Patel Integrated Logistics Ltd
(BSE Code: 526381) (CMP: Rs.37.45) (FV: Rs.10) By Bikshapathi Thota Company Background:
Patel Integrated Logistics Ltd (PILL) is a single-stop logistics services provider that offers a complete range of logistics solutions through an extensive infrastructure of offices and delivery destinations across India. Its business activities include surface transport through Patel Roadways division; retail door pick-up and delivery through Patel Express division; warehousing through Patel Warehouse; air cargo consolidation through Patel Airfreight division. Delivrex India Ltd is its wholly-owned subsidiary.
PILL has purchased a 2.2 acre land on a long-term lease of 99 years from Karnataka Industrial Areas Development Board to construct a new warehouse facility in Bangalore, which is likely to be operative by FY19 end. It has also purchased a 3 acre land in Chennai to construct a new warehouse and transshipment facility, which will be used for Warehousing, Express and Distribution activities. The facility will lead to considerable savings in rent and boost revenue and profitability going forward. The management plans to invest ~Rs.80 crore to set up 10 warehouses in key traffic regions.
During FY18, PILL allotted 6,49,311 equity shares against conversion of equity warrants to a Mauritius based strategic investor - Frontline Strategy Ltd at an issue price of Rs.115/share on preferential basis. It also entered into a 51:49 joint venture agreement ‘DeliverEx’ with Dubai-based Fetchr to launch a dedicated e-commerce service in the Middle-East, which will be operational by 2018 end.
Surface Transport and Logistics: The transport and logistics sector is a significant contributor to economic growth and prosperity. The logistics sector in India supports various components of the manufacturing industry. The Union Budget has emphasized on infrastructure development by stressing the need for over Rs.50 lakh crore of investments to connect and integrate the country with a comprehensive network of roads, railways, airports, ports and inland waterways. With the advancement in e-commerce and vendors racing to provide the fastest door-to-door services, the scope for third-party logistics (3PL) and warehousing has widened. With upgradation of road infrastructure, cargo handling will also witness a significant shift from air-based to surface-based transport. Eventually, this will result in better infrastructural utilization and boost the overall feasibility of the network. Logistics companies have been the biggest beneficiaries in the GST era. After the removal of check posts, trucks are able to cover longer distances with an improved turnaround time. The logistics industry is witnessing a shift in trend from unorganized players to large organized players. Moreover, the infrastructure status to the logistics industry will enable companies in the logistics and warehousing sector to access funds at lower cost and for longer tenure with enhanced limits.
The Indian freight transportation sector is estimated to grow at ~13% CAGR by 2022. The high rate of development and new solutions for transport infrastructure is likely to boost the logistics industry in India. India was ranked 35th on the World Bank’s Logistics Performance Index, moving up from the 54th spot in 2014. The Indian logistics industry provides employment to more than 22 million people and has grown at 7.8% CAGR over the last five years. Realising the importance of the sector and to address the inefficiencies, the government has included the sector in the Harmonised Master list of Infrastructure Sub-sector.
Air Cargo: Air transport is vital for cross-border trade and speed and efficiency in transporting high-value, time and temperature sensitive cargo. IATA forecasts a rise in cargo carried in 2018 to 62.5 million tonnes v/s 59.9 million tonnes in 2017, which represents less than 1% of world trade by volume and over 35% by value. E-commerce companies like Amazon, Alibaba, eBay, etc. rely on express delivery services which are possible only through aviation. Therefore, the growth potential for the air cargo industry is phenomenal.
Conclusion: Currently, the stock trades at 6x FY19E EPS and 0.5x book, which is the lowest in the industry. Its recent tie-up with Amazon and the DeliverEx project will contribute to earnings going forward. Therefore, we have a Buy on the stock with a price target of Rs.90 (15x FY19E EPS) in the next 1-2 years.