patel integrated logistics feb 08

8/6/2019 Patel Integrated Logistics Feb 08

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Patel Integrated Logistics Limited 1

February 13, 2008Initiating Coverage

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EQUITYRESEARCH

Key Market DataBSE Sensex 16,608

Nifty 4,838

Bloomberg Code PTIL IN

Reuters Code PATL.BO

BSE Code 526381

NSE Code PATINTLOG

Face Value (INR) 10Free Float 58%

Market Cap (INR MM) 1,143

52 Week High / Low (INR) 131 / 38

Avg Daily Volume (6 mth) 120,908

Key Financials INR MM

Yr Ending : Mar FY07 FY08E FY09E

Net Sales 2,781 2,991 3,396

Total Expenses 2,656 2,826 3,162

EBITDA 125 165 234

Oper. Margin 4.5% 5.5% 6.9%Interest 40 50 48

Depreciation 31 39 62

Net Profit 78 58 85

Equity 133.2 158.7 158.7

EPS 5.9 3.7 5.4

P/E - 19.7 13.4

EV/EBITDA - 9.4 6.6

MCap/Sales - 0.4 0.3

MCap/EBITDA - 6.9 4.9

Book Value 54.2 58.4

Price/Book Val - 1.3 1.2

ROA 8% 5% 6%ROCE 9% 9% 10%

Shareholding PatternAs on Dec 31, 07 %

Promoters 41.7

Institutional Investors 0.4

Public & Others 57.9

About the Company

Patel Integrated Logistics Limited (PILL) is a leading

logistics services company, providing a complete range of

services like surface transportation, express cargo servicesand consolidation of freight & couriers.

Investment Rationale

Increasing investments in highways would facilitateroad logistics to be more efficient; thus we are bullishon road transportand on logistics sector as a whole.

From a plain vanilla product, logistics has become more professionalized and efficient today; and PILL, with

five decades of experience in the business, is all set to

capitalise on the growing opportunities in this space.

PILLs business is classified undertwo segments, PatelOn Board Couriers (PoBC) and Patel Roadways (PRL).

With Indias courier industry to grow at 20% p.a. overthe next five years, its PoBC business shall do well; itis already the most preferred consolidator among

courier companies.

The estimated 20-25% CAGR in the Indian roadfreight transport business would be beneficial for itsPRL division; PILL is the third largest operator in

road transportand currently operates 800 trucks daily.

PILL ventured into the Rs20 bn express cargo industryin Apr 07, with its Patel Retail division, which

provides value added, high margin services like door-

to-door express cargo & warehousing. Aiming tobecome the companysflagship business, this division

shall clock a 25-30% CAGR over the next 3-4 years.

The company is PILL isplanning to invest Rs500-600million over couple of years to enhance its facilities in

IT, warehouses, fleet and general infrastructure.

RisksPILL faces competition in each of its business segments

and owing to its small scale of operations, it could also

face a threat of price-cutting from established players.

Also, the entry of more players could pressurize margins.

Valuation

At Rs72, PILLs projected EPS (FY09) of Rs5.4 is

discounted 13.4x. We recommend a BUY on the stock,

with a price target ofRs110by June 09.

PATEL INTEGRATED LOGISTICS LIMITED (PILL) Logistics

CMP: Rs72 Target: Rs110 BUY


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INVESTMENT RATIONALE

Vast experience in the business with a strong brand identityPILL, operating in the transportation business since the last fifty years, has equipped itself with vastresources in terms of knowledge, experience, man power and understanding the dynamics of logistics

services in India. There is a paradigm shift in the way logistics activities are carried out today;historically logistics was just a plain vanilla product, offering services of carrying goods from one place to other. But now, with the advent of new concepts in inventory management like Just inTime (JIT), logistics has become more professionalized and efficient. PILLs experience has helpedthe company diversify into different areas of logistics (like express cargo services, third partylogistics (3PL), fourth party logistics (4PL) and consolidation of freight & courier services) and copewith the changing business environment in logistics industry.

