Mukul Mahavir Agarwal Portfolio Stock Has 70% Potential Upside: Do You Own?

Allcargo Gati Ltd is a small-cap logistic company with a market cap of Rs 1,678 Cr. The stock opened on the BSE at Rs 130.90 apiece and rallied to an intraday high of Rs 131.05 during the morning session. The stock has gained 1.42% YTD but the Nuvama Wealth and Investment Limited (NWIL) is bullish on the stock for a target price of Rs 222 which implies a potential upside of 70% from the current market price.

Allcargo Gati Investment Rationale

"Allcargo Gati (ACLGATI) announced an elaborate scheme of arrangement on December 21 that effectively: i) demerges the international supply chain (ISC) business into a separate entity, ii) merges the express business of ACLGATI and the domestic supply chain business of Allcargo Logistics (AGLL) into a single entity and management, iii) simplifies the organisational structure by eliminating cross holdings, reducing the legal entities, and unifying synergistic businesses. The result of the scheme will be two entities: i) Allcargo ECU (AEL), which will house the ISC; and ii) Allcargo Logistics, which will include the domestic supply chain and express logistics businesses. The management expects the scheme to conclude by January 2025," said the brokerage.

"ASCPL is the market leader in the chemical warehousing segment in India. It is expanding its offerings in the rapidly growing ecommerce, auto and auto-ancillary, and retail sectors. The chemical, food & pharma and e-commerce sectors, both contribute 35-40% to ASCPL's total revenue, while auto & industrial sectors contribute 18-20%. It manages one of India's largest warehousing space of more than 5mn sq. ft.

Over the next three-to-four years, the management plans to double its capacity to ~10mn sq. ft. Given its niche in chemical management, along with a bouquet of value-added services, it generates an EBITDA margin in excess of 35%, which it aims to maintain ahead. In FY23/the last 12 months, it reported a revenue of INR341cr/INR332cr with an EBITDA of INR121/INR133cr. Net debt stood ~INR10cr as of September," Nuvama said in a note.

"The merged entity will have more than 150 distribution hubs and warehouses, spread over nearly 10mn sq. ft. The merger will bring together a set of complimenting products and services under a single management and entity, which will enable the company to service the entire domestic logistics value chain. It will enhance cross-selling opportunities, which will allow expansion of the customer base and increase the wallet share from existing clients.

Since the services are complimentary in nature, the merged entity will be able to eliminate overlapping costs and rationalise overheads, driving margin expansion for both express and contract logistics. We expect the merger to be beneficial for both businesses individually. We are not revising our estimates for ACLGATI as the transaction is yet to receive the required approvals," stated the brokerage.

Allcargo Gati Share Price Target

"ACLGATI is the pioneer and one of the leading players in the domestic surface express logistics industry. With a network of 22 transhipment hubs, nearly 700 branches, and more than 5,000 vehicles, its surface express business covers 99% of serviceable pin codes in India. The focus is on improving its wallet share by adding transhipment hub capacity and increasing its customer base by improving the quality of service. While profitability in the business was subdued in H1FY24, the management cleaned out a lion's share of legacy issues and gained market share," said the brokerage.

"Over FY23-26, we expect ACLGATI's volume/revenue to clock 14.5%/11.8% CAGR, led by market share gains, capacity expansion, and improvement in service quality. EBITDA is expected to clock 41.8% CAGR over FY2326 on operating leverage benefits and rationalisation of indirect operating costs. We remain optimistic on GTIC's turnaround story and expect a gradual re-rating as the structural changes will start reflecting in financials. The Balance Sheet is healthy, with a near net debt free position, steady working capital, and healthy operating cash flows. We maintain 'BUY' on ACLGATI with a DCF-based TP of INR222," Nuvama said in a note.

Allcargo Gati Shareholding Pattern

During Q2FY24, the company reported promoters' shareholding of 52.97%, FIIs stake of 0.75%, DIIs stake of 1.54% and public stake of 44.74%. As per the shareholding pattern of Allcargo Gati for the July to September 2023 quarter, ace investor Mukul Mahavir Agarwal held 70,00,000 shares of the company or 5.38% fully paid up equity share capital.

Disclaimer

The recommendations made above are by market analysts and are not advised by either the author, nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.