Detailed Rationale

CRISIL Ratings has reaffirmed its ratings on the long-term bank facilities and non-convertible debentures amounting to Rs 941.8 crore (including Rs 150 crore NCDs) of Allcargo Logistics Limited (Allcargo; a part of the Allcargo group) at ‘CRISIL AA/Stable’ and also reaffirmed the short-term rating at ‘CRISIL A1+’.

 

CRISIL Ratings has also withdrawn its rating on Rs 100 crore of long-term bank facility, following a withdrawal request from Allcargo and receipt of ‘no objection’ from the lender for the movement of the said facility out of Allcargo. The long-term rating on Rs 200 crore of long-term bank loan facilities continues at ‘Rating Watch with Developing Implications’ as this facility too in parts will move out of Allcargo, post demerger, as indicated earlier by the management. CRISIL Ratings continues to engage with the management and lenders for the receipt of required documents as well as to understand the business, financial risk profile, bifurcation of debt, cash and other assets and liabilities moving out to Transindia Realty & Logistics Parks Ltd (TRL), and Allcargo Terminal Ltd (ATL); post which the watch will be resolved.

 

Post de-merger, Allcargo houses the container consolidation business (under international supply chain segment), express logistics (under subsidiary, Gati Limited), and contract logistics (under 61% JV, Avvashya Supply Chain Private Limited [ASCPL]) businesses; whereas the container freight stations (CFS)/inland container depot (ICD) business has been de-merged into a new company - ATL while the asset-heavy businesses viz. equipment rental, logistics parks and other real estate assets have moved into TRL.

 

The ratings continue to reflect the strong business and financial risk profile of Allcargo which will house the flagship and globally leading LCL consolidation business in the international supply chain market, which is well supported by the forward and backward integration benefits from the express logistics business and contract logistics.

 

Allcargo’s operating performance has moderated during the first quarter of fiscal 2024 owing to the moderation in global freight environment with falling freight rates and sluggish volumes. Resultantly, consolidated revenue moderated to Rs 3,346 crore (including contract logistics) with EBITDA of Rs 116 crore at 3.5% margins. CRISIL Ratings expects moderate industry conditions to persist over the medium term before meaningful improvement begins supporting Allcargo’s international supply chain business. Its express logistics business under Gati will continue the healthy traction with improving profitability while the contract logistics business under ASCPL is expected to remain steady over the medium term.

 

Allcargo’s financial risk profile remained strong as of March-2023 with net debt free balance sheet (debt of Rs 709 crore and cash surplus of Rs 1456 crore), strong interest cover of ~18 times and adjusted gearing of 0.25 times. Liquid surplus level has temporarily moderated to Rs 1,049 crore with debt rising to Rs 1,061 crore as of June-2023 following payment of Rs 406.5 crore in May-2023 for acquisition of remaining 30% stake in the express logistics JV, Gati Kintetsu Express Pvt Ltd (Gati KWE) which was funded through cash surplus and term loan of Rs 200 crore. Also, a payment of Rs 163 crore in May-2023 was undertaken for acquiring the remaining stake in ASCPL while receiving Rs 39 crore for sale of 61% stake in Avvashya CCI Logistics Private Limited (ACCI). It has further paid Rs 174 crore in August-2023 for acquiring additional 25% stake in ECU Worldwide (Nordicon) AB. Financial risk profile and liquidity should improve over the near-to medium term with release in working capital with moderate cash accruals and maintenance capex despite the amount spent for stake increases in respective businesses.

Analytical Approach

• For arriving at the ratings of continuing Allcargo, CRISIL Ratings has combined the business and financial risk profiles of Allcargo and its 133 subsidiaries (which represent the MTO business) as well as Gati Limited (the surface transport business). This is because the entities, collectively referred to as the Allcargo group, are under a common management and have strong financial and operational linkages. CRISIL has also combined the business and financial risk profiles of contract logistics business operated through, its 61% joint-venture, Avvashya Supply Chain Private Limited (ASCPL), as it is in a similar business with operational linkages and under the same management.
• Furthermore, CRISIL Ratings has amortised goodwill on acquisitions made by the group, over five years from the date of each acquisition. For Gati Ltd, goodwill of Rs 224 crore has been amortised beginning fiscal 2020 while for Nordicon and Speedy, Rs 92 and Rs 33 crore has been amortised beginning fiscal 2022.
• CRISIL Ratings has adjusted earnings before interest, tax, depreciation, and amortisation (EBITDA) by excluding lease rental components with depreciation and finance costs to comply with IndAS116 on lease accounting. Accordingly, CRISIL Ratings has not included lease liabilities in debt.

