati’s performance improved with healthy volume while improvement in utilisation supported the project and engineering (P&E) segment. ACCI continued to do well in the contract logistics business achieving sales of Rs 304 crore.
With debt-funded acquisition and higher working capital funding requirement this fiscal, the group’s debt (excluding leases) increased to Rs 1,730 crore as of September 2021 from Rs 1,652 crore as of March 2021. The construction of 4 million square feet warehouses as part of the Blackstone deal has been completed and pre-leased to marque clients along with lease rental discounting debt on the books. The deal is expected to be completed in 3-4 months pending certain approvals from the local authorities and is expected to result in inflow of Rs 250 crore which will be used for debt reduction. The deleveraging plan, which includes monetisation of completed, leased warehouses to Blackstone, sale of non-core assets and improvement in working capital debt, will be critical for improvement in debt metrics in the near term and would remain the key monitorables.
The group has streamlined Gati’s operations and divested non-core assets. Consequently, Gati’s debt declined to Rs 187 crore as on September 30, 2021, from Rs 397 crore as on March 31, 2020. Gati is likely to facilitate end-to-end transportation services for the group’s clientele and provide business synergies over the medium term.
Operating income grew 17% on-year in fiscal 2021 to Rs 10,929 crore while adjusted Ebitda grew to Rs 589 crore at 5.4% margin despite the pandemic. The improvement was supported by continued strong growth of 7% and 20% in volume and realisation, respectively, in the MTO business, improved realisation in the CFS/ICD segment, and better performance of the logistics park business and ACCI.
According to the management, the demerger is aimed to accelerate growth across businesses by creating independent business undertakings, improve access to capital, streamline operations, reduce costs and thereby unlock value in each business segment.
The demerger is likely to take 12-15 months subject to necessary statutory and regulatory approvals from stock exchanges, National Company Law Tribunal, Income Tax Authority, equity shareholders, lenders and creditors.
CRISIL Ratings is in discussion with Allcargo’s management to better understand the division of its assets, liabilities and debt facilities, and will remove the ratings from watch once there is better clarity and announce the final action once key regulatory approvals are obtained.
The ratings continue to reflect the Allcargo group’s diversified operations and established position in the global non-vessel owing common carrier (NVOCC), domestic CFS and courier service businesses. The ratings also factor in the group’s adequate financial risk profile because of steady annual cash-generating ability, though debt metrics are moderate. These strengths are partially offset by susceptibility to risks inherent in the logistics industry arising from volatility in export-import (EXIM) trade volume and delays in execution of projects impacting the performance of the P&E business. |
Analytical Approach
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
The group will likely sustain healthy volume growth and realisation this fiscal which will support revenue growth and profitability. The group will leverage its global network and bolt-on acquisitions which should help the NVOCC business grow steadily over the medium term.
The group is a leading player in the CFS segment, with stations at four major ports of India, an ICD at Dadri and a recently acquired CFS at Speedy Multimodes. Gati is one of the largest courier companies having extensive coverage in India and offers transportation solutions, e-commerce, trade inventory management, freight forwarding, and cold chain solutions, besides running fuel stations. Any substantial change in freight rates or EXIM volume may impact growth and will be a key monitorable.
Gati’s extensive reach provides vertical integration to the MTO business which, along with the diversified businesses, enhances the group’s ability to offer integrated transportation, logistics and warehousing solutions to its diversified clientele, thus enhancing the business risk profile. The group is setting up built-to-suit pre-leased Grade-A warehousing assets at strategic locations in various cities in India. A part of these will be sold to Blackstone on pre-agreed terms and the remaining leased out on a long-term basis. Rental income from the unsold and leased warehouses has diversified the cash flow.
Weaknesses:
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Liquidity: Strong Liquidity is supported by substantial cash generation (over Rs 500 crore per fiscal), cash surplus (Rs 361 crore as on September 30, 2021) and moderate bank limit utilisation (fund-based limit was utilised 75% on average during the eight months through October 2021). Cash accrual should comfortably cover debt obligation of Rs 343 crore in fiscal 2022 and Rs 236 crore in fiscal 2023. The group is not likely to undertake any major capital expenditure (capex) in fiscal 2022, except for completion of warehouses. Any large cash outflow from Allcargo in the form of dividend payout or share-buyback or large debt-funded acquisition will remain a key monitorable. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company The Allcargo group, promoted by Mr Shashi Kiran Shetty, provides logistics services such as NVOCC, CFS, ICD, warehousing, coastal shipping, project logistics and equipment leasing. As on March 31, 2020, the promoter group held 70.01% in Allcargo.
The group is an MTO operator and offers logistics services, such as consolidation of LCL and FCL cargo for exporters and importers. In 2003, it integrated forward into CFS operations. Since the acquisition of the Belgium-based ECU Line in 2006, the Allcargo group has emerged as a leading LCL consolidator in the world. In 2011, it acquired MHTC Ltd to strengthen its position in the P&E solutions business. In September 2013, the group acquired Econocaribe Consolidators to increase its presence in the US and its focus on FCL cargo. In May 2016, Allcargo sold its contract logistics, and its freight & forwarding and custom clearance business, housed in subsidiary Hindustan Cargo Ltd, on a slump-sale basis to ACCI, its JV with the promoters of CCI Logistics Pvt Ltd (CCI). CCI has transferred its warehousing business to the JV. In April 2020, Allcargo completed acquisition of 46.8% stake in Gati.
For the six months through September 2021, Allcargo had net profit of Rs 369 crore and revenue of Rs 8,427 crore, against Rs 88 crore and Rs 4,414 crore, respectively, in the corresponding period of the previous fiscal. |
About the Group Gati, founded in 1989, is one of India’s leading express distribution and supply chain solutions provider, with a strong presence in the Asia Pacific region and SAARC countries. It has an extensive network across India, covering 99% (672 out of 676) districts and more than 5,402 scheduled routes. It possesses an integrated, multi-modal network of surface, air and rail along with warehouses across India. The company’s offerings include transportation solutions, e-commerce, trade inventory management, and freight forwarding solutions operated through various subsidiaries and JVs.
For the first six months through September 2021, net profit was Rs 20 crore and revenue Rs 690 crore, against loss of Rs 46 crore and revenue of Rs 492 crore, respectively, in the corresponding period of the previous fiscal. |
Key Financial Indicators*
*CRISIL Ratings-adjusted numbers including Gati from fiscal 2020 |
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
#Fully interchangeable with overdraft facility/inland bills discounting/working capital loan *Fully interchangeable with letter of credit ** Fully interchangeable with working capital demand loan/inland letter of credit ^Not placed yet |
Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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#Fully interchangeable with overdraft facility/inland bills discounting/working capital loan
*Fully interchangeable with letter of credit
** Fully interchangeable with working capital demand loan/inland letter of credit
Criteria Details
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