Logistic Cover

Secular trends

India Logistics Ravindra Deshpande 10 August 2012 [email protected] +91 22 4062 6805 Elara Securities (India) Private Limited

Notes

Elara Securities (India) Private Limited India | Logistics 10 August 2012 Initiating Coverage

India Logistics

Secular trends Inefficient nature of domestic industry 100 Consistent rise in container traffic 18 10 31 80 9 25 Trends of India’s container traffic are showing definitive strength and 60 24 direction aided by strong EXIM traffic. EXIM trade in value terms has 25 15 (%) registered growth of 21.9% over the last five years. The increased port 40 9 49 50 capacities have driven the 10.4% CAGR in tonnage terms and 7.0% 20 35 growth in Twenty Foot Equivalent Unit (TEU) terms. Evidence shows 0 that India’s EXIM trade is insulated from the gyrations in currency and India China USA Transportation Warehousing we expect the same trend to continue going forward. Inventory Others (including losses) Improving logistics infrastructure & structural drivers Source: Cygnus, Elara Securities Research India traditionally has lacked logistics infrastructure. Logistics cost as a Rising EXIM traffic despite GDP variations (%) per cent of GDP in India is around 13%-14% as compared to 7%- 9% in 40 the developed countries. However, there have been winds of change 30 off late with the government’s thrust upon infrastructure investments 20

and increased presence of organized players. Tax sops, Free Trade 10

Warehousing Zones (FTWZs) and the long-awaited GST once 0 implemented would provide impetus for organized logistics players (10) with national presence. FY91 FY93 FY95 FY97 FY99 FY01 FY03 FY05 FY07 FY09 FY11 Companies beyond Capex; high FCF visibility EXIM Trade growth GDP Growth Interestingly, companies in our coverage (Gateway Distriparks, and Source: Industry, IPA, Elara Capital Research Allcargo) will leave behind a period of huge capex and will look to Container traffic is on the rise as well (TEUs) Global Markets Research monetise their assets. The business models have now become 9,000 integrated and attained a credible size. These businesses have a 8,000 significant lag and have an entry barrier to some extent. For an 7,000 economy of India’s size, these companies look to be structural 6,000 beneficiaries. Arshiya, although is into the capex, its unique business model and first mover advantage promise a strong cash generation 5,000 once the project attains the operationalisation stage. The leverage on 4,000 Arshiya’s balance sheet is likely to recede once the cash inflows start 3,000 FY08 FY09 FY10 FY11 FY12 with the phase wise commissioning of its Panvel and Khurja JNPT Chennai Tuticorin Kolkatta Cochin Others warehouses. Source: IPA, Elara Capital Research

Valuation We are optimistic on the stability of Gateway Distriparks operations Price performance and see its high cash generation and payout policy as reasons to 140 own the stock. Allcargo has robust growth outlook and a balance 120 sheet to support its price. Arshiya International is a high-risk high 100 return play which is fighting the bogey of debt and incident 80 concerns on its business model. We would urge investors to keep it (Rebased to 100) to (Rebased 60 in their radars, as we expect the concept of FTWZs gain credence Jul-12 Jan-12 Sep-11 Oct-11 Jun-12 Apr-12 Feb-12 Dec-11 Mar-12 Nov-11 May-12 Aug-12 progressively. We have a Buy on all the three companies. Aug-11 Sensex Gateway Distriparks Allcargo Arshiya International Source: Bloomberg Key Financials CMP Market Cap Target Upside/ P/E (x) EV/EBITDA (x) Price/ Book(x) Dividend Yield (%) ROE (%) (INR) (INR mn) price (INR) (Downside) (%) FY13E FY14E FY13E FY14E FY13E FY14E FY13E FY14E FY13E FY14E Gateway Distriparks 136 14,732 180 32.3 9.0 8.1 4.7 4.0 1.2 1.2 5.5 6.2 14.2 14.9 Allcargo 143 17,872 180 26.3 7.5 5.8 4.3 3.3 1.1 0.9 1.1 1.2 15.8 17.8 Arshiya 126 7,413 170 34.9 4.4 3.0 8.8 6.3 0.7 0.6 1.0 1.0 18.1 21.6 Source: Company, Elara Securities Estimate

Ravindra Deshpande • [email protected] • +91 22 4062 6805 Elara Securities (India) Private Limited India Logistics

Table of Content Executive Summary……………………………………………………………………………………………………………… 3 Secular trends……………………………………………………………………………………………………………………….. 5 Consistent rise in container traffic……………………………………………………………………………………… 8 Intensifying thrust on infrastructure………………………………………………………………………………….. 9 Government policies: Encouraging investment………………………………………………………………. 11 Valuation & Recommendation…………………………………………………………………………………………… 13

Company Section Gateway Distriparks

A safe bet………………………………………………………………………………………………………………………………. 15 Investment rationale……………………………………………………………………………………………………………. 18 Valuation & Recommendation…………………………………………………………………………………………… 22

Allcargo Global Logistics

Growth on wheels………………………………………………………………………………………………………………. 25 Investment rationale……………………………………………………………………………………………………………. 28 Valuation & Recommendation…………………………………………………………………………………………… 31

Arshiya International

Banking on warehousing…………………………………………………………………………………………………… 35 Investment rationale……………………………………………………………………………………………………………. 38 Valuation & Recommendation…………………………………………………………………………………………… 42

2 Elara Securities (India) Private Limited India Logistics

Executive Summary near ports. Except in rails the government has even allowed 100% FDI in the sector. FDI investments are Picking up momentum increasingly visible via the PE route. Everything is falling in place Clearly, things are finally falling in place for the Indian The Indian logistics industry is set to reap the benefits of logistics sector. The market size remains huge and scope the macro economic factors which are conducive for the for market share gains remains strong given the highly growth of organised players in the market. Although the fragmented setup. The improving state of infrastructure domestic logistics is ~USD90bn + industry, it suffers due in the country is likely to lead to firming up of margins to fragmented nature as well as lack of technological as widening the scope for technological investments in the also manpower investments. Hence, the logistics cost as sector. Better infrastructure is also likely to project India a percentage of GDP stands nearly double (at 13%) as as a favorable destination for transshipment cargo in the compared to the developed world. Therefore, we long term. The government’s tax policies as well as believe, companies investing in the right areas or having several other schemes, underscore the government’s a proven track record are likely to benefit due to growth willingness to incentivise investments in the sector. With in the domestic logistics sector. increasing volumes and improvement in the overall state of the industry, we believe players in the sector with Growth continues despite tepid GDP and rupee presence at strategic locations (e.g. CFS at Mumbai, The Indian logistic industry is characterised by lower Chennai ports) and track record of growth in the logistics containerisation (~20% vis a vis 75% in developed world) space will be clear winners. We have identified three Logistics which underscores inefficient nature of the industry. players in the logistics space viz Gateway Distriparks, However, the EXIM transport has been witnessing Allcargo Logistics and Arshiya International that are likely higher containerisation in the past decade or so. The to witness strong growth in the near future and are likely container traffic has registered growth despite to present an attractive investment opportunity. slowdown in the GDP growth rates or the volatility in the rupee. Similarly, the country is witnessing higher EXIM Gateway Distriparks: Beyond capex, towards huge cash flow generation traffic in value terms as well. In the last decade, EXIM trade in the country has registered strong growth of Gateway Distriparks is one of the largest private players 23.7% CAGR in value terms. The growth has been in the rail business, and also has Container Freight unabated throughout the decade notwithstanding Station (CFS) operations at key locations. It also operates rupee depreciation and slowdown in the GDP. Hence the only organised cold chain logistics business in the we believe higher containerisation as well as consistent country. It has shown a consistent track record of growth rise in the EXIM trade is likely to provide opportunities for in all segments. The PE investment in the rail business domestic logistic players. Companies having presence has turned around the segment, which was loss making. near Mumbai and Chennai ports (which handle ~75% of It has successfully delivered a positive PAT over the past EXIM traffic) are likely to be direct beneficiaries of this six quarters. The company generates strong operating growth. cash flows and doesn’t have any sizable capex lined up as of now. While the rail and CFS businesses are likely to Impetus of government on infrastructure provide growth, free cash generation is also likely to A common theme emerging from the last few 5-year remain strong. Management has a dividend payout plans of the central government is increasing thrust on policy that envisages high payouts, at the CMP; the yield the uplift of infrastructure in the country. Although at the works out to a handsome 5%. We are bullish on the execution level, targets have been missed, the general stock and recommend BUY with a target price of INR180. direction of infrastructure in the country has been Allcargo Logistics: On a firm footing forward. We maintain improvement in infrastructure will lead to overall efficiencies in the sector thereby attracting Allcargo Logistics (AGLL) has a proven track record in the higher investments. Less than Container Load (LCL) segment. It is one of the largest players in the segment globally with the Government policies: Incentivizing investments acquisition of ECULine business. Due to the nature of the The Indian government has been providing support for business, it is relatively unscathed in a lukewarm global investments in the logistics sector. There are several tax economic environment. The leadership position in the benefits available for companies investing in this sector segment also allows AGLL to command better margins. It including 80IA and 80IB (tax holiday for 10 years out of operates CFS at key locations of Mumbai and Chennai. first 15 years of operations). Similarly the government has The company is expanding its Mumbai CFS capacity also implemented several schemes such as SEZ and which is likely to propel growth in the segment. AGLL FTWZ, which provide incentives for companies to invest continues to maintain a strong financial position with no

Elara Securities (India) Private Limited 3 India Logistics

burden on the balance sheet and strong return as well relatively no differentiation in costs from CFS. However, as growth ratios. We recommend BUY on the stock with the FTWZ business currently is in investment phase with a target price of INR180. ongoing projects at Khurja (near Delhi) and Panvel (near JNPT, Mumbai). The capital intensity of these projects has Arshiya International: High risk with higher returns stretched balance sheet of ARST which currently has a Arshiya International (ARST) is the only sizable player net debt to equity ratio of ~2.5. We believe, going having operational FTWZ. ARST also has a strong ahead, the debt burden is likely to reduce, due to strong presence in the rail business and is likely to expand by profitability of the FTWZ business. Hence, we expect leasing additional rakes over the next two years. ARST to witness higher growth as well as superior We expect the FTWZ business to be highly profitable returns vis-à-vis peers. We recommend BUY on the stock given that the rents are usually double that of CFS and with a target price of INR170.

Exhibit 1: Peer analysis Logistics comparables Company Name CMP M Cap EV Revenues EBITDA Adj. PAT EPS ROE EV/EBITDA P/E CY12/ CY13/ CY12/ CY13/ CY12/ CY13/ CY12/ CY13/ CY12/ CY13/ CY12/ CY13/ CY12/ CY13/ USD USD mn USD mn FY13 FY14 FY13 FY14 FY13 FY14 FY13 FY14 FY13 FY14 FY13 FY14 FY13 FY14 Expeditors Intl 36.4 7,668 6,310 6,226 6,853 628 724 364 421 1.7 2.0 17.8 18.9 10.0 8.7 21.3 18.4 Uti Worldwide Inc 13.8 1,429 1,528 4,941 5,016 209 216 81 90 0.8 0.9 9.2 9.1 7.3 7.1 17.2 15.7 Qube Logistics 1.6 1,446 1,510 805 1,034 118 173 62 82 0.1 0.1 7.5 8.3 12.3 8.4 20.7 17.2 Dalian Port (PDA) 0.2 1,823 3,280 664 725 299 327 125 142 0.0 0.0 6.1 6.4 10.9 9.9 7.8 6.8 Sinotrans 0.1 575 809 7,764 8,402 287 376 117 142 0.0 0.0 6.8 7.8 2.8 2.2 5.0 4.0 Average 9.5 10.1 8.7 6.6 14.4 12.4

Gulf Warehousing 11.2 446 598 133 164 37 47 19 25 0.5 0.6 9.9 13.0 16.2 12.7 23.6 17.7 Royal Wolf 2.2 221 296 161 170 46 49 20 22 0.2 0.2 12.9 13.7 6.5 6.0 11.3 9.9 Zhangjiagang 1.8 383 354 68 77 40 46 24 28 0.1 0.1 23.5 21.3 9.0 7.9 15.3 13.4 Freetrade

Average 17.5 18.1 10.0 8.5 14.6 12.0

Indian comparables

(INR mn) CMP Revenues EBITDA PAT EPS (INR) ROE (%) EV/EBITDA (x) P/E (x) M Cap EV (INR) FY13E FY14E FY13E FY14E FY13E FY14E FY13E FY14E FY13E FY14E FY13E FY14E FY13E FY14E Gateway Distriparks 136 14,732 13,935 8,832 10,150 2,991 3,308 1,631 1,822 15.1 16.8 14.2 14.9 4.7 4.0 9.0 8.1 Allcargo 143 17,872 19,384 36,813 42,772 4,662 5,483 2,387 3,107 19.0 24.8 15.8 17.8 4.3 3.3 7.5 5.8 Arshiya 126 7,413 33,955 13,094 17,331 3,837 6,083 1,690 2,449 28.7 41.6 18.1 21.6 8.8 6.3 4.4 3.0 Source: Bloomberg, Elara Securities Research

4 Elara Securities (India) Private Limited India LogisticsIndia Logistics

Secular trends Consistent rise in container traffic, unfazed by currency or economic activities Improving logistics infrastructure & structural drivers Government policies indicate rising dawn for the sector Strategic presence and growth: Key criteria for selection

India logistics: Unorganized and Exhibit 3: Higher losses vis-à-vis peers 100 inefficient 18 10 31 80 Present state of the industry 9 25 24 The logistics industry in India accounts for more than 60 25 15 (%) ~USD90bn of turnover and has shown consistent 40 9 growth in the recent past. The industry is currently in 49 50 20 evolution stage with inefficiencies and unorganized 35 players characterising space on one side and efficient 0 and organized players investing in expansion to ensure India China USA efficient logistics for clients. Bulk of the logistic costs is Transportation Warehousing Logistics spent on transportation and warehousing of the cargo Inventory Others (including losses) which put together account for 44% of the total logistics Source: Cygnus, Elara Securities Research costs in India. We have analysed the logistics industry in two parts viz: Exhibit 2: Cost of logistics in India transportation and warehousing and have discussed the nature of the industry as well as key concerns and Others (including investment opportunities in each of them. losses) 31% Transportation Transportation sector: Problems a plenty 35% The cargo movement in India is dominated by road transport (less preferred route for long haul bulk traffic) which accounts for ~62% of cargo movement, followed by rails - 29% and the rest by airways, pipelines and inland waterways. On the other hand road transport Warehousing accounts for 37% of cargo movement in USA and 22% in Inventory 9% 25% China, which are countries having a huge landmass

Source: Cygnus, Elara Securities Research similar to India. The logistic costs account for 12% –14% of GDP in India The poor network of railways (route kilometer has only as compared to 7%-9% in the developed world. But the increased at 3% CAGR since independence while the logistic cost as a percentage of total product cost (~20% passenger and freight traffic has grown at 54% CAGR). of product cost) in India is 4 -5 times higher as compared Lack of last mile connectivity and higher costs involved to that in developed countries. have resulted in higher dependence on road transport. The rail freights in India are ~4x of the comparables in Majority of logistics cost in India is attributed to ancillary the USA and even without accounting the truck costs (~31% of total), which are attributable to losses of overloading in India. Besides, longer transit times (freight various types and costs incurred by the unorganized as traffic being subordinated to passenger traffic) as well as well as inefficient players involved in the movement and lack of last mile connectivity has also contributed to the storage of goods. As compared to 31%, other ancillary decreasing percentage of cargo traffic by rails. costs in India, the same percentage is 10% in United States of America (USA) and 18% in China.