 

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:

• Established position in the global international supply chain and express logistics businesses: The company is India’s largest, and a leading global operator, in the international supply chain container consolidation business, backed by a strong global network. It is the largest player in the Less than Container Load (LCL) consolidation industry holding about 15% market share globally having achieved higher than global trade volume growth through market share gains and improved efficiencies over the years. It connects 2,500 direct trade lanes providing value to small and large freight forwarders. The segment benefitted from healthy volume growth and improved realisation during pandemic years which continued till the first half of fiscal 2023 but moderated subsequently impacting Allcargo’s operating performance.

 

Besides, the company is a leading player in the express logistics segment in India, through its subsidiary, Gati. Gati is one of the largest express logistics companies having extensive coverage in India and offers transportation solutions, e-commerce, trade inventory management, freight forwarding, and cold chain solutions. The company increased its stake in Gati KWE, the express logistics JV by buying-out the remaining 30% stake for Rs 406.5 crore in May-2023. It also operates a healthy contract logistics business through ASCPL, in which it acquired the remaining ~39% stake in May-2023 for Rs 163 crore and exited the freight forwarding business by selling off its 61% stake in Avvashya CCI Logistics Private Limited for Rs 39 crore.

 

• Integrated logistics player with presence across diversified segments: The Allcargo group has a diversified business risk profile with three major segments ― international supply chain, express logistics, and contract logistics — contributing 89%, 9%, and 2%, respectively, to the total revenue in fiscal 2023. The group earlier had presence in domestic CFS/ICD, warehousing, project and equipment business which has now been de-merged into other two new entities.

Gati’s extensive reach provides vertical integration to the MTO business which, along with the contract logistics businesses, enhances the group’s ability to offer integrated transportation and logistics solutions to its diversified clientele, thus enhancing the business risk profile.

 

• Healthy financial risk profile:  Continuing Allcargo’s financial risk profile remains healthy as of March 31, 2023 with gross debt of Rs 709 crore and cash surplus of Rs 1,456 crore with healthy cash accruals, and favourable movement of working capital items. Gearing stood at about 0.25 times with adjusted interest cover of ~18 times for fiscal 2023.

 

Liquid surplus has temporarily moderated to Rs 1,049 crore with debt rising to Rs 1,061 crore as of June-2023 following payment of Rs 406.5 crore in May-2023 for acquisition of remaining 30% stake in Gati KWE (part funding it through Rs 200 crore term loan), payment of Rs 124 crore (net of sale of ACCI stake) in May-2023 for acquiring the remaining stake in ASCPL, and paid Rs 174 crore in August-2023 for acquiring additional 25% stake in Nordicon AB. Financial risk profile and liquidity should improve over the near-to medium term with release in working capital with moderate cash accruals and maintenance capex despite the amount spent for stake increases in respective businesses.

 

Weaknesses:

• Volatility in EXIM trade: The NVOCC business is directly linked to global EXIM trade and hence a significant reduction could weaken the business by constraining profitability per twenty-foot equivalent unit. Sluggishness in EXIM trade, in case of a steep fall in global trade, could impact freight volumes, freight rates and profitability.

 

• Strong competition in MTO and surface transport business: The MTO business is exposed to strong competition from large carriers as well as aggregators like Allcargo who have strong local presence. Also, the surface transport business in India too faces stiff competition from new entrants who enjoy strong financial backing as well as established players in the industry. While the company’s global presence and strong experience in operating the logistics business provides comfort, it continues to be impacted by the stiff competition in the industry.

