Equity Research INDIA July 19, 2020

Logistics

ICICI Securities Limited is the author and distributor of this report An exceptionally weak quarter provides opportunities Container Corporation of India (Concor) stood out in Q1FY21 on the back of

Q1FY21 result preview respectable volume performance. Domestic and EXIM rail container volumes for Concor declined 25% and 20% YoY, respectively. EBITDA declined 27% YoY after factoring in the possible increase in land license fee. Container volumes (EXIM) in 12 major ports decline 32.2% YoY with JNPT declining 35%, thereby, making

Mundra the largest container port in India – Mundra exim container volumes dropped 18% YoY. This has not lead to any meaningful market share loss for TCI Express (BUY) Concor. Road transporters/3PL players have witnessed 46-76% YoY decline in Target price: Rs819 revenues as Apr, ’20 volumes were virtually non-existent. Allcargo Logistics’ topline performance, driven by the multi-modal transport operator (MTO) segment, Mahindra is expected to be best in the pack, while 35-40% decline in CFS volumes impact Logistics(ADD) profitability. We maintain BUY on TCI Express, Concor and VRL Logistics (VRL). Target price: Rs275  Trucking has been worst hit; utilisation has recovered to 75/80% in July. April and May have seen negligible volumes for trucking, while June utilisation improved Allcargo (HOLD) reaching 50-60%. Current industry utilisation is 75-80%. Leveraged asset-heavy Target price: Rs93 players continue to face meaningful distress and we expect truck possession to see a sharp spike once the moratorium on EMI payments end in Sept, 2020. In this Concor (BUY) pandemic hit Q1FY21, two trends were clear – increasing share of rails even in EXIM container trade and relatively better positioning of stronger balance sheet Target price: Rs500 organised sector road transporter. Both the trends are structural and will accentuate with the advent of DFC and determine our rating rationale on Concor, TCI Ex and VRL Logistics (BUY) VRL. Target price: Rs224  Concor. Concor is the only company in our coverage universe reporting profit in Blue Dart (HOLD) Q1FY21. Clarity on land license fee should be obtained in Q1FY21 result – Target price: Rs1,944 management has guided for a revised LLF of Rs4.5bn p.a. Concor’s coastal shipping operations were closed in Q1FY21. PAT is expected to decline 39% YoY to reach

Rs1.4bn.

 Allcargo. MTO business enjoys the buoyancy of global container trade in Q1FY21 and we expect near flat volumes in the same. Since ~90% of Allcargo’s topline is on account of MTO operations, the topline performance of Allcargo appears exceptionally strong. CFS business is expected to witness a 30% YoY drop in

volumes. While logistics park business was ramping up nicely reaching Rs108mn revenue runrate in Q4FY20, Q1FY21 will see a reset as there has been a significant reset in rentals all around driven by sharp decline in demand of grade A warehousing space. Managing leverage shouldn’t be a problem in H1FY21 for Allcargo.  TCI Express. We expect 61% YoY decline in topline due to disrupted operations in April and a slow pickup in May, ’20. While the management has earlier guided for an EBITDA breakeven in Q1FY21, we do factor in Rs70mn of negative EBITDA.

 Mahindra Logistics. We expect topline to decline by 46% YoY with auto revenue declining ~60% YoY. We expect warehousing revenue to decline 40% YoY, thus, breaking the 8-quarter-long trend of high double-digit revenue growth. Quarterly estimates Net Sales EBITDA PAT

% chg % chg % chg Research Analyst: (Rs mn) AMJ’20* (YoY) (QoQ) AMJ’20* (YoY) (QoQ) AMJ’20* (YoY) (QoQ) Abhijit Mitra TCI Express 1,000 (61.0) (58.0) (70.0) NM NM (81.7) NM NM [email protected] MHL 4,831 (46.3) (40.5) (448) NM NM (694) NM NM +91 22 6637 7289 Allcargo 18,893 4.1 1.0 700 (50.2) (34.2) (29) NM NM Concor 11,923 (27.3) (24.0) 2,961 (26.6) (37.6) 1,401 (38.5) (52.4) VRL 1,298 (75.9) (73.9) (749) NM NM (1,283) NM NM Blue Dart 5,032 (36.2) (29.5) 361.6 (68.1) (64.1) (876) NM NM Total 42,977 (27.6) (24.6) 2,755 (66.2) (65.7) (1,562) NM NM AMJ: Apr-Jun, ’20; Source: I-Sec research