Elara Securities (India) Private Limited 5 India Logistics

Exhibit 4: Share of transportation in India Transportation Market segment Haulage Operators Operations Transactions modes

Transportation

Long Passenger 4% Pipeline (More than 800 km) Large fleet (More than XPS 20 trucks) 5% Coastal Medium (350 to 800 kms) Medium fleet Cargo <1% Airways LTL Contract (6–10 trucks) Short (50 to 350 62% Roadways kms) Small fleet FTL Spot (1- 5 trucks) Last mile 29% Railways <50 miles

Source: KPMG, Elara Securities Research idle time due to severe congestion. Besides, the road Exhibit 5: Freight rates compensating passengers route of transportation is also plagued by poor quality of 2.5 roads as well as multiple check points. 2.0 Although majority of the cargo movement is done by 1.5 way of road transport, the industry still remains heavily 1.0 fragmented. More than 74% of truck operators in India 0.5

Rate in USD cents Rate own a fleet size of less than 5 trucks. Higher 0.0 fragmentation in the industry with relatively non-existent entry barrier make the space highly competitive with slim operating margins. 1990-91 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

Average rate per passanger km Exhibit 7: Fragmented truck ownership Average rate per ton km Medium Source: Deloitte, Elara Securities Research fleet operator (6- Exhibit 6: Muted route additions 20 trucks) 15% 100,000 Large fleet 80,000 operator Small fleet (more than 60,000 operator (1- 20 trucks) 5 trucks) 11% 40,000 74% (Kilometers) 20,000

Source: KPMG, Elara Securities Research 1950-51 1960-61 1970-71 1980-81 1990-91 2000-01 2005-06 2009-10 Opportunity exists in 3PL transportation Route kilometers Track kilometers Although, there are little barriers to entry in the 3rd party Source: Deloitte, Elara Securities Research logistics (3PL) space, there are opportunities on offer for While nearly two thirds of the cargo is transported by existing players. 3PL operators having relationships with roads in India, the industry has its own set of problems. customers, specific industry solutions and efficiency in The highway network in India remains inadequate for operations are benefitting mainly due to the lopsided hassle free cargo movement. The national highways nature of the Indian logistics industry. The same is visible constitute only 2% of the total road network in India but from increased investment activities in the 3PL segment handle ~40% of the total cargo traffic denoting longer in India. Global majors such as DHL, TNT have already

6 Elara Securities (India) Private Limited India Logistics invested in the space and Indian operators such as Gati large state-controlled players. But lack of technology and and Allcargo are also not far behind. We believe this basic infrastructure has been missing in the overall segment of the overall inland transportation sector is ripe warehousing segment. Nearly 80%– 85% of warehouses for growth as well as investments. in the country are of a size less than 10,000 sq ft most of which lack basic infrastructure such as leak profiting, Exhibit 8: Opportunities for 3PL operators adequate security as well as tracking systems. The same Logistics cost as a Share of 3PL in % of GDP overall logistics is visible from the warehousing losses in the country. India 13.0 Less than 10% As compared to global competitors, Indian warehousing China 18.0 Less than 10% lags in terms of value added services, provision of USA 9.9 34% technology as well as level of outsourcing. High pilferage losses and poor infrastructure are also constant features Europe 10.0 54% of the segment. Japan 11.4 80%

Source: Deloitte, Elara Securities Research Winds of change in the warehousing sector Warehousing: Moving towards sophistication We believe warehousing in India offers several opportunities for private players. With land being one of Warehousing in India has traditionally been fragmented the foremost barriers to entry, operators who have between several unorganised players and one or two

Exhibit 9: Structure of the Indian Warehousing Industry Logistics

85% 367 mn sq. ft. 8% 36 mn sq. ft. Godown-like and run by small C&F agents Domestic Organized 433 mn sq. ft. High Quality Indian Warehousing Private sector 27% 107 mn sq. ft. Industry owned 15% 66 mn sq. ft. Unaccounted supply

EXIM 92% 398 mn sq. ft. 29% 117 mn sq. ft.

Unorganized Public sector

44% 173 mn sq. ft. Medium to low quality In-house warehousing

Source: KPMG, Elara Securities Research

Exhibit 10: Comparative analysis of warehousing Parameters India China USA Market Maturity (Fragmentation by Unorganized, fragmented Highly fragmented, top 20 20 largest companies control less contribution of key players to the warehousing industry companies contribute to 7% than 30 percent of the market total industry cost) of revenue Warehouse Infrastructure: Godowns with approximate Market is fragmented in Warehousing companies operate a Size size of <10,000 sq.ft terms of operator's single facility of 200,000 sq ft Centralisation of warehouses Multiple warehouses, one in geographical presence Excellent infrastructure Infrastructure every state Average level of Poor infrastructure infrastructure with small High pilferage and loss godowns Value Added Services

Level of outsourcing

Skilled Labour Labour available but with Labour available but with Highly skilled trained labour poor training poor training Technology used

Consolidation:

Level of usage of Large scale logistics parks and Free Trade & Warehousing Zones

Source: KPMG, Elara Securities Research Very poor Neutral Excellent Poor Good

Elara Securities (India) Private Limited 7 India Logistics

acquired land in the proximity of logistic hubs (such as Exhibit 12: EXIM Trade unaffected by currency (%) key ports) stand to gain in the coming years. Container 50 Freight Stations (CFS)/ Inland Container Depots (ICDs) 40 continue to be an attractive investment as the existing 30 CFS/ICDs are proving to be inadequate for the EXIM 20 traffic in the country. Also, favourable government 10 policies (discussed later in the report) encourage setting 0 up CFS/ICDs FTWZs in the country. (10) Clearly, there are several areas of improvements where (20) private companies can play a bigger role in the sector. While the logistic costs are increasing in India on the FY91 FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 EXIM Trade growth Currency Movement back of rising fuel prices as well as increasing travel time rd due to congestion, 3 Party logistics (3PL) operators as Source: Industry, IPA, Elara Capital Research well as state of the art warehousing can save costs for Consistent increase in container traffic customers. We have discussed the key trigger points for The container traffic at major ports has grown at 13.5% the Indian logistic sector as well as the opportunity for CAGR over the last twenty years in terms of tonnage and private players in the following pages. 11.7% CAGR over twenty years in TEU terms. The same Consistent rise in container traffic has grown at 10.4% CAGR in tonnage terms and 7% CAGR in TEU terms over the past five years. Unfazed by the economy or the currency Exhibit 13: Rising container traffic at Indian ports The EXIM traffic in India is handled through 13 major (000 tonnes) ports and several smaller ports along the 7,000 km long 140,000 coast line of India. However, out of the 13 major ports, only 2 (JNPT & Chennai) account for more than ~75% of 120,000 the total containerised EXIM traffic in the country. 100,000

The country has been witnessing rapid rise in the EXIM 80,000 trade in the last two decades. The Indian EXIM trade 60,000 which stood at USD37.8bn in FY90 has exploded to USD791bn+ by FY12. The same has registered 21.6% 40,000 CAGR in the last twenty years and 21.9% CAGR over the 20,000

last five years. The continuous rise in the EXIM trade FY08 FY09 FY10 FY11 FY12 provides a lucrative opportunity for the Indian logistic JNPT Chennai Tuticorin Kolkatta Cochin Others

sector. Source: IPA, Elara Capital Research Exhibit 11: EXIM growth buoyant despite GDP Exhibit 14: Container traffic at Indian ports (TEUs) variations (%) 9,000 40 35 8,000 30 7,000 25 20 6,000 15 10 5,000 5 4,000 0 (5) 3,000 FY08 FY09 FY10 FY11 FY12

FY91 FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 JNPT Chennai Tuticorin Kolkatta Cochin Others EXIM Trade growth GDP Growth Source: IPA, Elara Capital Research Source: Industry, IPA, Elara Capital Research However, the container traffic in India remains limited for EXIM data for the past few years confirms that the EXIM the EXIM cargo. India lags significantly in terms of trade has continued to grow despite the global and/or containerisation in the cargo movement as only ~20% of domestic economic slowdown as well as fluctuations in the domestic cargo is handled by way of containers as the currency. compared to ~75% in the developed world. Currently more than 90% of the container traffic is meant for EXIM

8 Elara Securities (India) Private Limited India Logistics

routes while the remaining – a paltry 10% carries goods Besides, the projects awarded during FY12 exceeded the domestically. expectations of the street with award of 58 projects totaling a length of 7,400kms as against the expectation Hence, the low penetration of containerisation, of 7,300 kms. The WIP for roads currently stands at more consistently rising EXIM trade and increased participation than 19,000 kms suggesting a superior highway of organized players in the industry underscore a huge infrastructure on offer for the Indian logistics sector. opportunity for logistics players in the space. Similarly, the ports sector in India has also been Intensifying thrust on attracting investment flows in the last decade or so. With infrastructure more than 7,000 kms of coastline and 13 major and 200+ minor ports, India has a huge potential to develop One of the critical impediments in the efficient as a major hub for transshipment of ocean cargo. The functioning of the logistics sector in the country is the National Maritime Development Program (NMDP) lack of adequate and state of the art infrastructure. initiated by the government focuses on all-round However, the situation is likely to change with increased development of Indian maritime sector. Increasing thrust of the government upon infrastructure participation of private sector in the ports sector has also development in the country. Development of golden been an encouraging sign. quadrilateral, building of express highways, ports etc are some of the key infrastructure projects undertaken by Exhibit 16: Private participation in ports the government. Investments in ports as well as Company Port Logistics highways remain key triggers for the Indian logistics Adani Mundra sector. Maersk Pipavav The impetus of the Indian government on development Navyuga Engineering Co. Ltd Krishnapatnam of roads is clearly visible with award of ~5,000 kms of DVS Raju Group Gangavaram roads under the NHDP scheme. JSW Group Jaigarh Although planned targets have not been achieved for Marg Group Karaikal

the infrastructure investments in the five year plans, the Source: NHAI, Elara Capital Research data for completion of projects has been showing a With improvement in the logistics related infrastructure, strong track record over the past few years after a lull in efficiency of the logistics sector is bound to improve. We FY06-07. expect, more and more corporate resorting to outsource Exhibit 15: Improvements in road completions (in their logistics and supply management requirements to Kms) specialised organised players in the sector. 3,000 2,500 2,000 1,500 1,000 500 0 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 Before 2000

Source: NHAI, Elara Capital Research

Elara Securities (India) Private Limited 9 India Logistics

Exhibit 17: Impetus on road development (projects awarded in FY12) S.No. Stretch State Name NH No Total Length NHDP Phase LOA Date Concessionaire (In kms) Category

1 Etawah -Chakeri (Kanpur) Uttar Pradesh 2 160 NHDP Phase V Nov-11 Oriental Structural Engineers Ltd.

2 Agra-Etawah Bypass Uttar Pradesh 2 125 NHDP Phase V Nov-11 Ramky Infrastructure Ltd.

3 Six Laninig of Kishangarh – Rajasthan[434.5]/ 79A, 79 , 556 NHDP Phase V Sep-11 GMR Infrastructure Ltd. Udaipur-Ahmedabad Gujrat[121] 76 & 8

4 Six-laning of Barwa Adda- Jharkhand[43]/ 2 123 NHDP Phase V May-11 DSC Ltd. Panagarh W est Bengal[79.88]

5 Ahmedabad to Vadodara Section Gujarat 8 102 NHDP Phase V Apr-11 IRB Infrastructure Ltd.

6 Panikholi-Rimoli (Approved Length Orissa 215 163 NHDP Phase III Aug-11 Gayatri Projects Ltd. 106 Km)

7 Vijayawada-Gundugolanu Section Andhra Pradesh 5 104 NHDP Phase V Feb-12 Gammon Infrastructure Projects Ltd.

8 4-Laning of Solapur -Maharashtra/ Maharashtra 9 100 NHDP Phase III Dec-11 Coastal-SREI Consortium Karnatka Section

9 Four laning of Jabalpur-Katni- Madhya Pradesh 7 226 NHDP Phase IV Aug-11 SOMA Tollways Pvt. Ltd. Rewa Section

10 Rampur -Kathgodam Uttaranchal 87 93 NHDP Phase III Nov-11 ERA Infra Engineering Ltd.-OJSC-SIBMOST (JV)

11 4-Laning of Angul -Sambalpur Orissa 42 153 NHDP Phase IV Nov-11 Abhijit Roads Ltd.

12 4-Laning of Cuttak -Angul Orissa 42 112 NHDP Phase III Nov-11 Ashoka Buildcon

13 Four laning of Orissa/Chattisgarh Chattisgarh 6 150 NHDP Phase IV Aug-11 BSCPL Infrastructure Limited Boarder -Aurang section

14 4-Laning of Raipur -Bilaspur Chattisgarh 200 127 NHDP Phase IV Nov-11 IVRCL Assets Holding Ltd.

15 Four laning of Gwalior-Shivpuri Madhya Pradesh 3 125 NHDP Phase IV Sep-11 Essel Infraprojects Ltd.

16 4-Laning of Rohtak-Jind (Approved Haryana 71 49 NHDP Phase III Dec-11 Vijai Infrastructure Ltd. Length 45 Km)

17 Jabalpur to Lakhanadone Madhya Pradesh 7 81 NHDP Phase IV Jul-11 Gannon Dunkerley & Co. Ltd.

18 Hospet -Chitradurga Karnataka 13 120 NHDP Phase III Nov-11 Ramkey Infrasructure Ltd

19 MH/ KNT Border Sangareddy Karnataka 9 145 NHDP Phase III Nov-11 L&T Infrasructure Developement Projects Ltd

20 4-Laning of Hospet-Bellary-K k /AP Karnataka 63 95 NHDP Phase IV Oct-11 PNC Infratech Ltd.-BF U ili L d C i LUtility Ltd. B dKarnataka/AP Border ConsortiumL

21 Four laning of Shivpuri-Dewas Madhya Pradesh 3 330 NHDP Phase IV Sep-11 GVK Transportations Network Ltd.

22 Kota -Jhalawar Rajasthan 12 88 NHDP Phase III Apr-11 Keti Constructions Ltd.

23 Beawar-Pali-Pindwara (Approved Rajasthan 14 244 NHDP Phase III May-11 L&T Infrastructure Development Projects Ltd. Length -246 Km)

24 Vijayawada-Machhlipatnam Andhra Pradesh 9 65 NHDP Phase III Nov-11 Madhucon Projects Ltd.

25 4 Laning of Obedullaganj-Betul S Madhya Pradesh y 69 125 NHDP Phase III Feb-12 Transstroy (India) Ltd. y ( ) iSection

26 Four Laning of Kiratpur-Ner Himanchal Pradesh 21 84 NHDP Phase III Feb-12 IL & FS Transportation Networks Ltd. Chowk Section

27 4-Laning of Mahulia to Behragora West Bengal[30]/ 33 & 6 127 NHDP Phase IV Dec-11 Simplex Infrastructure Projects Ltd. to Kharagpur Jhark hand[97]

28 2-Laning with paved sholder of Bihar 28 108 NHDP Phase IV Oct-11 KNR Muzaffarpur -Barauni

29 4-Laning of Lucknow -Sultanpur Uttar Pradesh 56 126 NHDP Phase IV Oct-11 ESSAR -Atlanta (JV)

30 Four laning of Meerut Uttar Pradesh 235 66 NHDP Phase IV Sep-11 C & C Constructions Limited Bulandshahar

31 Patna -Buxar Bihar 30 & 84 125 NHDP Phase III Nov-11 G I f Gammon Infrastructure Projects Ltd

32 Nagpur-Wainganga Bridge Maharashtra 6 45 NHDP Phase III May-11 JMC Projects India Ltd. (Approved Length -60 Km)

33 Lucknow -Raebareli Uttar Pradesh 24B 70 NHDP Phase IV Nov-11 Essel Infraprojects Ltd.

34 2-Laning of Krishnagiri-Tindivanam Tamil Nadu 66 177 NHDP Phase III May-11 Transstroy (I) Ltd. -Corporation Transstroy (Approved Length 170 Km.) OJSC Consortium

Source: NHAI

10 Elara Securities (India) Private Limited India Logistics

Government policies: well as the services side have witnessed a sea change, particularly over the last decade. The transportation Encouraging investment sector still remains highly unorganised and relatively The government of India has been taking steps to inefficient as compared to the rest of the world. The simplify the existing tax structure. One such initiative is warehousing and the services sector have been the implementation of Goods and Service Tax (GST). witnessing some major developments, thanks to the Similarly, several tax concessions have been provided for implementation of technology and foray of organised rd the companies investing in the logistics sector. We have players. In the services space, the 3 party logistics (3PL) th outlined some of the key areas that would directly as well as 4 party logistics (4PL) players have been the benefit the logistics players over here. new buzzwords.