Liquidity: Strong

Liquidity is supported by substantial cash generation and asset-light business, cash surplus of Rs 1049 crore as on June 30, 2023 and average bank limit utilisation (average utilisation of the fund-based limit for the group was 15% during the six months through May-2023). Healthy liquidity, strong cash accrual, nominal capex and debt repayments should keep liquidity strong over the medium term.

 

ESG Profile

CRISIL Ratings believes that Allcargo’s Environment, Social, and Governance (ESG) profile supports its already strong credit risk profile.

 

The logistics sector has a relatively higher impact on the environment because of the inherent nature of assets utilized for the physical delivery of goods. However, given Allcargo is a leading LCL consolidator, its direct impact on environment is limited vis-à-vis its partners and customers who might have higher impact. The company though has a social impact because of its large and diverse workforce. Allcargo has continuously focused on mitigating its environmental and social impact. 

 

Key ESG highlights:

• ESG disclosures of the company are evolving, and it is in the process of further strengthening the disclosures going forward.
• Allcargo began releasing its ESG report from fiscal 2020 setting out qualitative parameters of the ESG emphasizing its commitment to creating a better world
• Through its CSR arm, Avashya Foundation, it is working to bring about inclusive development in six focus areas: Health, Education, Environment, Women Empowerment, Sports and Disaster Relief, through its network of reliable partner NGOs who are doing incredible work on the ground.
• Company has planted more than 710,000 trees through Avashya Foundation’s Maitree initiative
• Company has 50% women in the workforce in its global subsidiary, ECU Worldwide and endeavours to achieve similar levels in other group companies
• It has adequate governance structure with 50% of its board comprising independent directors and extensive disclosures.

 

There is growing importance of ESG among investors and lenders. Allcargo’s commitment to ESG principles will play a key role in enhancing stakeholder confidence, given its high share of market borrowings in its overall debt and access to both domestic and foreign capital markets.

Outlook: Stable

CRISIL Ratings believes the Allcargo group will sustain its strong business risk profile as an integrated logistics player and benefit from diversified revenue streams over the medium term.

Rating Sensitivity factors for facilities rated CRISIL AA/Stable

Upward factors

• Steady revenue growth and sustained operating margin above 8-8.5%, resulting in healthy cash accruals
• Continued improvement in debt metrics, supported by better cash generation and debt reduction from proceeds of monetisation of assets

 

Downward factors

• Moderation in the business risk profile, including due to weak operating performance (operating margins below 5%), owing to slowdown in trade volumes, impacting cash flows
• Large, debt-funded capex or acquisition, resulting in sustained and significant weakening in debt/EBITDA from current levels
• Any large cash outflow in the form of dividend or share buyback or large acquisition affecting liquidity

 

Rating sensitivity factors for facilities rated CRISIL AA-/RWDI

Upward factors

• Strengthened business risk profile comprising large portfolio of lease generating assets with high occupancy rates and rentals, resulting in higher cashflows
• Substantial improvement in debt metrics with sustained debt/EBITDA below 0.5 times and adequate liquidity
• Movement of debt facilities to the entity having a stronger credit profile

 

Downward factors

• Lower operating performance and cashflows due to lower rentals or occupancy in leased assets
• Weakening of debt metrics with debt/EBITDA consistently above 1.25-1.5 times, on account of lower operating performance or higher debt-funded expansion plans or delay in deleveraging plan
• Exposure to implementation or leasing risk related to new assets under development.
• Movement of debt facilities to the entity having a weaker credit profile

In April 2020, Allcargo completed acquisition of 46.8% stake in Gati entering the express logistics business which complements its international supply chain business. Gati was 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 operating more than 5402 scheduled routes. It possesses an integrated, multi-modal network of surface, air and rail along with warehouses spread across India. The company’s offerings include transportation solutions, e-commerce, trade inventory management, freight forwarding and cold chain solutions operated through various subsidiaries and JVs.

 

For the first quarter of fiscal 2024, Continuing Allcargo reported consolidated net profit of Rs 119 crore on revenue of Rs 3,271 crore, against Rs 260 crore and Rs 5,474 crore, respectively, in the corresponding period previous fiscal.

