Strong relationship with shipping lines, vast experience and wide network in the Multimodal Transport (MTO) segment, global presence, experienced management team and efforts taken by the company to improve operational performance have translated in strong operational performance for ALL in H1FY18 despite weak global container trade. Also with significant International operations (MTO segment), B2B clients and 100% e-payments systems would provide impetus to growth under GST. New container freight station (CFS) in Kolkata, value accretive small acquisitions in the MTO segment, improved utilisation in the projects division and rational steps to bring down operational cost would enable the company to maintain margins at ~8.8% and earnings CAGR of 14.5% over FY17 to FY20E.
We also estimate ALL to be the biggest beneficiary of any recovery in trade and GST implementation. We introduce FY20 numbers and increased the TP to Rs 250 at 18x FY20E (from Rs 205) and maintain Buy on the stock. Volumes continue to grow at a stable pace for ALL in the MTO segment despite weak global trade environment primarily due to less than Container Load (LCL) nature of business which is more immune to slowdown. We expect the performance of the CFS segment to improve with the fourth container terminal set to start operations from 15th January, 2018, expected recovery in trade and contribution from the new CFS at Mundra and Kolkata which have started contributing to the volumes.
The PES division continues to report volatility in revenue and profitability and we estimate the trend to continue over FY17 to FY20. Management has started selling low yielding assets in the PES division, which should bring down the negative impact of the division on the overall financial performance of the company.