Please refer to important disclosures at the end of this report

Logistics ICICI Securities

 VRL Logistics. Revenue may decline 76% YoY despite 8% QoQ price hike in Q1FY21. Bus segment has hardly registered any revenue for the quarter. Being an asset-heavy transporter, VRL will report maximum EBITDA loss in our coverage universe. A comfortable debt position will help VRL gain market share. Valuations appear prospective; cyclicality is clearly evident with EBIT/vehicle loss of Rs200,000 in Q1FY21.  Blue Dart Express. We expect 36% topline decline due to some air express utilisation for transport of essential commodities even in Apr,’20. However, pricing environment remained weak due to the sudden addition of belly cargo capacity as passenger transport virtually stopped.

Table 1: Valuation summary Target MCap PE (x) EV/EBITDA (x) Name Reco Price (Rs mn) FY20 FY21E FY22E FY20E FY21 FY22E TCI Express 819 BUY 25,773 28.5 29.0 22.5 20.9 20.7 16.2 MHL 275 ADD 22,619 41.7 186.6 28.8 14.1 19.0 10.8 Allcargo 93 HOLD 22,776 9.9 17.9 13.1 6.7 7.4 6.3 Concor 500 BUY 273,207 67.4 34.0 23.2 14.9 21.7 15.6 VRL 224 BUY 13,854 16.9 78.6 15.1 6.8 9.0 6.1 Blue Dart 1,944 HOLD 46,590 215.9 (202.0) 79.5 12.8 14.2 11.6 Average 55.6 18.9 1.5 11.7 15.0 10.7

Source: Company data, I-Sec research

TCI Express (BUY) (QoQ chg: 2.9%; YoY chg: 8.1%) Price chart Table 2: Q1FY21 result preview 1000 (Rs mn) 900 800 Q1FY21E Q1FY20 Chg. YoY (%) Q4FY20 Chg. QoQ (%) 700 Net income from operations 1,000 2,562 (61.0) 2,379 (58.0) 600 Total income from operations 1,000 2,562 (61.0) 2,379 (58.0) (Rs) 500 Operating expenses 720 1,852 (61.1) 1,665 (56.8) 400 300 Gross Margin 280 709 (60.5) 715 (60.8) 200 Gross Margin (%) 28.0 27.7 30.0 Employee wages 220 254 (13.2) 250 (12.0) Jul-17 Jul-18 Jul-19 Jul-20

Jan-18 Jan-19 Jan-20 Other expenses 130 160 (18.8) 198 (34.2) Total expenses 1,070 2,266 (52.8) 2,113 (49.4) EBITDA (70.0) 296 (123.7) 267 (126.2) EBITDA Margin (%) (7.0) 11.6 11.2 Depreciation 21 18 17.6 21 0.0 Other Income 12 7 60.3 12 0.0 Finance Cost 3 2 17.4 3 0.0 PBT (82) 283 NM 255 NM Tax - 99 (100.0) 65

PAT (82) 184 NM 190 NM Source: Company data, I-Sec research

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Logistics ICICI Securities

Mahindra Logistics (ADD) (QoQ chg: 5.8%; YoY chg: -29.9%) Price chart Table 3: Q1FY21 result preview 700 (Rs mn) 600 Q1FY21E Q1FY20 Chg. YoY (%) Q4FY20 Chg. QoQ (%) 500 Total income from operations 4,831 8,990 (46.3) 8,118 (40.5) 400 Operating expenses 4,445 7,672 (42.1) 6,801 (34.6) (Rs) 300 Employee wages 714 745 (4.2) 756 (5.5) 200 Other expenses 121 172 (29.8) 181 (33.2) 100 Total expenses 5,280 8,590 (38.5) 7,738 (31.8) EBITDA (448) 401 NM 380 NM Jul-20

Apr-18 EBITDA Margin (%) Jan-20 (9.3) 4.5 4.7 Mar-19 Nov-17 Sep-18 Aug-19 Depreciation 220 149 48.2 220 - Other Income 31 70 (55.6) 31 - Finance Cost 57 36 59.4 57 - PBT (694) 286 NM 134 NM Tax - 100 36