Key Financial Indicators*

Particulars	Unit	2023	2022
Operating income	Rs crore	18392	19062
Profit after tax (PAT)	Rs crore	598	947
PAT margin	%	3.2	4.6
Adjusted debt/adjusted networth	Times	0.25	0.51
Adjusted interest coverage	Times	18.12	16.20

*For continuing Allcargo including ASCPL

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN	Name of Instrument	Date of Allotment	Coupon Rate (%)	Maturity Date	Issue Size (Rs.Cr)	Complexity Level	Rating Assigned with Outlook
NA	Buyers Credit*	NA	NA	NA	34	NA	CRISIL AA/Stable
NA	Term Loan-1&	NA	NA	14-Jan-27	100	NA	Withdrawn
NA	Term Loan-2	NA	NA	Oct-25	192	NA	CRISIL AA/Stable
NA	Term Loan-3&&	NA	NA	30-Sep-26	200	NA	CRISIL AA-/Watch Developing
NA	Proposed Term Loan	NA	NA	NA	169.83	NA	CRISIL AA/Stable
NA	Bank Guarantee**	NA	NA	NA	83.2	NA	CRISIL A1+
NA	Cash Credit#	NA	NA	NA	368	NA	CRISIL AA/Stable
NA	Stand By Letter of Credit	NA	NA	NA	27.97	NA	CRISIL AA/Stable
NA	Non-convertible debentures^	NA	NA	NA	150	Simple	CRISIL AA/Stable

#Fully interchangeable with overdraft facility/inland bills discounting/working capital loan