Implementation of GST: A move towards We have analysed the three segments in terms of simplification growth, profitability and competitive intensity which is The GoI is planning to introduce Goods and Services Tax summarised in exhibit on the next page. (GST) to simplify the existing structure of state level taxes. Accordingly, in the transportation segment, we like At present due to multiple and differential state level companies with long and proven track records. As the taxes; Indian companies are forced to operate segment has little or no barriers to entry, the companies warehouses in various states. This has been a major that are in existence for a longer period of time, with no impediment for the globally adopted hub and spoke heavy capex requirements and established customer

model in the logistics sector. With the implementation of base are likely to be winners. Gateway Distriparks is our Logistics GST, the Indian companies would also be encouraged to pick in this segment of the Indian logistics space. operate the hub and spoke model for warehousing solutions thereby saving cost as well as inventory days. In the storage based plays (CFS, ICD & FTWZ), the relatively high barriers to entry (land remains the key Similarly, several exemptions from the income tax have barrier) ensure that players with presence at key cargo been awarded to the logistic players in the country. traffic hubs will be clear winners. Amongst the several Players investing in the warehousing are granted 80IA business models that exist in the space, we like Arshiya’s and 80IB benefits enabling them not to pay income taxes FTWZ model, as it offers increased flexibility for importers for ten out of first fifteen years of operations. as well as exporters and ensures savings in the working Accordingly, there are enough incentives for the capital cost for customers. However, due to the initial companies who are willing to invest in the logistics space capex requirements and longer gestation period, the in the country. risks attached to these companies is also higher. Strategic presence & growth on The services space is likely to witness highest growth in offer: Key criteria for selection the logistics space with more and more companies resorting to outsource their logistics solutions to the 3PL The logistics sector can be divided into three main and 4PL operators. The players in the space are likely to categories viz.: transportation, storage and services. also witness cyclicality if the consumer industries go Although, the transportation segment has not seen through a lean patch. We like Allcargo Logistics in this drastic changes in the recent past, the warehousing as space.

Elara Securities (India) Private Limited 11 India Logistics

Exhibit 18: Attractiveness of key logistic sub-segments Current Market Growth Competitive Innovation Overall Sub-segment Profitability Size Potential Intensity Potential Attractiveness Container Rail Transportation

Road Transportation (FTL)

Express Logistics (LTL)

Coastal Shipping

Cold Chain

Transportation Transportation Project Logistics

Modern Warehousing

Logistics Parks

Inland Container Depots

Container Freight Stations

Storage Ports

Freight Forwarding

3PL / 4PL

ervices ervices Courier Services

Key: High Medium Low Source:

12 Elara Securities (India) Private Limited India Logistics

Valuation & Recommendation Presence at strategic areas a key Proven track record in the transport sector is a big plus Valuations remain cheap for Indian players, providing lucrative opportunity

Picking up momentum as FY14. GDPL’s dividend yield remains strong. The company is not expected to invest heavily due to Organised players to witness high growth phase completion of key capex. Both these companies are With strong growth prospects for the Indian logistics expected to earn close to 20% RoCE which remains sector, listed companies in the space are likely to be attractive enough as compared to their global direct beneficiaries. We expect companies in the sector counterparts. to register better growth in FY13 as well as FY14. We Arshiya’s balance sheet is loaded with debt due to the prefer companies with proven track records in the ongoing capex program. However, once the company transport space, wider geographic network in the starts commissioning its warehouses in the FTWZ space, services space and who have negotiated land acquisition we expect debt levels to continue to drop steadily. ARST as also warehousing acquisition. Also, presence in the is expected to witness the highest revenues as well as right business areas remains a key for the sector in EBITDA growth in our coverage universe backed by

general. Logistics expansion of warehouses at Mumbai as well as Khurja. As compared to global peers, Indian companies are Debt levels, given the economic scenario might prove to trading at a discount despite having better growth be a concern for the stock. However, we believe that prospects as well as healthier return ratios. Hence, we once the company starts generating stronger operating find the Indian logistic space very attractive and expect cash flows, these concerns should recede. Although, the stronger stock performance going forward. stock remains expensive in terms of EV/EBITDA as compared to peers due to higher debt levels, we expect In our coverage universe, Gateway and Allcargo boast a significant upside on the stock. We believe the current proven track record in the respective businesses while market price does not fully capture the potential of FTWZ Arshiya is crafting a niche for itself in the FTWZ space. earnings of the company and the edge it holds over Both, GDPL and AGLL have strong balance sheets and peers who plan to enter in this profitable business space. are expected to register strong free cash flows with more We initiate coverage on Arshiya with a BUY rating and a than double digit growth in the EBITDA in FY13 as well target price of INR 170.

Elara Securities (India) Private Limited 13 India Logistics

Notes

14 Elara Securities (India) Private Limited India | Logistics 10 August 2012 Initiating Coverage

Gateway Distriparks

A safe bet Rating : Buy Consistent free cash generation Target Price : INR180 Upside : 33% Gateway Distriparks (GDPL) is an established player in the CFS/ICD CMP : INR136 (as on 9 August 2012) space and is also the largest private operator in the rail logistics space. GDPL has deployed and successfully completed its major capex Key data program and is now in a position to reap the benefits. We expect the Bloomberg /Reuters Code GDPL IN/GATE.BO company to generate cash consistently as it has an established Current /Dil. Shares O/S (mn) 108/108 presence in all its segments with low capex requirements. Besides, the Mkt Cap (INRbn/US$mn) 15/266 management has adopted a strong dividend payout policy and we Daily Vol. (3M NSE Avg.) 74,985 expect dividend yields to be marginally higher than 5% at the current Face Value (INR) 10 market price. 1 US$= INR55.3 Source: Bloomberg ; * As on 9 August 2012

Strong presence across business segments Price & Volume GDPL operates in three broader segments viz. CFS/ICDs, rail and cold 160 3 storage segments. It has a strong presence across all three segments with operational CFSs at all major ports across the country. It is also the 150 2 largest private rail operator. The CFS business of the company remains 140 the cash cow contributing more than 2/3rd of the EBITDA for FY13E as 1 well as FY14E.GDPL has expanded its CFS capacities at Mumbai, 130

Cochin and is exploring expansion at Chennai. In the rail segment as 120 0 well, it is exploring options to expand its fleet by either leasing or Aug-11 Dec-11 Apr-12 Aug-12 Vol. in mn (RHS) Gateway Distriparks (LHS) buying out additional rakes. The expansions in the CFS as well as additional rakes are likely to provide growth in the respective Source: Bloomberg

Global Markets Research segments in FY13E as well as FY14E. Share holding (%) Q2FY12 Q3FY12 Q3FY12 Q1FY13 Strong balance sheet with firm return ratios Promoter 40.5 40.5 40.4 40.4 Institutional Investors 41.8 43.2 44.8 44.2 GDPL continues to remain a net cash company and with limited capex Other Investors 10.0 8.7 7.3 7.8 plans going forward, its balance sheet in FY13 and FY14 should look General Public 7.7 7.7 7.5 7.6

very good. Strong EBITDA margin business with better capital Source: BSE

management has ensured firm return ratios for GDPL with RoCE Price performance (%) 3M 6M 12M exceeding 23% and RoE in excess of 18%. We expect return ratios to Sensex 6.6 (1.5) 4.2 improve further as GDPL reaps the benefits of its capacity additions in Gateway Distriparks (9.4) (1.0) 6.7 the CFS as well as the rail business. Allcargo Logistics 20.6 (0.8) (10.8) Arshiya International (17.6) (25.1) (2.8)

Valuation Source: Bloomberg

GDL is trading at a discount to its global peers despite having better Price performance stability in business as well as growth prospects. Since the company 130 is expected to generate strong free cash flows, the management of 120 GDL has decided to payout more than half of its profits as dividend. 110 Considering the steady growth from all the three segments and the 100 current valuations, the stock has potential for upside from the 90 (Rebased to 100) to (Rebased current levels. Besides, the dividend yield is likely to provide a 80 downside support for the stocks. We recommend a BUY on the Jul-12 Jan-12 Sep-11 Oct-11 Jun-12 Apr-12 Feb-12 Dec-11 Mar-12 Nov-11 May-12 Aug-12 company with a target price of INR 180. Aug-11 Sensex Gateway Distriparks Source: Bloomberg Key Financials Y/E Mar (INR mn) Rev YoY (%) EBITDA EBITDA (%) Adj PAT YoY (%) RoE (%) RoCE (%) P/E (x) EV/EBITDA (x) FY10 5,166 14.6 1,249 24.2 791 (0.5) 11.2 10.1 18.6 12.8 FY11 5,991 16.0 1,597 26.7 968 22.2 10.9 11.7 15.2 9.0 FY12 8,215 37.1 2,484 30.2 1,320 36.5 12.3 16.8 11.2 5.7 FY13E 8,832 7.5 2,991 33.9 1,631 23.5 14.2 19.7 9.0 4.7 FY14E 10,150 14.9 3,308 32.6 1,822 11.7 14.9 20.7 8.1 4.0 Source: Company, Elara Securities Estimate

Ravindra Deshpande • [email protected] • +91 22 4062 6805 Elara Securities (India) Private Limited Gateway Distriparks

Valuation trigger Investment summary Established presence in all the Operationalisation Dividend of Mumbai CFS announcements operative segments

180 3 Free cash flow generation 2 160 1 Dividend yield stock

140 Valuation trigger

120 1. Operationalisation of Mumbai CFS

100 2. Dividend announcements

80 Key risks -10 -11 -12 -13

g g g g Slowdown in the container traffic Oct-10 Oct-11 Oct-12 Jun-11 Jun-12 Jun-13 Apr-11 Apr-12 Apr-13 Feb-11 Feb-12 Feb-13 Dec-10 Dec-11 Dec-12 Au Au Au Au Change in dividend policy Source: Bloomberg, Elara Securities Estimates Our assumptions Valuation overview P/E Based valuation FY13E FY14E Dividend payout of 50% Earnings per share INR/share 15.1 16.8 P/E Multiple used (x) 12.0 12.0

Target Price INR/Share 180 202 Current Mkt Price INR/Share 136 136 Upside /(Downside) (%) 32.8 48.4 Source: Elara Securities Research

Peer analysis Logistics comparables Company Name CMP M Cap EV Revenues EBITDA Adj. PAT EPS ROE EV/EBITDA P/E CY12/ CY13/ CY12/ CY13/ CY12/ CY13/ CY12/ CY13/ CY12/ CY13/ CY12/ CY13/ CY12/ CY13/ USD USD mn USD mn FY13 FY14 FY13 FY14 FY13 FY14 FY13 FY14 FY13 FY14 FY13 FY14 FY13 FY14 Expeditors Intl 36.4 7,668 6,310 6,226 6,853 628 724 364 421 1.7 2.0 17.8 18.9 10.0 8.7 21.3 18.4 Uti Worldwide Inc 13.8 1,429 1,528 4,941 5,016 209 216 81 90 0.8 0.9 9.2 9.1 7.3 7.1 17.2 15.7 Qube Logistics 1.6 1,446 1,510 805 1,034 118 173 62 82 0.1 0.1 7.5 8.3 12.3 8.4 20.7 17.2 Dalian Port (PDA) 0.2 1,823 3,280 664 725 299 327 125 142 0.0 0.0 6.1 6.4 10.9 9.9 7.8 6.8 Sinotrans 0.1 575 809 7,764 8,402 287 376 117 142 0.0 0.0 6.8 7.8 2.8 2.2 5.0 4.0 Average 9.5 10.1 8.7 6.6 14.4 12.4

Warehousing comparables Company Name CMP M Cap EV Revenues EBITDA Adj. PAT EPS ROE EV/EBITDA P/E CY12/ CY13/ CY12/ CY13/ CY12/ CY13/ CY12/ CY13/ CY12/ CY13/ CY12/ CY13/ CY12/ CY13/ USD USD mn USD mn FY13 FY14 FY13 FY14 FY13 FY14 FY13 FY14 FY13 FY14 FY13 FY14 FY13 FY14 Cosco Pacific 1.4 3,826 5,806 723 804 421 471 375 425 0.1 0.2 10.1 10.7 13.8 12.3 9.9 8.8 Shenzhen Chiwan 1.2 903 1,179 267 291 154 171 81 93 0.1 0.1 14.3 14.7 7.6 6.9 9.8 8.9 Agility 1.4 1,482 1,267 4,987 5,294 223 346 98 178 0.1 0.2 - - 5.7 3.7 13.2 8.0 C.H. Robinson 53.9 8,767 8,527 11,340 12,405 769 857 455 505 2.8 3.2 34.5 35.0 11.1 9.9 19.2 17.1 Gulf Warehousing 11.2 446 598 133 164 37 47 19 25 0.5 0.6 9.9 13.0 16.2 12.7 23.6 17.7 Royal Wolf 2.2 221 296 161 170 46 49 20 22 0.2 0.2 12.9 13.7 6.5 6.0 11.3 9.9 Zhangjiagang 1.8 383 354 68 77 40 46 24 28 0.1 0.1 23.5 21.3 9.0 7.9 15.3 13.4 Freetrade Average 17.5 18.1 10.0 8.5 14.6 12.0

Indian comparables (INR mn) CMP Revenues EBITDA PAT EPS (INR) ROE (%) EV/EBITDA (x) P/E (x) M Cap EV (INR) FY13E FY14E FY13E FY14E FY13E FY14E FY13E FY14E FY13E FY14E FY13E FY14E FY13E FY14E Gateway Distriparks 136 14,732 13,935 8,832 10,150 2,991 3,308 1,631 1,822 15.1 16.8 14.2 14.9 4.7 4.0 9.0 8.1 Allcargo 143 17,872 19,384 36,813 42,772 4,662 5,483 2,387 3,107 19.0 24.8 15.8 17.8 4.3 3.3 7.5 5.8 Arshiya 126 7,413 33,955 13,094 17,331 3,837 6,083 1,690 2,449 28.7 41.6 18.1 21.6 8.8 6.3 4.4 3.0 Source: Bloomberg, Elara Securities Research

16 Elara Securities (India) Private Limited Gateway Distriparks

Financials (Y/E Mar) Income Statement (INR mn) FY11 FY12 FY13E FY14E Revenue & margins growth trend Net Revenues 5,991 8,215 8,832 10,150 15,000 40 EBITDA 1,597 2,484 2,991 3,308 33.9 Add:- Non operating Income 129 144 145 146 32.6 35 OPBIDTA 1,726 2,628 3,136 3,454 10,000 30.2 30

Less :- Depreciation & Amortization 502 628 667 710 26.7 (%)

EBIT 1,223 2,000 2,468 2,744 (INR mn) 5,000 25 Less:- Interest Expenses 182 135 109 109 PBT 1,041 1,864 2,359 2,635 0 20 Less :- Taxes 44 508 684 764 FY11 FY12 FY13E FY14E Adjusted PAT 997 1,356 1,675 1,871 Net Revenues (LHS) EBITDA Margin (RHS) Add/(Less): Minorities (30) (36) (44) (50) Source: Company, Elara Securities Estimates Attributable Adjusted PAT 968 1,320 1,631 1,822 Add/Less: - Extra-ordinaries - - - - Reported PAT 997 1,356 1,675 1,871 Adjusted profits growth trend Balance Sheet (INR mn) FY11 FY12 FY13E FY14E Share Capital 1,080 1,083 1,083 1,083 2,000 36.5 40 Reserves 5,799 6,395 7,076 7,838 1,500 30 Borrowings 1,154 1,037 1,037 1,037 22.2 23.5 Minority Interest 3,568 3,621 3,665 3,715 1,000 20 (%) Deferred Tax (Net) 140 140 140 140 11.7 Logistics (INR mn) Total Liabilities 11,741 12,276 13,002 13,813 500 10 Gross Block 11,540 12,199 13,349 14,199 Less:- Accumulated Depreciation 2,210 2,838 3,506 4,216 0 0 FY11 FY12 FY13E FY14E Net Block 9,329 9,361 9,843 9,983 Add:- Capital work in progress 496 500 200 200 Adjusted PAT (LHS) PAT Growth (RHS) Investments - - - - Source: Company, Elara Securities Estimates Net Working Capital excluding Cash 280 754 1,123 1,202 Cash & Cash Equivalents 1,636 1,662 1,835 2,427 Other Assets 0 0 0 0 Return ratios Total Assets 11,741 12,276 13,002 13,813 25 Cash Flow Statement (INR mn) FY11 FY12 FY13E FY14E 19.7 20.7 Cash profit adjusted for non cash items 1,277 1,638 2,343 2,581 20 16.8