PAT (694) 187 NM 98 NM Source: Company data, I-Sec research

Table 4: Performance assessment (Rs mn) Q1FY21 Q1FY20 Chg. YoY (bps) Q4FY20 Chg. QoQ (bps) Auto as % of total sales 53.2 58.0 (474) 56.2 (299) Mahindra as % of total sales 51.5 56.0 (448) 48.4 316 Total Warehousing mix (%) 17.4 15.6 181 18.1 (67) Total transportation mix (%) 68.4 73.5 (512) 71.9 (351) Growth rates (%) - Total revenue (46.3) (3.1) (4,312) (20.0) (2,626) Mahindra SCM revenue (49.1) (6.1) (4,296) (27.9) (2,122) Non - Mahindra SCM revenue (46.9) (1.6) (4,535) (9.4) (3,749) Transportation (50.0) (10.0) (4,000) (16.2) (3,383) Warehousing (40.0) 24.7 (6,468) 10.2 (5,017) Auto (59.1) (4.7) (5,441) (18.6) (4,047) Non-Auto (42.6) (0.4) (4,222) (6.7) (3,594) Source: Company data, I-Sec research

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Logistics ICICI Securities

Allcargo (HOLD) (QoQ chg: 15.0%; YoY chg: -7.8%) Price chart Table 5: Q1FY21 result preview 250 (Rs mn) 200 Q1FY21E Q1FY20 % Chg YoY Q4FY20 % Chg QoQ 150 Income from ops 18,828 18,089 4.1 18,644 1.0 Other operating income 66 65 66 (Rs) 100 Total Income from operations 18,893 18,153 4.1 18,710 1.0 50 Total Expenses 18,193 16,747 8.6 17,646 3.1 0 EBITDA 700 1,406 (50.2) 1,063 (34.2) Margin (%) 3.7 7.7 5.7

Jul-17 Jul-18 Jul-19 Jul-20 Depreciation 602 547 10.0 602 - Jan-18 Jan-19 Jan-20 Other income 177 63 181.5 177 - Finance Costs 293 117 150.2 293 - Exceptional - - - PBT (18) 805 (102.2) 345 (105.2) Tax (5) 175 112 PAT (13) 630 (102.1) 233 (105.8) Share of profit from associates (20) (14) (20) MI 5 15 34 PAT (29) 630 (104.5) 247 (111.6) OCI - (23) 202 TCI (29) 607 449 (106.4) Source: Company data, I-Sec research

Table 6: Performance assessment (Rs mn) Segment Revenues Q1FY21E Q1FY20 % Chg YoY Q4FY20 % Chg QoQ -MTO 16,929 15,392 10.0 16,156 4.8 -CFS 1,000 1,121 (10.8) 1,113 (10.2) -P&ES 883 921 (4.2) 697 26.7 -Logistics 118 18 40 -Others 66 57 61 Total 18,719 17,255 8.5 17,790 5.2 Segment Results Q1FY21E Q1FY20 % Chg YoY Q4FY20 % Chg QoQ -MTO 581 605 (4.0) 634 (8.3) -CFS 95 366 (74.1) 229 (58.6) -P&ES (251) 84 (102) NM -Logistics 119 (7) (20) -Others (311) (94) (134) NM Total 233 953 (75.5) 606 (14.0) Source: Company data, I-Sec research

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Logistics ICICI Securities

Container Corporation (BUY) (QoQ chg: 19.0%; YoY chg: -18.7%) Price chart Table 7: Q1FY21 result preview 700 Chg. Chg. 600 Q1FY21E Q1FY20 (YoY%) Q4FY20 (QoQ%) 500 Net income 11,923 16,389 (27.3) 15,686 (24.0)

(Rs) 400 Total Expense 8,962 12,357 (27.5) 10,942 (18.1) 300 200 EBITDA 2,961 4,033 (26.6) 4,745 (37.6) EBITDA margin (%) 24.8 24.6 30.2

Jul-17 Jul-18 Jul-19 Jul-20 Adjusted EBITDA 2,961 4,033 (26.6) 4,745 (37.6) Jan-18 Jan-19 Jan-20 EBITDA margin (%) 24.8 24.6 30.2 Adjusted EBITDA/teu 3,146 4,119 (23.6) 5,212 (39.6)