*Fully interchangeable with letter of credit

** Fully interchangeable with WCDL/inland LC

& Rs 61.08 crore has been repaid till March 31, 2023

&& Rs 80.0 crore has been repaid till September 30, 2023

^Not placed yet

Annexure – List of entities consolidated

	Names of Entities Consolidated	Extent of Consolidation	Rationale for Consolidation
1	Avvashya CCI Logistics Pvt Ltd (formerly, CCI Integrated Logistics Pvt Ltd)	Full	62% JV in similar line of business
2	Gati Limited	Full	Subsidiary
3	Gati- Kintetsu Express Private Limited	Full	Subsidiary
4	Gati Logistics Parks Private Limited	Full	Subsidiary
5	Gati Import Export Trading Limited	Full	Subsidiary
6	Gati Project Private Limited	Full	Subsidiary
7	Contech Logistics Solutions Pvt. Ltd	Full	Subsidiary
8	Comptech Solutions Pvt. Ltd.	Full	Subsidiary
9	TransIndia Realty & Logistics Parks Limited	Full	Subsidiary
10	Ecu Worldwide (Argentina) SA	Full	Subsidiary
11	Integrity Enterprises Pty Ltd	Full	Subsidiary
12	FMA-Line Holding N. V.	Full	Subsidiary
13	Ecu International N.V.	Full	Subsidiary
14	HCL Logistics N.V.	Full	Subsidiary
15	AGL N.V.	Full	Subsidiary
16	Ecu Worldwide Logistics do Brazil Ltda	Full	Subsidiary
17	Ecu Worldwide (Chile) S.A	Full	Subsidiary
18	Ecu Worldwide (Guangzhou) Ltd.	Full	Subsidiary
19	China Consolidation Services Shipping Ltd  (Previously known as ‘Ecu Worldwide China Ltd’)	Full	Subsidiary
20	Nordicon Terminals AB	Full	Subsidiary
21	ECU WORLDWIDE (CZ) s.r.o.	Full	Subsidiary
22	Flamingo Line del Ecuador SA	Full	Subsidiary
23	Ecu Worldwide (El Salvador) S.P. Z.o.o S.A. de CV	Full	Subsidiary
24	ELWA Ghana Ltd.	Full	Subsidiary
25	Ecu Worldwide (Hong Kong) Ltd.	Full	Subsidiary
26	CCS Shipping Ltd.	Full	Subsidiary
27	Ecu Worldwide Italy S.r.l.	Full	Subsidiary
28	Ecu Worldwide (Cote d'Ivoire) sarl	Full	Subsidiary
29	Jordan Gulf for Freight Services and Agencies Co. LLC	Full	Subsidiary
30	Ecu Shipping Logistics (K) Ltd.	Full	Subsidiary
31	Ecu Worldwide (Mauritius) Ltd.	Full	Subsidiary
32	Ecu Worldwide Mexico SA de CV	Full	Subsidiary
33	Ecu Worldwide (Netherlands) B.V.	Full	Subsidiary
34	FCL Marine Agencies B.V.	Full	Subsidiary
35	Ecu Worldwide (Panama) S.A	Full	Subsidiary
36	Flamingo Line del Peru SA	Full	Subsidiary
37	Ecu International (Asia) Pvt. Ltd.	Full	Subsidiary
38	Zen Cargo Movers Private Limited	Full	Subsidiary
39	Antwerp Freight Station n.v. (Previously known as Ecu Global Services N.V.)	Full	Subsidiary
40	Ecu Worldwide (Cyprus) Ltd.	Full	Subsidiary
41	Ecu - Worldwide - (Ecuador) S.A.	Full	Subsidiary
42	Ecu World Wide Egypt Ltd	Full	Subsidiary
43	ECU WORLDWIDE (Germany) GmbH	Full	Subsidiary
44	Ecu Worldwide (Guatemala) S.A.	Full	Subsidiary
45	Ecu International Far East Ltd.	Full	Subsidiary
46	PT Ecu Worldwide Indonesia	Full	Subsidiary
47	Eurocentre Milan srl.	Full	Subsidiary
48	Ecu Worldwide (Japan) Ltd.	Full	Subsidiary
49	Ecu Worldwide (Kenya) Ltd	Full	Subsidiary
50	Ecu Worldwide (Malaysia) SDN. BHD.	Full	Subsidiary
51	CELM Logistics SA de CV	Full	Subsidiary
52	Ecu Worldwide Morocco S.A	Full	Subsidiary
53	Rotterdam Freight Station BV	Full	Subsidiary
54	Ecu Worldwide New Zealand Ltd	Full	Subsidiary
55	Ecu-Line Paraguay SA	Full	Subsidiary
56	Ecu-Line Peru SA	Full	Subsidiary
57	Ecu Worldwide (Poland) Sp zoo	Full	Subsidiary
58	Ecu-Line Saudi Arabia LLC	Full	Subsidiary
59	Ecu Worldwide (South Africa) Pty Ltd	Full	Subsidiary
60	ECU Worldwide Lanka (Private) Ltd.	Full	Subsidiary
61	Ecu Worldwide (Thailand) Co. Ltd.	Full	Subsidiary
