Financial Analysis of Allcargo Logistics, India

Financial Analysis of AllCargo Logistics – India

Introduction

AllCargo Logistics, part of the Avvashaya Group, is India’s first and largest integrated logistics solutions provider in the private sector. It operates in over 90 countries and its registered office is in Mumbai, India (https://www.moneycontrol.com).

Promoter group holds 69.11% in Allcargo as on Sep 30, 2017 (CRISIL, 2017, para 14). The Company operates mainly into three segments i.e. (i) Multimodal Transport Operations; (ii) Container Freight Stations/Inland Container Depots and (iii) Project and Engineering Solutions.

Allcargo has become leading LCL consolidator in the world after the acquisition of the Belgium-based ECU line in 2006. They also acquired Econocaribe to increase its growth in US and in the FCL cargo (CRISIL, 2017, para 14).

Performance Overview

The revenue from operations for fiscal 2017 stood at ₹ 11.73 billion declined by 3% over the previous year ₹ 12.05 billion whereas EBIDTA stood at ₹ 25.92 billion, a decrease of 4% as compared to ₹ 27.13 billion earned in 2015-16.

The Profit after taxes was ₹ 10.63 billion lower by 12% as compared to ₹ 12.10 billion of the previous years. For the year 16-17, company gave dividend of ₹ 2 per equity share (100%) on the paid-up capital of the Company (previous year two interim dividends of ₹ 1/each per equity share) amounting to ₹ 5.91 billion including Dividend Distribution Tax, resulting in payout of 56% of standalone profits for FY2016-17 of the Company (https://www.moneycontrol.com).

Current Financial Position

The Cash flows from operations were positive ₹ 17.92 billion (as at March 31, 2016 ₹ 19.72 billion). Spend on capex was ₹ 8.44 billion. The borrowing of the Company as at

March 31, 2017 stood at ₹ 36.33 billion (as at March 31, 2016 ₹ 19.49 billion). Cash and

bank balances including investment in mutual funds stood at ₹ 6.12 billion (as at March 31, 2016 ₹ 7.67 billion). The Net Debt to Equity stood at 0.23 times (as at March 31, 2016 0.09 times).

During the year under review, the Company spent ₹ 12.56 billion (including transaction cost) for Buy Back of 6,400,000 equity shares (https://www.moneycontrol.com).

Industry Overview

AllCargo Logistics Limited. is a well-known company which operates in transportation and logistics sector in over 90 countries. Transportation and logistics sector is worth 160 billion USD and is likely to touch 215 billion USD by 2020 (The Economic Times, 2018, Para. 1).

        More than 22 million people work in the logistics sector and it has grown at a rate of 7.8% in last five years. In the Logistics Performance Index issues by World Bank in 2016, India was at 35th rank from 54th in 2014 (The Economic Times, 2018, Para. 4).

        Article in Economic Times also added that India remains an unorganized place fo logistics companies. There are various challenges such as high cost of logistics, underdeveloped material handling infrastructure, fragmented warehousing and lack of seamless movement of goods across different modes (The Economic Times, 2018, Para. 8). It’s important to focus on new technology, improved investment, and transportation infrastructure. Warehouse automation is a sector which can revolutionized this unorganized sector. Company like GreyOrange (https://www.greyorange.com) is already doing this in India. There are various factors due to which logistics sector in India in general is very lucrative. With infrastructure status, logistics companies can borrow money at cheaper rates which will boost the overall infrastructure of the industry (Mukherjee, 2017, para. 2). Government initiatives like Bharatmala, GST, Make in India, dedicated-rail-freight-corridors; massive investment in the railways will enable better connectivity which will be a big trigger for the sector ((Mukherjee, 2017, para. 3).

Financial Ratios Analysis

Financial ratio analysis is used to measure firm’s financial and operating performance. It is done by evaluating current and past financial statements. Such analysis can be used to predict whether a company is showing improvements or is declining (Investopedia, 2018, para. 1-2).

         Financial ratio analysis is a great tool to compare a particular company with its peers and can also be used to see company’s performance with the industry standard. Ratio analysis helps a business manager or investors to make better financial decisions. While there are plentiful of financial ratios to be used but here we have categorized those into three major groups, i.e.

1. Liquidity Ratios
2. Solvency Ratios
3. Profitability Ratios

Liquidity Ratios

        Liquidity ratios describe the capability of a company to meet its obligations by its current assets when it will be due (Accounting Coach, 2018, para. 1). This analysis can be done internally or externally. Internal analysis use same accounting method for a company during different time period, while external analysis analyze company’s standing or position with other company at a particular time interval. Higher ratio indicates a company with a low risk of default. Major ratios under liquidity ratios include working capital, current ratio, cash current debt coverage, receivables turnover ratio, inventory turnover ratio and days in inventory. All these ratios have been used to find liquidity ratio standing for Allcargo and have been compared with its peers working in the same industry.

Working capital.

Working capital of a company tells us weather a company has enough short term assets to cover its short term liabilities or not (Investopedia, 2018, para. 2). As per the analysis, Allcargo has working capital of 59.12 Crs, which is than other two but is less than Bluedart. Bluedart holds a strong position among the four companies.

[pic 1]

Figure1. Working capital comparison dated March’18. Data were taken from MoneyControl (2018).

Current ratio. 

Current ratio gives a picture of the firm’s financial health (Investopedia, 2018, para. 3). It can indicate company’s ability to convert its product into cash. Higher ratio simply means that company is more capable of paying its obligations (Investopedia, 2018, para. 5). As per the graph below, Allcargo has a current ratio of more than 1 which is an acceptable number (Investopedia, 2018, para 3). Ratio below 1 is a negative thing for the company as it is for VRL. Bluedart again has a strong hold on its current ratio amongst all.