Depreciation 1,336 1,253 6.6 1,336 - Other income 583 583 - 952 (38.8) Finance Cost 59.6 112 107.6 Exceptional item 206 PBT 1,942 3,250 (40.2) 4,047 (52.0) Tax 541 971 1,102 PAT 1,401 2,278 (38.5) 2,945 (52.4) Source: Company data, I-Sec research

Table 8: Performance assessment (Rs mn) Chg. Chg. Q1FY21E Q1FY20 (YoY%) Q4FY20 (QoQ%) Segment Revenue 11,923 16,389 (27.3) 15,686 (24.0) -EXIM 9,157 12,704 (27.9) 11,307 (19.0) -Domestic 2,766 3,685 (24.9) 4,380 (36.8)

Segment EBIT 1,625 2,779 (41.5) 3,409 (52.3) -EXIM 1,836 2,926 (37.3) 3,425 (46.4) -Domestic 55 189 (70.6) 397 (86.1)

TEU Handled -EXIM 627,905 786,442 (20.2) 775,319 (19.0) -Domestic 104,806 140,481 (25.4) 165,951 (36.8)

ASP/TEU -EXIM 14,583 16,154 (9.7) 14,583 0.0 -Domestic 26,390 26,232 0.6 26,390 0.0 EBIT/TEU (Adjusted) -EXIM 2,923 3,720 (21.4) 4,417 (33.8) -Domestic 528 1,342 (61) 2,395 (78) Source: Company data, I-Sec research

Table 9: Container volumes at major ports (000 teu) Q1FY21E Q1FY20 % Chg YoY Mumbai 2 8 (75.0) JNPT 848 1,307 (35.1) Kandla 96 117 (17.9) Kolkata 102 165 (38.2) Haldia 29 43 (32.6) Paradip 3 2 50.0 Visakhapatnam 114 127 (10.2) Ennore 37 39 (5.1) Chennai 213 372 (42.7) V.O. Chidam baranar 153 200 (23.5) Cochin 113 152 (25.7) New Mangalore 28 34 (17.6) Mormugao 5 8 (37.5) Total 12 major ports 1,743 2,574 (32.3) Mundra 971 1,180 (17.7) Source: Company data, I-Sec research

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Logistics ICICI Securities

VRL Logistics (BUY) (QoQ chg: -10.3%; YoY chg: -44.2%) Price chart Table 10: Q1FY21 result preview 500 Chg. YoY Chg. QoQ 450 Q1FY21E Q1FY20 (%) Q4FY20 (%) 400 350 Income from operations 300 -Net income from operations 1,285 5,370 (76.1) 4,933 (74.0) (Rs) 250 -Other operating income 13 26 45 200 150 Total income from operations 1,298 5,396 (75.9) 4,978 (73.9) 100 -Operating expenses - 3,492 (100.0) 3,388 (100.0)

Jul-17 Jul-18 Jul-19 Jul-20 Gross Margin (%) #DIV/0! 54% 46% Jan-18 Jan-19 Jan-20 -Employee wages - 925 (100.0) 957 (100.0) -Other expenses - 92 67 (100.0) Total expenses 2,047 4,508 (54.6) 4,412 (53.6) EBITDA (749) 888 NM 566 NM EBITDA Margin (%) (57.7) 16.5 11.4 Depreciation 453 400 13.3 453 0.0 Other Income 24 24 0.0 24 (1.6) Finance Cost 105 88 19.6 105 0.0 Exceptional item 0 0 PBT (1283) 424 NM 33 NM Tax - 210 11 PAT (1283) 214 NM 21 NM Source: Company data, I-Sec research

Table 11: Performance assessment (Rs mn) Chg. YoY Chg. QoQ Q1FY21E Q1FY20 (%) Q4FY20 (%) Segment Revenue Income from operations -Goods Transport 1,166 4,230 (72.4) 4,165 (72.0) -Bus operations 52 1,040 (95.0) 706 (92.6) -Sale of power 24 48 (50.0) 20 23.3 -Air Chartering 43 52 (17.9) 43 0.0 Other operating income 13 26 (50.0) 45 (71.1) -Goods Transport -Other unallocable income

-Less intersegment Total income from operations 1,298 5,396 (76) 4,978 (71.2)

Segment Results -Goods Transport (634) 685 NM 479 NM -Bus operations (148) 205 NM 65 NM -Sale of power 15 31 NM 4 NM -Air Chartering Total EBIT (749) 888 NM 566 NM Source: Company data, I-Sec research