Add/Less : Working Capital Changes (369) (81) (370) (79) 15 11.7 Operating Cash Flow 908 1,557 1,973 2,502

(%) 14.9 10 14.2 Less:- Capex (1,482) (663) (850) (850) 12.3 10.9 Free Cash Flow (574) 894 1,123 1,652 5 Financing Cash Flow (1,677) (868) (949) (1,060) 0 Investing Cash Flow 2,963 130 - - FY11 FY12 FY13E FY14E Net change in Cash 711 156 173 592 ROE ROCE Ratio Analysis FY11 FY12 FY13E FY14E Income Statement Ratios (%) Source: Company, Elara Securities Estimates

Revenue Growth 16.0 37.1 7.5 14.9 EBITDA Growth 27.8 55.6 20.4 10.6 PAT Growth 22.2 36.5 23.5 11.7 Established business model to EBITDA Margin 26.7 30.2 33.9 32.6 ensure impressive earnings growth Net Margin 16.2 16.1 18.5 17.9 Return & Liquidity Ratios

Net Debt/Equity (x) (0.03) (0.06) (0.07) (0.11) ROE 10.9 12.3 14.2 14.9 ROCE 11.7 16.8 19.7 20.7 Per Share data & Valuation Ratios

Diluted EPS (INR/Share) 8.9 12.2 15.1 16.8 EPS Growth (%) 22.2 36.5 23.5 11.7 DPS (INR/Share) 6.0 6.0 7.5 8.4 P/E Ratio (x) 15.2 11.2 9.0 8.1 Dividend yield to ensure downside protection EV/EBITDA (x) 9.0 5.7 4.7 4.0 EV/Sales (x) 2.4 1.7 1.6 1.3 Dividend Yield (%) 4.4 4.4 5.5 6.2 Source: Company, Elara Securities Estimates

Elara Securities (India) Private Limited 17 Gateway Distriparks Distriparks

Investment rationale

Consistent free cash generation Strong presence across business segments Strong balance sheet with firm return ratios

Company background Exhibit 2: CFS presence at key ports GDPL operates in three major segments, CFS, rail and cold chain business. The rail segment is operated

through a subsidiary, Gateway Rail Freight Limited Ludhiana, Punjab ICD Faridabad, Haryana ICD To be operational by July-12 (GRFL) in which GDPL holds ~98% (voting power) stake. Garhi, GurgaonICD Snowman Logistics is a 52.2% subsidiary of GDPL which operates the cold chain logistics business.

GDPL continues to maintain a leadership position in the Kandla Kolkata Mundra Pipav CFS as well as rail business. It remains the only organised Haldia

player in the cold chain logistics business. We have Nhava Sheva, Paradip JNPT Mumbai (2 CFS ) discussed each segment in detail in the following 300,000 TEUs/year Mumbai Vizag CFS 50,000 TEUs/year paragraphs. Navi Mumbai ICD (12 Km from port)

Mormugao CFS Chennai CFS CFS –GDPL’s cash cow New 90,000 TEUs/year ICD Mangalore (14 Km from port) Upcoming/New GDPL is an established player in the Indian CFS space Kochi CFS 50,000 TEUs/year Major Ports (500 meters from with operations at all the major ports in India viz: Vallarpadamport) Tuticorin, TN Other Ports operational in May-12 Mumbai, Chennai and Vishakhapattanam. It operates

two Container Freight Stations at Mumbai, one each at Source: Company Chennai and Vishakhapattanam. It has recently GDPL currently has capacity of 0.5mn TEUs which is completed a CFS facility at Cochin and is expected to likely to expand to 0.6mn TEUs in FY13E. GDPL is start operations by September 2012. With presence expected to fully start its operations at Cochin CFS by the across the major ports in the country, GDPL remains the end of Q2FY13 and is also expected to restart the Punjab second largest CFS operator behind Container Conware CFS (Mumbai) by November of this year. Corporation of India. GDPL has presence at key ports of Hence, the CFS segment is likely to witness steady India which handle more than 75% of the containerised volume growth in the coming years. cargo traffic in the country. The huge landmass of India coupled with growing containerisation of EXIM cargo in the country offer a huge opportunity for the CFS business in India.

Exhibit 1: Organisation structure

Gateway Distriparks Limited

Gateway Rail Freight Snowman Logistics Gateway Distriparks Gateway Distriparks Gateway East India Limited Limited (South) Private Limited (Kerala) Limited Private Limited 97.5% 52.2% 100% 60% 100%

Blackstone group International Finance invested INR 3.0bn to Corporation (IFC) and acquire between 37.3% Mitsubishi Group have to 49.9% stake; valuing invested in the Snowman the rail business between Logistics business INR 6 to INR 8bn.

Source: Company; Elara Securities Research

18 Elara Securities (India) Private Limited Gateway Distriparks

Exhibit 3: Growth despite falling Mumbai volumes With presence across all major ports in the country, we (TEUs) expect CFS division to continue to do well in the coming years. The capacity expansions at Cochin and 400,000 debottlenecking of capacity at the Mumbai CFS are likely 350,000 to provide volume growth for the company.

300,000 The cash generation in the CFS business remains strong with very rich operating margins and little capex going 250,000 ahead. We expect the company to generate cash 200,000 consistently over FY13E and FY14.

150,000 Rail business: Creating a stronghold FY09 FY10 FY11 FY12 FY13E FY14E GDPL operates its rail segment through its subsidiary Source: Company; Elara Securities Estimates Gateway Rail. It is the largest private player in the rail business with 21 owned rakes operational. It has Significant contributor in the consol picture operational ICDs at Kalamboli (Mumbai), GarhiHarsu CFS remains the flagship business of GDPL, contributing (Gurgaon) and Ludhiana. The strategically located ICDs ~37% of revenues (FY13E) and more than 70% of have enabled the company to create a niche in the north th operating profits. The segment contributes nearly 4/5 west bound EXIM traffic in the country. of the attributable PAT for the shareholders of GDPL.

Exhibit 6: Strong revenue growth & improving Logistics Exhibit 4:Strong revenues & EBITDA growth (INR mn) profitability (INR mn) 5,000 6,000 4,000 5,000

3,000 4,000 3,000 2,000 2,000 1,000 1,000 0 0 FY09 FY10 FY11 FY12 FY13E FY14E FY09 FY10 FY11 FY12 FY13E FY14E

Revenues EBITDA Revenues EBITDA

Source: Company; Elara Securities Estimates Source: Company; Elara Securities Estimates CFS business due to its nature is a high margin business Blackstone Private Equity has invested ~INR3.0bn in the with higher return ratios due to relatively lower capital rail subsidiary by way of convertible bonds. Prior to the intensity. However, the proximity to port, relationship equity infusion, the rail business was making losses due with shipping lines and the turnaround time remain key to higher debt burden. The equity infusion has enabled it for success. GDPL has succeeded on all these counts and to reduce interest expense and thereby turn profitable. hence has a thriving CFS business. It enjoys EBITDA The rail subsidiary has consistently posted positive PAT margins of more than 54% in the CFS business on a for the past six quarters. blended basis and the PAT margins in the segment remain above 33%. Exhibit 7: Successful turnaround in rail profits (INR mn) 200 Exhibit 5: Strong profitability margins (%) 150 60 100

50 50 0 40 (50) 30 (100)

20 Sep-10 Sep-11 Jun-10 Jun-11 Dec-10 Mar-11 Dec-11

EBITDA PAT

Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12 Source: Company; Elara Securities Research EBITDA Margin PAT Margin

Gateway Rail is currently operating at ~90% utilisation at Source: Company; Elara Securities Research present and hence the management has decided to

Elara Securities (India) Private Limited 19 Gateway Distriparks

expand the rake capacity. The management is targeting Exhibit 9: Strong consolidated margins (%)

to reach 28 rakes (addition of 7 rakes) over the next five 40 quarters and is exploring options between purchasing or 35 leasing the same. It is also investing in developing additional ICD at Faridabad which is expected to be 30 operational soon. With additional rake capacity as well as 25 ICD networks, the rail segment is expected to post strong 20 volume growth over the next two years. With a strong balance sheet and increased volume growth, we expect 15 the rail segment to post strong operating profits growth 10 over FY13 and as FY14. FY09 FY10 FY11 FY12 FY13E FY14E EBITDA Margins PAT Margins Cold chain business: A niche player GDPL remains the only player in the organised sector to Source: Company; Elara Securities Estimates operate in the cold chain logistics business. The company GDPL’s balance sheet continues to remain debt free with operates through its 52% subsidiary Snowman Logistics a net cash position of INR5.8/share at the end of FY12. Limited. It has a pan India network and offers With strong free cash flow and limited capex plans going warehousing as well as logistics services. Due to its niche forward, its balance sheet in FY13 and FY14 should look place, it has registered consistent double digit growth in very good. GDPL has been following a policy of high revenues. The segment has strong EBITDA margins dividend payouts consistently and is currently trading at (~20%) and we expect it to continue to register strong a dividend yield of 5%. Besides a strong dividend yield, growth in revenues as well as operating profits. the higher payout in the coming years riding on higher profitability is also likely to act as a strong support for the Financial snapshot market price.

Strong balance sheet with attractive return ratios Exhibit 10: Declining net debt & high payouts GDPL due to its presence across the logistics segments 1,500 90 has consistently posted strong double digit revenue 1,000 80 growth. With expansion in the all three segments, we 70 500 expect GDPL to continue posting strong revenue growth 60

0 (%) over the next two years. The company has an 50 (500) 40

established presence in all the three business segments mn) (INR 30 (1,000) and hence has fairly strong EBITDA margins on a 20 consolidated level. We expect GDPL to marginally (1,500) 10 improve its EBITDA margins in the coming years with (2,000) 0 capacity expansions in the businesses. FY09 FY10 FY11 FY12 FY13E FY14E Net Debt (LHS) Dividend Payout (RHS) Exhibit 8: Impressive growth on the cards (INR mn) Source: Company; Elara Securities Estimates 12,000 Due to the nature of the business (lesser capital intensity) 10,000 and the established position of GDPL in all the three 8,000 operating segments, GDPL continues to enjoy firm return 6,000 ratios. The RoCE of the business at the consolidated level

4,000 is above 23% and is expected to improve further. Similarly, the company enjoys strong RoE in excess of 2,000 18%. A strong dividend payout ensures that the cash 0 generated is not deployed in the lesser yielding options FY09 FY10 FY11 FY12 FY13E FY14E than the business of the company. Revenues EBITDA

Source: Company; Elara Securities Estimates

20 Elara Securities (India) Private Limited Gateway Distriparks

Exhibit 11: Strong and improving return ratios (%)

5 FY09 FY10 FY11 FY12 FY13E FY14E

RoCE RoE

Source: Company; Elara Securities Estimates

Logistics

Elara Securities (India) Private Limited 21 Gateway Distriparks

Valuation & Recommendation

Relatively cheaper valuations as compared to global peers Dividend yield to provide strong downside support Upside prevails with highly favorable risk reward ratio

At the current valuations, GDPL is trading at 9.0x P/E and We have valued GDPL at 12.0x P/E FY13E and arrive at 4.7x EV/EBITDA for FY13E earnings. We believe the target valuation of INR180. The same implies a target current valuations do not factor in the strong growth in EV/EBITDA multiple of 6.2x FY13E. The target price offers earnings as well as the steady free cash flow generation upside of ~33% from the current market price. We that is on offer over the next two years. The current initiate coverage on GDPL with a target price of INR180 valuations are at a discount to global peers who register and BUY recommendation. lower return ratios than GDPL and have lower Exhibit 12: Valuation summary expectations of growth. We believe the stock has P/E Based valuation FY13E FY14E potential to fare better in the coming years. Besides, current valuations are at a discount to historical Earnings per share INR/share 15.1 16.8 valuations. Also, the stock offers a fairly strong dividend P/E Multiple used (x) 12.0 12.0 yield of ~5% at current valuations and the same might

well act as a support for the market price. Target Price INR/Share 180 202 Current Mkt Price INR/Share 136 136 Upside /(Downside) (%) 32.8 48.4

Source: Elara Securities Research

22 Elara Securities (India) Private Limited Gateway Distriparks

Company Description Gateway Distriparks Limited (GDPL) is the only logistics facilitator with three verticals which are synergetic and capable of being interlinked – Container Freight Stations (CFS), Inland Container Depots (ICD) with rail movement of containers to major maritime ports, and Cold Chain Storage and Logistics. The CFSs offer transportation & storage, general and bonded warehousing, empty handling and several value added services. GDL's rail operations are handled by a subsidiary, Gateway Rail Freight Limited (Gateway Rail) in which The Blackstone Group has made a PE investment. Gateway Rail provides inter-modal logistics and operates its own Inland Container Depots/Dry Ports. The third vertical consists of cold chain logistics solutions out of 19 locations in India through the subsidiary, Snowman Logistics Limited in which Mitsubishi, Nicherei and IFC (World Bank) are investors.

Board of Directors & Management Gopinath Pillai, Chairman Development Association. He has worked at senior level positions and was the Managing Director with Veneer Gopinath Pillai is the Executive Chairman of Savant Products Limited, Oregon, USA. Infocomm Pte Ltd. He has extensive experience in areas of Finance, Industry and Trading. He has worked as the K.J.M Shetty, Director Chairman of the largest supermarket chain in Singapore K.J.M Shetty has served the Indian Government and Logistics for over ten years, as General Manager of a Singapore State Government in various capacities. He was the Joint Government Trading Company, Intraco Limited and as Secretary for the Ministry of steel, The Financial Advisor, Chairman of its Warehousing Subsidary. He is currently to the Minsitry of Civil Aviation and Tourism and the serving as a Non-Resident Ambassador of Singapore to Vigilance Commissioner to the Government of Iran. TamilNadu.

Prem Kishan Gupta, Deputy Chairman & Managing Brig.Kirpa Ram Vij, Non-Executive Director Director Mr. Vij has served in the Singapore Administrative serve Prem Kishan Gupta is the Chairman & Managing Director Defense staff of the Singapore Armed forces. He has of Gateway Rail, and Deputy Chairman & MD of worked as an Ambassador of Singapore to Egypt and Gateway Distriparks Ltd. He also runs his newsprint Yugoslavia. Subsequently, he has worked with Neptune business - Newsprint Trading & Sales Corporation since Orient Lines, leading container shipping company. He 1978 and represents internationally reputed newsprint has also worked as Chairman of Orient Container and manufacturers from USA, Canada and Europe with Warehousing Services Pte Ltd (Singapore) where he strong tie ups in South-East Asia in India. He controls his oversaw one of the largest Container Depots with investments through the NBFC Prism International Ltd. warehousing and container repair facilities. He is also a member of the Parents Leadership Council of Boston University. Arun Agarwal, Director

Sat Pal Khattar, Director Arun Agarwal is a Mechanical Engineer. He has more than 28 years of experience in business. Sat Pal Khattar serves as senior partner in the firm of solicitors, Khattar, Wong and Partners, Singapore. He is a M.P. Pinto, Director director of a number of public companies in Singapore, M.P. Pinto has held several eminent posts in career Hong Kong and U.K. He has substantial business including the post of Chairman of Jawaharlal Nehru port interests in India and is on the Board of several leading Trust and secretary to Ministry of Shipping, Government companies. His investments in India include real estate, of India. He is the only Indian to be elected as the Vice- commercial development, I.T and I.T education. Chairman to the Council of International Maritime Shabbir Hassanbhai, Director Organization Shabbir Hassanbhai is a member of Association of Saroosh Dinshaw, Independent Director Certified & Corporate Accountants, UK. He has a Saroosh Dinshaw, a commerce and law graduate, has a business experience of more than 35 years in Master's degree in Business Administration. He has 13 international trade. He has been the immediate past years of experience in similar business as the Company. President of the Singapore Indian Chamber of He is an Independent Director and a member of the Commerce & Industry, Treasurer of the Singapore Indian Audit Committee as well as the Investor Relations Committee of the Company.

