Pa­tel In­te­grated Lo­gis­tics Ltd

Money Times - - Best Bet -

(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.

In­dus­try Over­view:

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.

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