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Logistics ICICI Securities

Blue Dart (HOLD) (QoQ chg: -11.3%; YoY chg: -18.2%) Price chart Table 12: Q1FY21 result preview (standalone) 5000 (Rs mn) Chg. YoY Chg. QoQ 4000 Q1FY21E Q1FY20 (%) Q4FY20 (%) 3000 Net income from operations 5,010 7,866 (36.3) 7,241 (30.8) (Rs) 2000 Total income from operations 5,010 7,866 (36.3) 7,241 (30.8) Operating expenses 3,257 5,301 (38.6) 5,225 (37.7) 1000 Gross Margin 1,754 2,564 (31.6) 2,017 (13.0) Gross Margin (%) 35.0 32.6 27.8 Jul-17 Jul-18 Jul-19 Jul-20

Jan-18 Jan-19 Jan-20 Employee wages 1,342 1,464 (8.4) 1,342 - Other expenses 450 655 (31.3) 518 (13.1) Total expenses 5,048 7,420 (32.0) 7,085 (28.7) EBITDA (38) 446 NM 157 NM EBITDA Margin (%) (0.8) 5.7 2.2 Depreciation 437 338 29.4 437 - Other Income 25 43 (42.2) 25 - Finance Cost 79 83 (5.2) 79 - PBT (528) 69 NM (333) NM Tax (95) 23 NM (95) NM PAT (433) 46 NM (238) NM Source: Company data, I-Sec research

Table 13: Q1FY21 result preview (consolidated) (Rs mn) Chg. YoY Chg. QoQ Q1FY21E Q1FY20 (%) Q4FY20 (%) Net income from operations 5,032 7,888 (36.2) 7,134 (29.5) Total income from operations 5,032 7,888 (36.2) 7,134 (29.5) Operating expenses 2,257 4,079 (44.7) 3,580 (37.0) Gross Margin 2,775 3,809 (27.1) 3,554 (21.9) Gross Margin (%) 55.2 48.3 49.8 Employee wages 1,749 1,859 (5.9) 1,861 (6.0) Other expenses 664 816 (18.6) 686 (3.1) Total expenses 4,670 6,754 (30.9) 6,127 (23.8) EBITDA 362 1,134 (68.1) 1,007 (64.1) EBITDA Margin (%) 7.2 14.4 14.1 Depreciation 954 806 18.4 884 7.8 Other Income 12 59 (79.9) 34 (64.6) Finance Cost 296 297 (0.5) 289 2.5 PBT (876) 90 NM (132) NM Tax - 31 NM (30) NM PAT (876) 60 NM (101) NM Source: Company data, I-Sec research

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Logistics ICICI Securities

Valuation methodology and key risks

TCI Express (BUY, TP: R819): Maintain BUY with a target price of Rs819/share, based on 30x FY22E EPS.

Mahindra Logistics (ADD, TP: Rs275): Maintain BUY with a target price of Rs275/share based on 25x FY22E EPS.

Allcargo Logistics (HOLD, TP: Rs93): Maintain HOLD with a target price of Rs93/share. We value Allcargo on SoTP basis due to the inherent differences in capital intensity, profitability, etc. of its key businesses of MTO and CFS on one hand, and P&E on the other. Our target price of Rs93 is arrived at by valuing: 1) MTO business at 8x FY22E EV/EBITDA, 2) CFS business at 6x FY22E EV/EBITDA, 3) P&E business at 6x FY22E EV/EBITDA and 4) Logistics park business at 8x EV/EBITDA.

Container Corporation (BUY, TP: Rs500): Maintain BUY with a target price of Rs500/share using a DCF-based valuation model. Lower-than-expected benefits from DFC is a key risk to our call.

VRL Logistics (BUY, TP: Rs224): Maintain BUY with a target price of Rs224/share based on 20x FY22E EPS.

Blue Dart (HOLD, TP: Rs1,944): Maintain HOLD with a target price of Rs1,944/share using DCF-based valuation model.

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Logistics ICICI Securities

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New I-Sec investment ratings (all ratings based on absolute return; All ratings and target price refers to 12-month performance horizon, unless mentioned otherwise) BUY: >15% return; ADD: 5% to 15% return; HOLD: Negative 5% to Positive 5% return; REDUCE: Negative 5% to Negative 15% return; SELL: < negative 15% return

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