Elara Securities (India) Private Limited 23 Gateway Distriparks

Coverage History

160

140 1

120

100

80 Jul-12 Jul-11 Jan-12 Jan-11 Sep-11 Sep-10 Oct-11 Oct-10 Jun-12 Jun-11 Apr-12 Apr-11 Feb-12 Feb-11 Mar-12 Mar-11 Dec-11 Dec-10 Nov-11 Nov-10 May-12 May-11 Aug-12 Aug-11 Aug-10 Not Covered Covered

Date Rating Target Price Closing Price 1 09-Aug-2012 Buy INR180 INR136

Guide to Research Rating BUY Absolute Return >+20% ACCUMULATE Absolute Return +5% to +20% REDUCE Absolute Return -5% to +5%

SELL Absolute Return < -5%

24 Elara Securities (India) Private Limited India | Logistics 10 August 2012 Initiating Coverage

Allcargo Logistics

Growth on wheels Rating : Buy Strong presence in the LCL transport Target Price : INR180 Upside : 26% Allcargo Logistics (AGLL) has wide geographical reach with a global CMP : INR143 (as on 9 August 2012) network. It is one of the largest LCL transporters and has created a niche for itself in the segment. The acquisition of ECU line business in Key data 2006 has enabled AGLL to expand globally and has also provided Bloomberg /Reuters Code AGLL IN/ACLL.BO impetus for the CFS segment. We expect volume growth in the multi Current /Dil. Shares O/S (mn) 131/131 modal transport segment to sustain in the coming years as well and Mkt Cap (INRbn/US$mn) 19/335 estimate the segment to contribute more than 40% of the operating Daily Vol. (3M NSE Avg.) 32,679 profits over the next couple of years. Face Value (INR) 2 1 US$= INR55.3 Flourishing prospects in other segments Source: Bloomberg ; * As on 9 August 2012

AGLL operates three CFSs in JNPT, Chennai and Mundra. The inherent Price & Volume nature of the business ensures that the segment generates significant cash for AGLL with strong margins as well as return ratios. It is 180 1,200 1,000 expanding its capacity by ~70% at the JNPT CFS which is likely to 160 contribute volume growth post-FY13. Although the utilisation at the 800 140 600 JNPT CFS has been sluggish, capacity expansion is likely to offer better 400 volume growth in the coming years. The project engineering business 120 200 is also a high margin business and is likely to continue doing well in 100 0 the coming two years with the proposed thrust on infrastructure. Aug-11 Dec-11 Apr-12 Aug-12 Vol. in '000s (RHS) Allcargo (LHS) Improving financial position with surging return ratios Source: Bloomberg

Global Markets Research AGLL is expected to register strong revenues as well as EBITDA Share holding (%) Q2FY12 Q3FY12 Q4FY12 Q1FY13 growth post FY13 thanks to volume growth in the CFS business. AGLL Promoter 69.8 69.8 69.8 69.8 is expected to strengthen its financial position on the back of strong Institutional Investors 12.0 12.0 11.9 11.9 profitability. We expect AGLL to turn net cash positive in FY13 and Other Investors 16.1 16.1 16.0 16.1 continue to remain so in the coming two years. AGLL has strong General Public 2.1 2.1 2.2 2.2

return ratios due to its low capital intensive businesses, and enjoys Source: BSE

RoCE in excess of 15% and RoE in excess of 19%. Price performance (%) 3M 6M 12M Sensex 6.6 (1.5) 4.2 Allcargo Logistics 20.6 (0.8) (10.8) Gateway Distriparks (9.4) (1.0) 6.7 Arshiya International (17.6) (25.1) (2.8)

Valuation Source: Bloomberg AGLL has created a niche for itself in the LCL mode which is likely to Price performance provide a steady stream of cash flows. The capacity expansion in 120 the CFS business is likely to provide volume growth in the coming 110 100 two years. With all its capacity expansion plans at completion stage, 90 we expect AGLL to be a net free cash flow positive company in the 80 coming two years. Also, with improving financial position, the 70 (Rebased to 100) to (Rebased 60 return ratios are likely to improve consistently. We believe with

strong growth prospects in FY13 as well as FY14, the current Jul-12 Jan-12 Sep-11 Oct-11 Jun-12 Apr-12 Feb-12 Dec-11 Mar-12 Nov-11 May-12 Aug-11 Aug-12 valuations leave room for considerable upside. We recommend a Sensex Allcargo BUY on the stock with a target price of INR 180. Source: Bloomberg Key Financials Y/E Mar (INR mn) Rev YoY (%) EBITDA EBITDA (%) Adj PAT YoY (%) Fully DEPS RoE (%) RoCE (%) P/E (x) EV/EBITDA (x) CY10 20,609 (10.9) 2,191 10.6 1,332 6.2 10.6 16.5 17.8 13.4 8.7 CY11 28,613 38.8 2,698 9.4 1,656 24.3 13.2 15.0 17.5 10.8 7.5 FY12* 42,712 49.3 5,202 12.2 2,385 44.0 19.0 18.0 25.9 7.5 4.0 FY13E 36,813 (13.8) 4,662 12.7 2,387 0.1 19.0 15.8 19.8 7.5 4.3 FY14E 42,772 16.2 5,483 12.8 3,107 30.2 24.8 17.8 22.2 5.8 3.3 Source: Company, Elara Securities Estimate; Note: *15 months period as financial Y/E changed from Dec to Mar

Ravindra Deshpande • [email protected] • +91 22 4062 6805 Elara Securities (India) Private Limited Allcargo Logistics

Valuation trigger Investment summary Capacity addition at Attaining net cash Steady growth in the LCL business Mumbai CFS position Addition of capacity to provide growth 200 at Mumbai CFS

180 3 2 Strong balance sheet with healthy cash 160 1 flow generation 140 Valuation trigger 120

100 1. Capacity addition at Mumbai CFS 80 2. Attaining net cash position 60 Key risks -10 -11 -12 -13 g g g g Oct-10 Oct-11 Oct-12 Jun-11 Jun-12 Jun-13 Apr-11 Apr-12 Apr-13 Feb-11 Feb-12 Feb-13 Dec-10 Dec-11 Dec-12 Au Au Au Au Volume declines in the Mumbai CFS

Source: Bloomberg, Elara Securities Estimates Realizations decrease in the business

Valuation overview Our assumptions SOTP Valuation for Allcargo FY13E Completion of CFS expansion in FY14 INR Mn Multiple INR MN Multi Modal Transport 1,912 5.0 9,561 CFS 1,406 6.0 8,437 Project Enginnering 1,344 4.5 6,049 TOTAL Target EV 24,047

Net Debt 1,512

Target Market Cap 22,534

No. of shares outstanding 125

Target Price 180

Current market Price 143

Potential Upside/(downside) (%) 26.1

Source: Elara Securities Estimates Peer analysis Logistics comparables Company Name CMP M Cap EV Revenues EBITDA Adj. PAT EPS ROE EV/EBITDA P/E CY12/ CY13/ CY12/ CY13/ CY12/ CY13/ CY12/ CY13/ CY12/ CY13/ CY12/ CY13/ CY12/ CY13/ USD USD mn USD mn FY13 FY14 FY13 FY14 FY13 FY14 FY13 FY14 FY13 FY14 FY13 FY14 FY13 FY14 Expeditors Intl 36.4 7,668 6,310 6,226 6,853 628 724 364 421 1.7 2.0 17.8 18.9 10.0 8.7 21.3 18.4 Uti Worldwide Inc 13.8 1,429 1,528 4,941 5,016 209 216 81 90 0.8 0.9 9.2 9.1 7.3 7.1 17.2 15.7 Qube Logistics 1.6 1,446 1,510 805 1,034 118 173 62 82 0.1 0.1 7.5 8.3 12.3 8.4 20.7 17.2 Dalian Port (PDA) 0.2 1,823 3,280 664 725 299 327 125 142 0.0 0.0 6.1 6.4 10.9 9.9 7.8 6.8 Sinotrans 0.1 575 809 7,764 8,402 287 376 117 142 0.0 0.0 6.8 7.8 2.8 2.2 5.0 4.0 Average 9.5 10.1 8.7 6.6 14.4 12.4

Financials (Y/E Mar) Income Statement (INR mn) CY10 FY12* FY13E FY14E Return ratios Net Revenues 28,613 42,712 36,813 42,772 25 EBITDA 2,698 5,202 4,662 5,483 22.1 Add:- Non operating Income 286 534 - - 19.7 19.8 OPBIDTA 2,984 5,735 4,662 5,483 20 Less :- Depreciation & Amortization 550 1,337 967 1,053 15.6 EBIT 2,434 4,398 3,696 4,430 (%) 15 17.1 17.0 Less:- Interest Expenses 194 683 476 240 15.5 PBT 2,240 3,715 3,219 4,190 14.0 Less :- Taxes 484 1,189 676 880 10 CY10 FY12 FY13E FY14E Adjusted PAT 1,756 2,526 2,543 3,310 Less: Minority Interest (100) (141) (156) (203) ROE ROCE Adjusted Attributable PAT 1,656 2,385 2,387 3,107 Source: Company, Elara Securities Estimates Add/Less: - Extra-ordinaries 3 (4) - - Reported PAT 1,659 2,381 2,387 3,107 Balance Sheet (INR mn) CY10 FY12 FY13E FY14E Share Capital 261 261 251 251 Reserves 11,551 13,703 15,123 17,989 Borrowings 3,778 3,778 3,278 1,778 Minority Interest 262 404 560 763

Deferred Tax (Net) 408 408 408 408 Logistics Total Liabilities 16,260 18,554 19,619 21,188 Gross Block 13,871 17,663 19,338 21,063 Less:- Accumulated Depreciation 2,388 3,725 4,692 5,745 Net Block 11,483 13,938 14,646 15,318 Add:- Capital work in progress 543 750 775 550 Investments 1,319 1,319 1,319 1,319 Net Working Capital excluding Cash 1,486 1,714 1,876 2,190 Cash & Cash Equivalents 1,430 833 1,003 1,811 Other Assets 0 0 0 0 Total Assets 16,260 18,554 19,619 21,188 Cash Flow Statement (INR mn) CY10 FY12 FY13E FY14E Cash profit adjusted for non cash items 2,152 3,859 3,510 4,363 Add/Less : Working Capital Changes 161 (228) (162) (315) Operating Cash Flow 2,312 3,631 3,348 4,049 Less:- Capex (4,423) (4,000) (1,700) (1,500) Free Cash Flow (2,110) (369) 1,648 2,549 Financing Cash Flow 2,275 (228) (1,478) (1,741) Investing Cash Flow 349 - - - Net change in Cash 513 (597) 170 808 Ratio Analysis CY10 FY12 FY13E FY14E Income Statement Ratios (%)

Revenue Growth 38.8 NM NM 16.2 EBITDA Growth 23.1 NM NM 17.6 PAT Growth 24.3 NM NM 30.2 EBITDA Margin 9.4 12.2 12.7 12.8 Net Margin 5.8 5.6 6.5 7.3 Return & Liquidity Ratios

Net Debt/Equity (x) 0.13 0.16 0.10 (0.04) ROE 14.0 17.1 15.5 17.0 With strong cash generation, ROCE 15.6 19.7 19.8 22.1 ACGL expected to turn net cash positive Per Share data & Valuation Ratios

Diluted EPS (INR/Share) 13.4 19.3 19.5 25.3 EPS Growth (%) 21.9 NM NM 30.2 DPS (INR/Share) 3.0 1.5 1.6 1.7 Steady growth in the earnings with P/E Ratio (x) 10.6 7.4 7.3 5.6 expansion of CFS business EV/EBITDA (x) 7.5 4.0 4.2 3.1 EV/Sales (x) 0.7 0.5 0.5 0.4 Dividend Yield (%) 2.1 1.1 1.1 1.2 Note: *15 months period as financial Y/E changed from Dec to Mar Source: Company, Elara Securities Estimates

Elara Securities (India) Private Limited 27 AAllcargollcargo Logistics Logistics

Investment rationale Strong presence in the LCL transport Flourishing prospects in other segments Improving financial position with surging return ratios

Company background Exhibit 2: Diversified MTO business America Allcargo Logistics (AGLL) is a leading multinational Africa 2% company providing integrated logistics solutions. It offers 9% specialised logistics services across multimodal transport operations, container freight station operations and project & engineering solutions. AGLL is the global leader in the less than container load (LCL) logistics with Europe the acquisition of ECU Line business. Presently, AGLL 31% Asia Pacific 58% operates in three operating segments multi modal

transport, CFS and project engineering and solutions segment. While, the multi modal transport segment remains the biggest contributor to revenue as well as operating profits, margins in the CFS business remain the Source: Company, Elara Securities Research strongest. LCL business provides insulation from volatility

Exhibit 1: Segment contribution to revenues (INR mn) AGLL has a dominating presence in the LCL cargo transport. As the nature of business involves transporting 50,000 less than container loads of cargo, the same is insulated 40,000 from economic turbulence to an extent. The same is 30,000 visible from volume growth AGLL has registered in the last five years. 20,000 The business has registered 16.7% CAGR in volume 10,000 growth over the last five years and we expect volume 0 growth in the segment to sustain going forward. We CY07 CY08 CY09 CY10 FY12 have estimated volume growth of 12.5% in FY13E Multimodal Transport Operations CFS followed by similar volume growth in FY14E as well. Project & Engineering Solutions CFS business: Sustainable high margins business Source: Company, Elara Securities Research AGLL operates in the CFS segment through its facilities at Multi modal transport – An attractive niche JNPT (Mumbai), Chennai, Mundra and Indore thereby AGLL is the largest global LCL operator with the ensuring it has presence across the major Indian ports acquisition of ECU Line business in 2006. The company which handle significant container traffic in India. now has presence across 65 countries with wide Exhibit 3: Expansion in CFS Capacity (TEUs) network of agents across the globe. It offers logistic solutions for LCL customers who can’t utilise the services 300,000 of Full Container Load (FCL) operators. AGLL has 250,000 pioneered the LCL consolidation in India and remains 200,000 the leader in the field and has presence across 4,000 nodes all over the globe. Due to the nature of its 150,000

business, it can also offer transportation of FCL cargo. 100,000 AGLL has a global reach in the segment and acquisition 50,000 of ECU Line has diversified its business across geographies thus de-risking the business from turmoil in 0 a particular region. CY11 FY12 FY13E FY14E FY15E JNPT Chennai Mundra

Source: Company, Elara Securities Research

28 Elara Securities (India) Private Limited Allcargo Logistics

Exhibit 4: CFS presence at key ports JNPT - I CFS JNPT – II CFS Chennai CFS Mundra CFS Kheda ICD Dadri ICD Nearest Port/Rail Siding 18 kms 18 kms 7 kms 7 kms 3 kms 0.3 kms Annual Capacity 144,000 TEUs 200,000 TEUs 145,000 TEUs 84,000 TEUs 40,000 TEUs 75,000 TEUs Land Area 23.5 acres 23 acres 24 acres 16 acres 14 acres 11 acres Paved Yes Yes Yes Yes Yes Yes Warehouse Area 11400 m2 22800 m2 14257 m2 12210 m2 3100 m2 5160 m2 Bonded Warehouse Yes Yes Yes No No No Weighbridge Yes - Yes Yes Yes Yes Trailers 130 40 25 45 35 10 Cranes 1 x 70 mt - - 1 x 50 mt - - Reach Stackers 8 2 6 4 1 1 Forklifts 19 - 22 9 2 2 Reefer Points 32 35 22 15 6 48 RTGC (rubber tired gantry crane) - Yes Yes - - -