62	Ecu Worldwide Turkey Taşımacılık Limited Şirketi	Full	Subsidiary
63	Ecu-Line Abu Dhabi LLC	Full	Subsidiary
64	Star Express Company Ltd.	Full	Subsidiary
65	Ecu Worldwide (Uruguay) S.A.	Full	Subsidiary
66	Guldary S.A.	Full	Subsidiary
67	Econocaribe Consolidators, Inc (Previously known as ‘DBA Ecu Worldwide (USA) Inc.’)	Full	Subsidiary
68	ECI Customs Brokerage, Inc.	Full	Subsidiary
69	Asia Line Ltd	Full	Subsidiary
70	Prism Global Ltd.	Full	Subsidiary
71	Nordicon AB	Full	Subsidiary
72	Ecu Worldwide (Philippines) Inc.	Full	Subsidiary
73	Ecu-Line Doha W.L.L.	Full	Subsidiary
74	Ecu - Worldwide (Singapore) Pte. Ltd	Full	Subsidiary
75	Ecu-Line Spain S.L.	Full	Subsidiary
76	Ecu Worldwide (BD) Limited	Full	Subsidiary
77	Société Ecu-Line Tunisie Sarl	Full	Subsidiary
78	Ecu-Line Middle East LLC	Full	Subsidiary
79	Eurocentre FZCO	Full	Subsidiary
80	Ecu Worldwide (UK) Ltd	Full	Subsidiary
81	CLD Compania Logistica de Distribucion SA	Full	Subsidiary
82	PRISM GLOBAL, LLC	Full	Subsidiary
83	Econoline Storage Corp.	Full	Subsidiary
84	OTI Cargo, Inc.	Full	Subsidiary
85	Administradora House Line C.A.	Full	Subsidiary
86	Ecu Worldwide Vietnam Joint Stock     Company	Full	Subsidiary
87	Ecu-Line Zimbabwe (Pvt) Ltd.	Full	Subsidiary
88	Contech Transport Services (Pvt) Ltd	Full	Subsidiary
89	Eculine Worldwide Logistics Co. Ltd.	Full	Subsidiary
90	FMA-LINE Nigeria Ltd.	Full	Subsidiary
91	FMA Line Agencies Do Brasil Ltda	Full	Subsidiary
92	Oconca Container Line S.A. Ltd.	Full	Subsidiary
93	ECU WORLDWIDE SERVICIOS SA DE CV	Full	Subsidiary
94	ECU Worldwide CEE S.R.L	Full	Subsidiary
95	Ecu Worldwide Baltics	Full	Subsidiary
96	East Total Logistics B.V.	Full	Subsidiary
97	ECU Worldwide Tianjin Ltd	Full	Subsidiary
98	SPECHEM SUPPLY CHAIN MANAGEMENT (ASIA) PTE. LTD	Full	Subsidiary
99	Asiapac Logistics Mexico SA de CV	Full	Subsidiary
100	Gati Hong Kong Limited	Full	Subsidiary
101	ALX Shipping Agencies India Private Limited	Full	Subsidiary
102	ECUNORDICON AB	Full	Subsidiary
103	NORDICON A/S	Full	Subsidiary
104	Allcargo Logistics LLC	Full	Subsidiary
105	Ecu Worldwide (Uganda) Limited	Full	Subsidiary
106	FCL Marine Agencies Belgium bvba	Full	Subsidiary
107	Allcargo Hongkong Limited	Full	Subsidiary
108	Almacen y Maniobras LCL SA de CV	Full	Subsidiary
109	ECU TRUCKING, INC.	Full	Subsidiary
110	Allcargo Logistics Africa (PTY) LTD	Full	Subsidiary
111	AGL Bangladesh Private Limited	Full	Subsidiary
112	Ecu Worldwide (Bahrain) Co. W.L.L.	Full	Subsidiary
113	PAK DA (HK) LOGISTIC Ltd	Full	Subsidiary
114	Allcargo Logistics FZE	Full	Subsidiary
115	Allcargo Logistics China Ltd.	Full	Subsidiary
116	Gati Asia Pacific Pte Ltd.	Full	Subsidiary
117	Gati Cargo Express (Shanghai) Co. Ltd.	Full	Subsidiary
118	RailGate Nordic AB	Full	Subsidiary
119	Fair Trade Gmbh Schiffhart, handel und Logistik	Full	Subsidiary
120	Asiapac Equity Investment Limited	Full	Subsidiary
121	Asiapac Logistics El Salvador	Full	Subsidiary
122	Allcargo Tanzania	Full	Subsidiary
123	Ecu-Line Algerie sarl	Full	Subsidiary
124	Ecu Worldwide Australia Pty Ltd	Full	Subsidiary
125	Ecu Worldwide (Belgium) N.V	Full	Subsidiary
126	Ecuhold N.V.	Full	Subsidiary
127	Allcargo Belgium N.V.	Full	Subsidiary
128	Ecu Worldwide (Canada) Inc.	Full	Subsidiary
129	Flamingo Line Chile S.A.	Full	Subsidiary
130	China Consolidation Services Ltd	Full	Subsidiary
131	Ecu Worldwide (Colombia) S.A.S.	Full	Subsidiary
132	Asia Pac Logistics DE Guatemala S.A.	Full	Subsidiary
133	Asia Express Line GmbH	Full	Subsidiary
134	ASIAPAC TURKEY TASIMACILIK ANONIM SIRKETI	Full	Subsidiary