Source: Company, Elara Securities Research

Consistent Volume growth Project engineering division: Providing diversification Logistics edge Although, the JNPT volumes have been sluggish in the recent past, the capacities at other locations have AGLL operates in the project & engineering solutions ensured consistent volume growth. While, the JNPT CFS segment which acts as a perfect foil for the existing has witnessed volume decline in CY11/or FY12, the businesses and enables the company to leverage already Chennai CFS registered strong volume growth of ~20% existing clientele. The segment involves transportation of as also the Mundra CFS which witnessed ~50% growth high value project specific cargo transport. The segment over the same period. However, with capacity expansion would cater to logistic services for typically heavy capex at the Mumbai CFS, we expect AGLL to consistently post projects like setting up of power plants, aluminum volume growth going forward. smelters, steel blast furnaces etc. Being a specialised function, AGLL has limited competition in the business. Sustainable rich margin business Apart from logistics, it also involves other ancillary CFS business due to its nature and constraints for the activities like clearance as well as warehousing of new entrants (proximity to port, contiguous land parcel imported goods for the project, transporting the same to and capital) enables operators to earn rich margins in relevant locations, regulatory compliance etc. the business. The operating costs involved in the CFS are AGLL is also into equipment business and has a fleet of relatively low and hence operators can earn operating 933 specialised equipments as well as vehicles. It has margins in excess of 50%. AGLL has consistently earned expanded its fleet size consistently over the last few years EBITDA margins in excess of 52% over five years. Even and accordingly has posted significant revenue growth going forward, we expect volumes in the business to in the segment. register high earnings and return ratios. Exhibit 6: Strong fleet size Exhibit 5: CFS business margins (%) March-12 March-11 Addition (%) 65 Trailers 497.0 425.0 16.9 Cranes 148.0 115.0 28.7 60 Forklifts 57.0 66.0 (13.6) Reach Stackers 36.0 29.0 24.1 55 Prime Mover 11.0 4.0 175.0 Hydraulic Axles 182.0 52.0 250.0 50 Barges 1.0 - - Girder Bridge 1.0 - - 45 933.0 691.0 35.0 CY08 CY09 CY10 FY12 Source: Company, Elara Securities Research EBITDA Margins

Source: Company, Elara Securities Research

Elara Securities (India) Private Limited 29 Allcargo Logistics

Exhibit 7: Diversified sector allocation of cranes Besides, the company operates in the asset light MTO operations, rich margin CFS business, which enables the Others Port & CFS company to earn strong return ratios. Although the 3% 8% return ratios remain low in the project engineering and Thermal Wind Energy power 35% solutions business due to the capital intensive nature of 5% the business, we expect the same to improve going Oil & Gas forward as the company increases its fleet. 9% Exhibit 9: Impressive profitability margins (%) 30 Engineering 19% Infrastructure 25 21% Source: Company, Elara Securities Research 20 With well diversified portfolio of clients in the segment, we expect it to continue posting steady revenues as well 15 as operating profits growth going forward. 10 Improving financials CY08 CY09 CY10 FY12 FY12 FY13E FY14E RoCE RoE With well diversified but integrated logistic services, AGLL is expected to register strong revenues as well as Source: Company, Elara Securities Estimates operating profits growth in the coming two years. We With major chunk of capex behind, AGLL is expected to believe capacity expansion in the CFS business coupled earn strong free cash flows going ahead. We expect the with diversified geographic presence in the LCL business company to earn free cash flow per share of INR13.1 in and well-diversified operations of the project FY13E and INR20.3 in FY14E. We expect the company to engineering & solutions business to insulate AGLL from be a net cash company with free cash flow generation economic turmoil. from FY13 onwards. It enjoys strong margins due to its niche presence in the project engineering as well as Multimodal Transport Buyback of shares Operators (MTO) businesses and locational advantage in Considering the strong free cash flow generation in the the CFS business. We believe, these advantages are business, AGLL’s board has initiated a buyback of shares. sustainable in nature and they enable AGLL to earn The buyback price has been capped at INR 142.50/share healthy operating profit margins. and the maximum consideration to be spent on buyback has been capped at INR750mn. Assuming that the Exhibit 8: Strong profitability margins (%) shares are tendered at the highest price, the same would 14 result in reduction of ~5.26mn shares (~4% reduction) in 12 the current outstanding share capital of the company. 10 We have built a case of tendering shares by shareholders 8 at the highest possible price and have accordingly reduced the share capital as well as the cash balance of 6 the company. 4 2 0 CY08 CY09 CY10 FY12 FY12 FY13E FY14E EBITDA Margin PAT Margin

Source: Company, Elara Securities Estimates

30 Elara Securities (India) Private Limited Allcargo Logistics

Valuation & Recommendation Strong presence in the LCL transport Flourishing prospects in other segments Improving financial position with surging return ratios

We have valued AGLL business on SOTP approach of Exhibit 10: Valuation summary valuation. Accordingly, we have assigned 5.0x SOTP Valuation FY13E EV/EBITDA for the MTO business, 6.0x EV/EBITDA for INR Mn Multiple INR MN the CFS business and 4.5x EV/EBITDA for the project Multi Modal Transport 1,912 5.0 9,561 engineering & solutions business. We arrive at our target CFS 1,406 6.0 8,437 valuation of INR180, at which price the stock would be Project Enginnering 1,344 4.5 6,049 trading at ~9.2x its earnings. The target valuation implies TOTAL Target EV 24,047 an EV/EBITDA ratio of 5.2x its FY13E EBITDA. Net Debt 1,512

We believe with strong growth prospects in FY13 as well

as FY14, the current valuations leave room for Target Market Cap 22,534

considerable upside. We initiate our coverage on AGLL No. of shares outstanding 125

with a target valuation of INR180 and a BUY Logistics

Target Price 180 recommendation. Current market Price 143

Potential Upside/(downside) (%) 26.1

Source: Company, Elara Securities Estimates

Elara Securities (India) Private Limited 31 Allcargo Logistics

Company Description Allcargo Logistics Limited (AGLL) is a leading multinational company providing integrated logistics solutions. It offers specialized logistics services across Multimodal Transport Operations, Container Freight Station Operations and Project & Engineering Solutions. AGLL currently operates out of 140own offices in 62 countries and also has an even larger network of franchisee offices across the world. AGLL remains a market leader in the segments it operates. In the MTO segment, the company offers services to LCL cargo, and hence has carved a niche position for itself. In the CFS segment, the proximity to the ports has enabled it to create a stronghold in the segment. It remains one of the few organized players in the project engineering and solutions business and hence is likely to post consistent growth going ahead.

Board of Directors& Management Shashi Kiran Shetty, Chairman & Managing Director Umesh Shetty, Director

Shashi Kiran Shettystarted his career in the Logistics Umesh Shetty, holds a Bachelor of Commerce degree industry in 1978 with Intermodal Transport and Trading and has a rich experience of more than 20 years in the Systems Private Limited, Mumbai. Subsequently, he fields of cargo and logistic business.His current moved to Forbes Gokak, a TATA Group Company where responsibilities include developing and managing the he gained experience in port operations.In 1993 he Equipment division of the company. With his strong founded Allcargo Logistics as freight forwarding entrepreneur skills and business acumen in logistic privately held company. Over the years the company business, the Equipment Division has registered sharp built capabilities in the Non-Vessel Operating Common growth. Mr. Shetty is also a Director in ECU Line Carrier (NVOCC) business and Multimodal Transport Companies. business. He has been conferred with the E&Y S. Suryanarayanan, Director – Finance Entrepreneur of the Year Award in services category in the year 2010 and has also won the ‘Face of the year’ S. Suryanarayanan was appointed Group Finance officer award at the 4th Express Logistics and Supply Chain in May 2008. As the group financial officer, he is awards (ELSC) organized by the Economic Times & responsible for the group financial plans, strategic Future Group. He has served on the Board of Mumbai planning, and merger and acquisitions of the group. He Port Trust and also was the Co-Chairman of the leads and manages the financial, secretarial and legal Transport and Logistics Committee of The Indian functions across the group. He has over 25 years of vast Merchant Chambers. He was the Vice President of experience in the logistics, chemical & engineering Association of Multimodal Transport Operators of India. sectors. Prior to joining Allcargo Logistics Ltd., he has worked in large organizations like Reliance and Great Adarsh Hegde, Executive Director Eastern. Adarsh Hegde embarked on the role of Executive Capt Ashok Shrivastava, Chief Executive Officer - Director at Allcargo Logistics Ltd. in September 2006. He Shipping Services is a Director on the Board of AGL and spearheads CFS, Captain Ashok Shrivastava heads the Ship Owning ICD, and Project Logistics and Warehousing business. He division. A Master Mariner by profession, he has over 8 is also the Corporate Marketing Chief for the group and years of command experience on foreign flag vessels. He is focused on continuing Allcargo's growth story across took up shore assignment over 12 years ago and has the business verticals. He holds a degree in mechanical since been involved with companies like Parekh Group, engineering and started his career as Assistant Hyundai Merchant Marine & Jindal Waterways. Maintenance Engineer with Eastern Ceramics Pvt. Ltd. At Allcargo Logistics, he successfully established Container Freight Station facilities at Chennai and Mundra and is in the process of setting up Container Freight Station facilities at other locations in India like Pithampur, Nagpur and Hyderabad.He currently holds the position of the President of CFS Association of India.

32 Elara Securities (India) Private Limited Allcargo Logistics

Hrushikesh Joshi, Group Chief Information Officer Mukundan, Chief Assurance & Risk Executive Hrushikesh Joshi was appointed Group Chief Mukundan is Chief Assurance & Risk Executive for the Information Officer of Allcargo Logistics Ltd. and its group. He is Chartered Accountant, Certified Public subsidiaries in April 2007. As Group CIO, he is Accountant, Certified Information System Auditor and responsible for the IT and Process function. His current Certified Internal Auditor. He has more than 25 years of responsibility is to build and manage a comprehensive IT versatile experience in Manufacturing, Consulting and portfolio that is aligned to business objectives at both Service Industries. He was also honored as Chief Allcargo Logistics Ltd. and ECU Line. He holds a degree Minister's Fellow by Government of Madhya Pradesh for in B.E (Computer Engineering) and has over 21+ years of innovative suggestion in the field of accounting. His work experience. Of these, he has spent over 16 years in current responsibilities include overseeing the assurance the transportation and logistics industry. and risk function for the entire Global operations, Joint ventures and subsidiaries. He additionally performs the Jatin Chokshi, Chief Investment Officer role of Ethics and Grievance Officer for the group Jatin Chokshi heads the Group's investment division. He is Chartered Accountant & Company Secretary with 27 Shantha Martin, CEO – NVOCC years of work experience in industries like Shipping, Shantha Martin heads the NVOCC Division. She holds a Consumer Durables and Industrial Chemicals. B. Sc. Degree and an MBA (Marketing) from Manipal. Her current responsibility is to head the Indian Subcontinent He joined Allcargo Group in 2001 and worked in and Middle East region to provide total logistics services capacity of Financial controller, CFO & CEO of a business with last mile connectivity. She oversees 47 offices in the Logistics vertical before taking over as Group Chief Investment region of the Indian Subcontinent and the Middle-East. Officer. He is responsible for building all new Projects of the Group, Investment & Treasury functions and Taxation matters.

Elara Securities (India) Private Limited 33 Allcargo Logistics

Coverage History

200

180

160

1 140

120

100 Jul-12 Jul-11 Jan-12 Jan-11 Sep-11 Sep-10 Oct-11 Oct-10 Jun-12 Jun-11 Apr-12 Apr-11 Feb-12 Feb-11 Mar-12 Mar-11 Dec-11 Dec-10 Nov-11 Nov-10 May-12 May-11 Aug-12 Aug-11 Aug-10 Not Covered Covered

Date Rating Target Price Closing Price 1 09-Aug-2012 Buy INR180 INR143

Guide to Research Rating BUY Absolute Return >+20% ACCUMULATE Absolute Return +5% to +20% REDUCE Absolute Return -5% to +5%

SELL Absolute Return < -5%

34 Elara Securities (India) Private Limited India | Logistics 10 August 2012 Initiating Coverage

Arshiya International

Banking on warehousing Rating : Buy Unique business model Target Price : INR170 Upside : 35% Arshiya International (ARST) operates in the free trade warehousing CMP : INR126 (as on 9 August 2012) zone (FTWZ) space. ARST remains the only sizable company which has operational FTWZ and hence enjoys a significant first mover Key data advantage. The monopolistic advantage coupled with its proximity to Bloomberg /Reuters Code ARST IN/ARTC.BO one of the key ports in the EXIM trade, ensures strong utilisations as Current /Dil. Shares O/S (mn) 59/59 also robust margins. Apart from FTWZ, the company also operates in Mkt Cap (INRbn/US$mn) 7/133 the rail and logistics businesses, which completes the chain of Daily Vol. (3M NSE Avg.) 66,274 integration in the logistics space. We expect the FTWZ segment to Face Value (INR) 2 drive future growth for the company and contribute close to 2/3rd of 1 US$= INR55.3 Source: Bloomberg ; * As on 9 August 2012

FY14E EBITDA. Higher contribution of rich margin business Price & Volume Traditionally ARST has operated in the logistics space, which has a 180 2.5 2.0 steady margin (~20% EBITDA margins) and higher RoCE business 160 (~average of 25%). ARST’s management has decided to venture into 1.5 140 the unexplored but high margin FTWZ business. The decision is 1.0 120 reaping returns now as is visible from results. The uniqueness of the 0.5

business coupled with the advantages it offers customers, allow it to 100 0.0 earn EBITDA margins in excess of 50%. We expect FTWZ business to Aug-11 Dec-11 Apr-12 Aug-12 Vol. in mn (RHS) Arshiya Int. (LHS) contribute ~63% in FY14E from ~42% in FY12. The return ratios for ARST are likely to grow consistently due to higher contribution of Source: Bloomberg

Global Markets Research FTWZ revenues and EBITDA. Share holding (%) Q2FY12 Q3FY12 Q4FY12 Q1FY13 Higher leverage; but to provide secular growth Promoter 43.2 43.2 43.2 43.2 Institutional Investors 16.6 18.4 15.8 15.4 ARST is investing in the FTWZ businesses at Panvel as well as Khurja as Other Investors 24.0 21.9 22.2 22.6 also in the rail business. Because of the initial capex of the FTWZ General Public 16.3 16.5 18.8 18.8

business (minimum requirement of 100 acres of land parcel and close Source: BSE

proximity to ports) the debt equity ratio of ARST is skewed as of now. Price performance (%) 3M 6M 12M However, as these investments become operational, the leverage is Sensex 6.6 (1.5) 4.2 likely to decline steadily as ARST gets into debt repayment mode. Arshiya International (17.6) (25.1) (2.8) Gateway Distriparks (9.4) (1.0) 6.7 Allcargo Logistics 20.6 (0.8) (10.8)

Valuation Source: Bloomberg

The capital intensive nature of the business has escalated the debt Price performance equity ratio for ARST. However, the FTWZ business requires lower 140 maintenance capex (as major investment is towards acquisition of 130 land) but delivers higher profitability as well as higher returns as 120 110 compared to similar businesses. ARST is likely to post highest 100 growth amongst the sector peers with superior return ratios. Hence 90 (Rebased to 100) to (Rebased although the risk is higher in the stock, we believe once the 80 Jul-12 Jan-12 Sep-11 Oct-11 Jun-12 Apr-12 Feb-12 Dec-11 Mar-12 Nov-11 May-12 Aug-12 Aug-11 Sensex Arshiya International Source: Bloomberg Key Financials Y/E Mar (INR mn) Rev YoY (%) EBITDA EBITDA (%) Adj PAT YoY (%) Fully DEPS RoE (%) RoCE (%) P/E (x) EV/EBITDA (x) FY10 5,259 4.5 895 17.0 618 (5.9) 10.5 9.7 8.3 12.0 13.9 FY11 8,215 56.2 1,580 19.2 825 33.6 14.0 11.6 8.3 9.0 12.9 FY12 10,547 28.4 2,781 26.4 1,256 52.3 21.4 15.7 9.8 5.9 10.3 FY13E 13,094 24.1 3,837 29.3 1,690 34.5 28.7 18.1 10.1 4.4 8.8 FY14E 17,331 32.4 6,083 35.1 2,449 45.0 41.6 21.6 12.7 3.0 6.3 Source: Company, Elara Securities Estimate

Ravindra Deshpande • [email protected] • +91 22 4062 6805 Elara Securities (India) Private Limited Arshiya International

Valuation trigger Investment summary

Visibility of cash Foray into highly profitable FTWZ inflows from the Panvel as well as business Khurja FTWZ 400 Panvel & Khurja FTWZs to complete

350 capacity expansion by FY15

300 Valuation trigger

250 1. Visibility of cash inflows from the

200 Panvel as well as Khurja FTWZ 2 Key risks 150 1

100 High financial leverage -10 -11 -12 -13 g g g g Negative FCF generation till end of Oct-10 Oct-11 Oct-12 Jun-11 Jun-12 Jun-13 Apr-11 Apr-12 Apr-13 Feb-11 Feb-12 Feb-13 Dec-10 Dec-11 Dec-12 Au Au Au Au FY14 Source: Bloomberg, Elara Securities Estimates Our assumptions Valuation overview No further capex apart from Panvel FY14E INR Mn Multiple INR Mn and Khurja FTWZ SOTP Valuation Debt repayments to start post FY15 EV/EBITDA Valuation

FTWZ Segment 3,819 8 30,548 Rail segment 930 6 5,113 Logistics Segment 1,335 4 5,340 TOTAL EV 41,002

Less: Net Debt 30,856

Target Market Cap 10,146

No. of shares outstanding 59

Target Price 170

Current Mkt Price 126

Upside/(Downside) (%) 35

Source: Elara Securities Research Peer analysis Logistics comparables Company Name CMP M Cap EV Revenues EBITDA Adj. PAT EPS ROE EV/EBITDA P/E CY12/ CY13/ CY12/ CY13/ CY12/ CY13/ CY12/ CY13/ CY12/ CY13/ CY12/ CY13/ CY12/ CY13/ USD USD mn USD mn FY13 FY14 FY13 FY14 FY13 FY14 FY13 FY14 FY13 FY14 FY13 FY14 FY13 FY14 Expeditors Intl 36.4 7,668 6,310 6,226 6,853 628 724 364 421 1.7 2.0 17.8 18.9 10.0 8.7 21.3 18.4 Uti Worldwide Inc 13.8 1,429 1,528 4,941 5,016 209 216 81 90 0.8 0.9 9.2 9.1 7.3 7.1 17.2 15.7 Qube Logistics 1.6 1,446 1,510 805 1,034 118 173 62 82 0.1 0.1 7.5 8.3 12.3 8.4 20.7 17.2 Dalian Port (PDA) 0.2 1,823 3,280 664 725 299 327 125 142 0.0 0.0 6.1 6.4 10.9 9.9 7.8 6.8 Sinotrans 0.1 575 809 7,764 8,402 287 376 117 142 0.0 0.0 6.8 7.8 2.8 2.2 5.0 4.0 Average 9.5 10.1 8.7 6.6 14.4 12.4

Arshiya International

Financials (Y/E Mar) Income Statement (INR mn) FY11 FY12 FY13E FY14E Revenue & margins growth trend Net Revenues 8,215 10,547 13,094 17,331 20,000 35.1 40 EBITDA 1,580 2,781 3,837 6,083 29.3 26.4 Add:- Non operating Income 28 77 78 79 15,000 30 OPBIDTA 1,608 2,858 3,915 6,162 19.2 10,000 20

Less :- Depreciation & Amortization 180 314 485 842 (%)

EBIT 1,429 2,544 3,430 5,320 (INR mn) 5,000 10 Less:- Interest Expenses 462 1,060 1,394 2,369 PBT 967 1,484 2,036 2,951 0 0 Less :- Taxes 140 228 346 502 FY11 FY12 FY13E FY14E Adjusted PAT 827 1,256 1,690 2,449 Net Revenues (LHS) EBITDA Margin (RHS) Add/Less: - Extra-ordinaries (5) - - - Source: Company, Elara Securities Estimates Reported PAT 822 1,256 1,690 2,449 Balance Sheet (INR mn) FY11 FY12 FY13E FY14E Share Capital 118 118 118 118 Adjusted profits growth trend Reserves 7,338 8,432 10,040 12,407 Borrowings 14,421 21,653 27,653 33,253 3,000 52.3 60 45.0 Minority Interest 0 0 0 0 2,500 50 Deferred Tax (Net) 0 0 0 0 2,000 33.6 34.5 40 Total Liabilities 21,876 30,203 37,811 45,778 1,500 30 Logistics Gross Block 6,697 15,170 21,990 30,990 (%) (INR mn) 1,000 20 Less:- Accumulated Depreciation 287 601 1,086 1,928 500 10 Net Block 6,410 14,569 20,904 29,062 Add:- Capital work in progress 12,560 13,320 13,500 11,500 0 0 FY11 FY12 FY13E FY14E Investments - - - - Net Working Capital excluding Cash 1,026 1,452 1,934 2,605 Adjusted PAT (LHS) PAT Growth (RHS) Cash & Cash Equivalents 1,668 650 1,260 2,398 Source: Company, Elara Securities Estimates Other Assets 212 212 212 212 Total Assets 21,876 30,203 37,811 45,778 Cash Flow Statement (INR mn) FY11 FY12 FY13E FY14E Return ratios Cash profit adjusted for non cash items 690 1,408 2,092 3,209 25 Add/Less : Working Capital Changes 918 (426) (482) (672) 21.6

Operating Cash Flow 1,607 982 1,610 2,537 20 18.1 Less:- Capex (9,368) (9,233) (7,000) (7,000) 15.7 Free Cash Flow (7,761) (8,251) (5,390) (4,463) 15

(%) 11.6 Financing Cash Flow 8,706 7,233 6,000 5,600 Investing Cash Flow (145) - - - 10 12.7 10.1 Net change in Cash 800 (1,018) 610 1,137 8.3 9.8 5 Ratio Analysis FY11 FY12 FY13E FY14E FY11 FY12 FY13E FY14E Income Statement Ratios (%) ROE ROCE Revenue Growth 56.2 28.4 24.1 32.4 EBITDA Growth 76.6 76.0 38.0 58.5 Source: Company, Elara Securities Estimates PAT Growth 33.6 52.3 34.5 45.0 EBITDA Margin 19.2 26.4 29.3 35.1 Strong revenue growth with Net Margin 10.0 11.9 12.9 14.1 phasewise commissioning of FTWZ warehouses Return & Liquidity Ratios

Net Debt/Equity (x) 1.73 2.47 2.61 2.48 ROE 11.6 15.7 18.1 21.6 ROCE 8.3 9.8 10.1 12.7 Per Share data & Valuation Ratios

Diluted EPS (INR/Share) 14.0 21.4 28.7 41.6 Reduction in debt:equity with EPS Growth (%) 33.6 52.3 34.5 45.0 improved cash flow generation DPS (INR/Share) 1.2 1.2 1.2 1.2 from FTWZ business P/E Ratio (x) 9.0 5.9 4.4 3.0 EV/EBITDA (x) 12.9 10.3 8.8 6.3 EV/Sales (x) 2.5 2.7 2.6 2.2 Dividend Yield (%) 1.0 1.0 1.0 1.0 Source: Company, Elara Securities Estimates

Elara Securities (India) Private Limited 37 AArshiyarshiya International International

Investment rationale Unique business model, to provide higher growth as also returns Shift from traditional logistics business to higher margin contribution business Higher leverage will diminish as growth kicks in

Unique business model for EXIM traders as well as Original Equipment Manufacturers (OEMs). India, with more than 7,000 kms ARST has ventured into the business of free trade of coastline and evenly distributed population, is an warehousing zone (FTWZ) which is a newly designed attractive FTWZ warehousing option for EXIM traders as concept in India similar to special economic zones (SEZ) well as trans-shippers. abroad. Considering the opportunities this concept offers, ARST’s management has invested in two locations Advantages offered by FTWZ viz. Panvel (near JNPT port) and Khurja (near Delhi). It is Being a deemed foreign territory, any goods entering also exploring options to develop FTWZs at Nagpur into FTWZ from within the Indian territory are (Central India), Chennai (Southern India) as also the considered as exports for all practical purposes. Similarly, eastern region. Post completion of the FTWZs, ARST will any goods entering FTWZ from outside India are not have a nationwide reach of FTWZs which will be treated as imports. Hence, deferment of customs duty is complimented by its rail network. We expect investment one of the more attractive propositions of the FTWZ to in FTWZ to reap strong returns for ARST. Thought the clients. Besides, exemptions from other taxes leviable in project is capex intensive, we expect rising foreign trade the Indian territory (e.g. sales tax, SAD, VAT) also offer as well as the first mover advantage to work in ARST’s significant savings for FTWZ clients. We have favour boosting the internal rate of return (IRRs) for the summarised the advantages FTWZ offers according to project. the customer classes. The concept of FTWZ Besides, the FTWZs also offer value optimising services Free Trade Warehousing Zone (FTWZ) is a special (VOS) such as packaging, labeling, CKD and SKD category of economic zone governed by the Special assembly amongst others to be carried on in the FTWZ Economic Zone (SEZ) Act passed by the Indian itself. The VOS offers clients flexibility in imports and legislature in 2006. The world over, FTWZs are used as exports as they can customise their consignments as per integrated hubs for international trading. Although the needs of different destinations. The customs clearance at concept is new in India, the same has been prevalent in the FTWZ site saves time and also frees the working countries like Dubai, China and Singapore for a long capital requirements of the consignor. period of time. The basic concept of FTWZ is that, it is Arshiya’s positioning in FTWZ business in India treated as a deemed foreign territory for all statutory purposes. Hence, the convenience as well as the cost Arshiya is the only sizable independent operating FTWZ savings offered by FTWZ makes it an attractive proposal within the Indian boundaries. Although there are no

Exhibit 1: Benefits of FTWZ For Imports For Exports For Re-Exports Flexibility towards end distribution in India Products from India entering the FTWZ are Service tax exemption on all activities treated as deemed export providing conducted inside the FTWZ including rental immediate benefits to suppliers & labour Duty deferment benefits (freeing up working Local Tax Exemption (e.g. CST, Sales Tax, Exemption from custom and stamp duty on capital & increasing sales) Excise & VAT) on all activities conducted inside products imported into FTWZ; meant for re- the FTWZ export out of India Quality control capability prior to duty- Export quotas able to be met for companies Income tax exemption on profit where payment exporting into FTWZ applicable Exemption on SAD, VAT & CST on imports Increased efficiency through lowered reverse Hassle-free re-export process through FTWZ. Service Tax exemption on logistics through quality control before services availed; including transportation dispatch from India inside India Hassle-free re-export regulatory /duty Foreign exchange transactions capability Permission of 100% FDI for the set-up of units implications by the unit holder of the FTWZ Reduced buffer stocks Ability to leverage India’s cost, skill & Increasing supply chain efficiencies (forward & geographic positioning advantage as a hub Lowered product costs reverse) while enhancing capital cash flow for regional/global distribution post Value Foreign exchange transaction capability Optimising Services Source: Company, Elara Securities Research

38 Elara Securities (India) Private Limited Arshiya International

stringent regulatory requirements for starting FTWZ, the FTWZ charges atleast 16% – 17% higher rentals /TEU as land acquisition process as well as the capex intensive compared to normal CFS. Besides, the VOS which also nature of the business remains a deterrent for new allows customisation, flexibility as well as cost saving players looking at entering the segment. The Indian opportunities for its customers provide a steady stream of statute makes it mandatory to have a contiguous land income for the FTWZ owner. parcel of 100 acres for FTWZ. Several players have Accordingly, we have analyzed the profitability as well as crossed the formal approval stage for FTWZ but do not the investment rationale of the FTWZ for Arshiya. The have operational FTWZs as of now. investment per warehouse for the FTWZ is Arshiya has acquired 165 acres of land for FTWZ at Sai approximately INR850mn/warehouse excluding the cost Village in Panvel. The FTWZ is located within close of land. A typical FTWZ at Panvel can hoard ~13,500 proximity (~24 kms) from JNPT (major port in India pallets (~19.30 TEU space) at a time. We have factored handling more than half of container traffic in India) in the current rentals for the FTWZ and have taken in which acts as an ideal location. The FTWZ is well VOS/rentals ratio of 2x (which currently stands close to connected by road on the Mumbai Goa highway, 1.5x but as the business attains maturity the same is likely ensuring faster mobilisation of goods to and fro from the to be closer to 3x). For the calculations, we have not JNPT port. The FTWZ is located at a distance of ~23 kms taken into account additional revenues that might be from the proposed new airport at Panvel. Hence, it is generated from the over dimensional cargo (ODC) yard well connected with rail, road as well as air which will adjacent to the FTWZ warehouse. Besides, we have mobilise faster movement of goods. Besides, being an taken into account only 80% capacity utilisation, which Logistics important destination for the Indian EXIM trade, the stands at 90%+ currently. As per our calculations, the FTWZ is also likely to play a major role in international investment in warehouse might earn 23.6% RoCE for trade in the long term future. Arshiya. Hence, in our view FTWZ is an attractive investment opportunity with significantly higher returns ARST has also acquired 315 acres of land at Khurja in even at 80% capacity utilizations. Uttar Pradesh. Apart from FTWZ, the complex will also house a distripark and will also include rail infrastructure. Exhibit 2: Attractive returns on investments (FTWZ) The site is well connected by rail and lies both on the Particulars

north-west as well as the north-east rail routes, which Construction cost of a typical 850 account for a large share of rail traffic in the country. warehouse in FTWZ (INR mn) No. of pallets available in FTWZ 13,500 Besides it is also well connected to the Yamuna Temperature control rooms (Sq 10,000 Expressway thereby facilitating easier and faster road ft/warehouse) transport. Rentals

Apart from the FTWZs at Panvel and Khurja, the Rent/Pallet/year (INR/ Annum) 9,600 9,600 9,600 Rent/Temperature control management is planning to build a FTWZ in Nagpur, 900 900 900 room/annum (INR/sq ft/annum) Chennai and other parts to create a network of FTWZs Proportion of VOS to rental revenues 2 2 2 across the country. As of now, investments in these projects are on hold and the management will take Capacity utilizations (%) 80.0 90.0 100.0 Revenues further steps post completion of Panvel and Khurja facilities. Pallet Revenues (INR mn) 104 117 130 Temperature control room revenues 7 8 9 Economics of FTWZ for ARST – (INR Mn) VOS Revenues (INR mn) 222 249 277 The FTWZ is a niche concept in India and as of now, only Arshiya is engaged in the business of commercial FTWZ. TOTAL Revenues 333 374 416 EBITDA margins for the FTWZ (Actual The rentals in FTWZ are higher as compared to the CFSs 73.0 73.0 73.0 for FY12) (%) primarily due to the flexibility they offer to customers in EBITDA (INR mn) 243 273 304 terms of payment of duty and clearance of goods. Less: - Depreciation (INR mn) 43 43 43 Besides, the several value added services offered within the FTWZ are a strong revenue source for the FTWZ EBIT(INR mn) 200 231 261 owner. RoCE (%) 23.6 27.1 30.7 Source: Company, Elara Securities Research The revenue/TEU for FTWZ are bound to be higher than normal CFS as the services offered by FTWZ and the several duty benefits that customers can afford make it the more preferred option for importers or exporters. Our back of the envelope calculations derive that a

Elara Securities (India) Private Limited 39 Arshiya International

Discounted Cash Flow (DCF) Value of Panvel project 12.5% and cost of equity of 17.5%, leading to a weighted We have valued the Panvel FTWZ project of Arshiya on a average cost of capital of 13.7%. We have assumed 80% DCF basis. According to our calculations, the project is capacity utilisation (which stands at 90%+ at present), likely to provide an IRR of 35%+ on the investment in the and have also taken the rentals which are equivalent to Panvel FTWZ. The total investment at Panvel would be the current rentals charged by Arshiya. We have taken INR15,750 mn which includes the value of land, only a percentage point increase per annum in the infrastructure and cost of building the warehouses. Most rentals, far lesser than the prevailing inflation rates in the of the investments are at the incubation stage as land country. and infrastructure are the most capital intensive stages of Our DCF model vindicates that the strategic location as the project. well as the first mover advantage are likely to reap The project is to be financed through a debt:equity of 3:1 benefits for ARST in the coming years. The project at ratio. Till date ARST has invested close to INR10,500mn Panvel itself is likely to provide an IRR of more than 35% on the project. Our assumptions include cost of debt of over a period of twenty years.

Exhibit 3: DCF value of Panvel - FTWZ project

Details of the project

Project cost (INR mn) 15,750

Capex spent till date (INR Mn) 10,500

Total debt component (INR mn) 11,813

Total debt component (INR mn) 3,938

Assumptions (%)

Risk Free Rate 9.0

Equity risk premium 3.5

Business risk premium 3.0

Cost of Equity 17.5

Cost of debt 12.5

WACC 13.7

DCF FY13E FY14E FY15E FY16E FY17E ……. FY32E

Warehouses Units 7 12 17 17 17 17 Capex INR mn (3,500) (1,750) - - - -

Debt Raised /(repaid) INR mn 2,953 984 (866) (879) (887) -

Total debt outstanding INR mn 10,828 11,813 10,947 10,068 9,181 -

Capacity Utilizations (%)

Pallets 71.3 63.8 79.6 80.0 80.0 85.0

Temperature control rooms 71.3 67.3 79.6 80.0 80.0 85.0

ODC Yard 100.0 100.0 100.0 100.0 100.0 100.0

Rented Space

Pellets Units 807,975 1,239,300 2,193,075 2,203,200 2,203,200 2,340,900

Temperature control rooms Sq Ft 598,500 969,000 1,624,500 1,632,000 1,632,000 1,734,000

ODC Yard Sq Ft 1,560,000 1,560,000 1,560,000 1,560,000 1,560,000 1,560,000

Rent Assumptions

Pellets INR/Month 853.3 862.1 870.7 879.4 888.2 933.5

Tempreture control room INR/sq ft 150.0 154.0 160.3 161.9 163.5 171.8

ODC Yard INR/sq ft 75.0 76.9 80.0 80.8 81.6 85.8

VOS (x) (x) 1.5 1.6 1.7 1.7 1.7 2.0

Total Revenues (INR mn) INR mn 2,065.1 3,266.3 5,997.3 6,084.7 6,145.5 7,583.7

Total EBITDA (INR mn) INR mn 1,531.7 2,389.2 4,329.7 4,392.6 4,436.5 5,383.5

Cash Flow statement

Cash profit from operations INR mn 178 983 3,418 3,653 3,814 6,941

Add/(Less): Working capital changes INR mn (155) (245) (450) (456) (461) (569)

Operating Cash flow INR mn 23 738 2,968 3,196 3,353 6,372

Less:- Capex INR mn (3,500) (1,750) - - - -

Free cash flow of the project INR mn (3,477) (1,012) 2,968 3,196 3,353 6,372

Discounting Factor 1 1 1 1 1 0

Discounted Cash Flows INR mn (3,057) (782) 2,017 1,910 1,762 486

Sum of DCF INR mn 18,691

Project IRR (%) 35.5

DCF For Equity holders FY13E FY14E FY15E FY16E FY17E ……. FY32E

Free cash flow to the firm INR mn (3,477) (1,012) 2,968 3,196 3,353 6,372

Less: Debt Repayments INR mn - - (866) (879) (887) -

FCF to Equity Holders INR mn (3,477) (1,012) 2,102 2,318 2,466 6,372

Discounting Factor 1 1 1 1 0 0

Discounted Cash Flows INR mn (2,960) (734) 1,297 1,218 1,103 255

Sum of DCF INR mn 9,080

No. of shares outstanding Mn 59

Value per share INR/share 154.3

Source:Company, Elara Securities Research

40 Elara Securities (India) Private Limited Arshiya International

Shift towards more profitable Higher leverage, but provides revenue mix secular growth opportunities ARST’s current business comprises of traditional logistics In the logistics space, ARST remains the only company segment (~48.9% of revenues) while, the rail and FTWZ which has leveraged balance sheet. The major part of segments contribute rest of the revenues. FTWZ remains the borrowing caters to capex towards Panvel and the most profitable segment for ARST with average Khurja FTWZ projects. The nature of FTWZ business blended EBITDA margins of ~73%+. It has historically requires huge capital investments at the incubation earned operating margins close to 20% for both its stage as the company needs to acquire contiguous land logistics as well as the rail segment. Considering the in excess of 100 acres for getting necessary approvals for nature of FTWZ business and the composition of costs, the FTWZ status. Accordingly, ARST has acquired 165 which can be controlled by the company, we believe acres of land for its Panvel FTWZ and 315 acres of land FTWZ segment will continue to earn strong operating for the Khurja FTWZ as well as distriparks facilities. Apart profit margins in the future as well. from land, the infrastructure also has to be built at the initial stages. ARST has invested on infrastructure at both Exhibit 4: Increasing contribution to revenues (INR mn) its facilities with the objective to cater to the 12,000 requirements of the entire project. The cost of building a 10,000 warehouse is less capital intensive than the cost of land 8,000 as well as infrastructure. Hence, once the company starts Logistics 6,000 generating revenues from the warehouses, the model would be self-sufficient to meet the capex requirement 4,000 for the next phase of warehousing in the same facility 2,000 thereby lowering the need for external finances. 0 FY12 FY13E FY14E FY15E As of now, the company has put its plans for the eastern, central and southern region FTWZ on hold and hence FTWZ Segment Rail Segment Logistics & Others would not require significant capex after completion of Source: Company, Elara Securities Research Khurja facility. Similarly, FTWZ due to its low cost model will derive ARST management has decided to opt for operating higher operating margins than other business segments lease for the expansion (10 rakes) in its rail business. of the company. We expect the FTWZ business to Hence, the same would not require heavy funding contribute 44% of EBITDA in FY13E which is likely to thereby reducing the need for borrowings. increase to 63% in FY14E. The segment is also likely to provide a steady earnings growth for the business as a Hence, once the company attains the operationalisation whole. As the operational warehouses attain maturity, stage for its warehouses, the leverage of the company we expect the ratio of VOS to increase going ahead. should start reducing thereby improving the return Similarly, the company has a warehouse commissioning ratios. We expect RoCE for ARST to improve from 9.8% in schedule which will keep adding to revenues as well as FY12 to 12.7% in FY14E and the ROE to improve to the operating profits in the years to come. 21.6% in FY14E from 15.7% in FY12.

Exhibit 5: Increasing contribution to EBITDA (INR mn)

12,000

10,000

8,000

6,000

4,000

2,000

0 FY12 FY13E FY14E FY15E FTWZ Rail Logistics & Others

Source: Company, Elara Securities Research

Elara Securities (India) Private Limited 41 Arshiya International

Valuation & Recommendation Unique business model, to provide higher growth as also returns Shift from traditional logistics business to higher margin contribution business Higher leverage will diminish as growth kicks in

We have valued ARST based on SOTP valuation. We Exhibit 6: Valuation summary have valued the company on FY14 multiples as the FY14E company would be in capex stage in FY13 and the entire INR Mn Multiple INR Mn revenue stream of the FTWZ business segment would SOTP Valuation

not be reflected in that year. EV/EBITDA Valuation

We have used EV/EBITDA multiple of 8x FY14E for its FTWZ Segment 3,819 8 30,548 FTWZ segment which is at par with the global Rail segment 930 6 5,113 warehousing valuations. The rail segment has been Logistics Segment 1,335 4 5,340

valued at 5.5x FY14E EV/EBITDA, a marginal discount to TOTAL EV 41,002 the global peers in that segment. The logistics business Less: Net Debt 30,856 has been valued at 4x EV/EBITDA, which is at a marginal Target Market Cap 10,146 discount to its global peers.

Accordingly, we derive our target valuation of INR 170/ No. of shares outstanding 59

share which provides an upside of ~23%.

Target Price 170

Current Mkt Price 126

Upside/(Downside) (%) 35

Source: Elara Securities Estimates

42 Elara Securities (India) Private Limited Arshiya International

Company Description Arshiya International Limited (ARST) is a unified supply chain infrastructure and solutions group. The group envisages a phased investment of approximately USD 1.6 billion towards creating state-of-the-art infrastructure across strategic locations in India. The infrastructure comprises free trade & warehousing zones (FTWZs), industrial & distribution hubs, rail, rail infrastructure, forwarding, transport & handling and supply chain technology & management solutions. ARST has commissioned India’s first Free Trade & Warehousing Zone (FTWZ) at Panvel, Mumbai spanning across 165 acres and is in the process of rolling out second FTWZ at Khurja, near Delhi followed by Nagpur with plans afoot for two more at South & East. Along with FTWZs, the company is also investing in the development of rail infrastructure to provide pan-India rail freight operations and building Rail terminals in strategic locations across the country.

Board of Directors & Management Ajay Mittal, Chairman Sandesh Chonkar, Executive Director & Chief Ajay Mittal has over 20 years of entrepreneurial career, Financial Officer (CFO) He has successfully scaled Arshiya International Group Sandesh Chonkar has over 20 years of senior by adding International Logistics, Supply Chain management experience including international Management, Information Technology, Logistics assignments. His experience includes having held key Logistics Infrastructure such as Free Trade & Warehousing Zones positions in financial, commercial, logistics, trading and (FTWZ), Domestic Distribution Hubs, Rail Infrastructure operational areas. He is currently involved in financial and Transport & Handling to its integrated business control, strategic planning, foreign trade documentation portfolio. He has held key leadership positions in diverse and business process development within the group. sectors including Commercial and Private Real Estate Ashish Bairagra, Independent Director and Chairman Development, Financial Services, Manufacturing, of the Audit Committee International Trading, Information Technology and Global Supply Chain Management. He received his M.B.A Ashish Bairagra has extensive experience in handling from United States. internal audits, statutory audits, management audits, tax advisory and business advisory assignments. His areas of Archana Mittal, Joint Managing Director specialisation include international taxation, transfer Archana Mittal represents Arshiya as one of the Board of pricing, valuation, due diligence, PE and VC funding and Directors while also leading the charter of Projects & cross border business structuring. He is a Partner of M. L. Procurement for Arshiya’s intensive CAPEX deployment Bhuwania & Co., Chartered Accountants, which is an into globally integrated logistics infrastructure. She independent member of Geneva Group International brings extensive experience and leadership towards (GGI). He is also the Regional Chairperson - Asia of the implementation, budgeting & adherence for Arshiya’s International Taxation Practice Group (ITPG) of GGI. consolidated infrastructure projects including the Prof G Raghuram, Independent Director creation of Free Trade and Warehousing Zones (FTWZ), Domestic Distriparks (DDP) and Rail Infrastructure Prof Raghuram is a professor in the Indian Institute of projects across India. She is also a key member of Management, Ahmedabad. His specialization is in Arshiya’s executive management team involved with infrastructure and transportation systems, and supply strategic decision-making towards Arshiya’s growth & chain and logistics management. His research, development. She is also in the promoter group of consultancy, case studies and publications focus includes Bhushan Steel Limited – one of the leading integrated railways, ports and shipping, air and road sector, service steel producers of India. Archana Mittal is a graduate in organizations and issues in logistics and supply chain Bachelor of Arts (Honours) from Punjab University. management. He has also taught at Northwestern University and Tulane University, USA. He has been visiting faculty at universities in USA, Canada, Yugoslavia, Tanzania, UAE, Singapore and several institutions in India. He has also co-authored four books. He is a member of boards and government committees related to infrastructure and logistics.

Elara Securities (India) Private Limited 43 Arshiya International

James Beltran, Independent Director Mukesh Kacker, Independent Director James Beltran currently serves as Chairman, MAA Kacker has almost 31 years of experience of working in International (Malaysia's largest insurance corporation the Government as an I.A.S. officer before he opted for with international offices throughout the region). He voluntary retirement to work in the area of infrastructure, previously headed his own law firm, Ravi Beltran and has held important senior positions, both in policy Advocates and Solicitors, served as partner at Gurbakash formulation roles as well as in executing capacities. As and Tan Advocates and Solicitors, and worked in Member, National Highways Authority of India (NHAI), litigation and corporate law of Sebastian and Company he was in the vanguard of personnel leading India’s in London. highways revolution and was instrumental in planning and executing a major portion of the Golden Rishabh Shah, Independent Director Quadrilateral. In his state cadre of Madhya Pradesh, he Rishabh Shah is a practicing legal counsel and a legal has held various positions including Secretary to the consultant who advises on several areas of civil law, in Government, Managing Directors of two state Public particular, commercial documentation, property Sector Undertakings and Secretary to the Chief Minister. documentation, various areas of banking, commercial contracts, company restructuring and securities law. In view of his experience in the infrastructure sector, the

Banking and Corporate law and litigation are his areas of Government of India has inducted him as Member, Task specialisation. He has over 17 years of experience Force on Infrastructure Development and Mega Projects. representing major corporations as legal counsel. He is also a Member on the Governing Board of Lifeline Foundation, an NGO based in Vadodara and working in the field of highway rescue.

44 Elara Securities (India) Private Limited Arshiya International

Coverage History

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100 Jul-11 Jul-12 Jan-11 Jan-12 Sep-10 Oct-10 Sep-11 Oct-11 Jun-11 Jun-12 Apr-11 Apr-12 Feb-11 Feb-12 Mar-11 Mar-12 Dec-10 Dec-11 Nov-10 Nov-11 May-11 May-12 Aug-10 Aug-11 Aug-12 Not Covered Covered

Logistics Date Rating Target Price Closing Price 1 09-Aug-2012 Buy INR170 INR126

Guide to Research Rating BUY Absolute Return >+20% ACCUMULATE Absolute Return +5% to +20% REDUCE Absolute Return -5% to +5% SELL Absolute Return < -5%

Elara Securities (India) Private Limited 45 Elara Securities (India) Private Limited

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the securities or derivatives of any companies that the analysts cover. The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report. Any clarifications / queries on the proposal as well as any future communication regarding the proposal should be addressed to Elara Securities (India) Private Limited / the company.

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The information contained in this note is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

46 Elara Securities (India) Private Limited

Disclosures for U.S. Investors

The research analyst did not receive compensation from Gateway Distriparks Limited, Allcargo Logistics Limited and Arshiya International Limited. Elara Capital Inc.’s affiliate did not manage an offering for Gateway Distriparks Limited, Allcargo Logistics Limited and Arshiya International Limited. Elara Capital Inc.’s affiliate did not receive compensation from Gateway Distriparks Limited, Allcargo Logistics Limited and Arshiya International Limited in the last 12 months. Elara Capital Inc.’s affiliate does not expect to receive compensation from Gateway Distriparks Limited, Allcargo Logistics Limited and Arshiya International Limited in the next 3 months.

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needs and is not intended as a recommendation of particular securities, financial instruments or strategies to you. Before Global Markets Research acting on any recommendation in this material, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Certain statements in this report, including any financial projections, may constitute “forward-looking statements.” These “forward-looking statements” are not guarantees of future performance and are based on numerous current assumptions that are subject to significant uncertainties and contingencies. Actual future performance could differ materially from these “forward-looking statements” and financial information.

47 Elara Securities (India) Private Limited

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