Market leader in courier of couriers (PoBC) in IndiaPoBC, an IATA (International Air Transportation Agency) approved cargo handling agency, acts as acourier to couriers (clients include Blue dart, DTDC, DHL, FedEx) or in other words, a consolidatorof courier packets. PILL has tie-ups with every courier as well as airline company which enables it toprovide efficient and cost effective services; thereby controlling nearly 80% of the domestic market.With 80 branches, spread across India, and operating through 350 flights on a daily basis; thecompanys wide network enables it to reach every corner of the country; thus providing superiorinfrastructural support to courier companies. Due to its efficient services, PILL has become the most preferred consolidator among courier companies and it currently handles nearly 130,000 kgs ofcourier daily. As per a Credit Analysis & Research (CARE) report, Indias express (courier) industryis estimated to grow at around 20% p.a. over the next five years and double in its size by FY12. Thiswould give enough growth opportunities to PILLs PoBC business. The company has a strongpresence in consolidation services for international destinations like USA, EU & Middle East Asia.

Capitalising on the growing opportunities in road transportThe Indian road freight transport business is roughly $15 billion at present, which is estimated togrow at a CAGR of 20-25% over the next 4-5 years. Nearly 7% of the road transport is controlled byorganized players, however with introduction of VAT and increased thrust on 3PL, the share of theorganized market is bound to increase. This growth in road transport industry would be beneficial forestablished players like PILL who are present across all segments of road transport and provideintegrated logistics services. PILL is the third largest operator in road transport and currently operates800 trucks everyday, out of which 80-85 are owned trucks and balance are hired. The companyhandles around 500,000 tonnes of cargo annually and serves 65,000 clients. Due to its wide spectrumof services (like FTL, LTL & express cargo) and pan-India presence, PILL offers cost competitiveand efficient services; thus meeting the growing customer demand & beating competition.

From trucking to express cargo serviceOff late, corporates have started focusing on their core business activities and outsourcing alliedactivities like logistics and supply chain management. This shift has created huge businessopportunities for the players providing value added, high margin services (door-to-door express cargoservice & warehousing). Recognizing the importance of providing value added services; PILL, inbeginning FY08, started Patel Retail, with a view to tap the growth opportunities in the expresscargo business. The market size of express cargo industry is estimated to be around Rs20 bn and is poised to show robust growth over the next 4-5 years. This business is mainly dominated by theunorganized market; whereas organized market is shared among few players like Gati, Safex, Xps etc.


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February 13, 2008

At present, PILL is utilizing its surplus space in partly loaded trucks for effective functioning of thePatel Retail (PR) division. However, going forward, with increase in scale of operations, the highmargin PR segment would soon become the flagship business of the company and act as the growthengine for PILL. Since the company already has a well established network of 375 branches,delivering to nearly 2,000 stations spread across India, this division has been started with negligible

investment & minimum operating expenses. Enjoying better operating margins than its traditionalbusiness; we expect the PR division to grow at a CAGR of 25-30% over the next 3-4 years.

Augmenting its facilities of warehouses, IT systems, truck fleet and infrastructureIn order to meet the ever increasing expectations from clients, PILL is planning to invest in its ITinfrastructure, warehouses, fleet and general infrastructure. The company has a budget of nearlyRs500-600 million to be spent in couple of years in order to enhance its facilities; these funds wouldbe sourced through a combination debt and equity.

PILL has installed Global Positioning System (GPS) on each truck owned by it and its lessors havealso installed the same on their trucks, which enables the company to keep a watch on the exactlocation of the trucks while they are on a long distance journey. For optimum realization of its fleetand efficient management of drivers, PILL plans to integrate its 300 branches through IT system.Investment in IT systems would help the company to streamline its operations and reduce its workingcapital requirements & operational costs. Warehouses are the backbone for any integrated logisticsplayer and help in carrying out operations efficiently; PILL uses its warehouses & hubs for its expresscargo and Less Than Truck Load business. It plans to upgrade its existing 200,000 sq. ft. ofwarehouse space and add another 130,000 to 150,000 sq. ft. space for new super express hubs inmajor cities like Mumbai, Pune and Hyderabad. Upgraded and new warehouses would enable PILL tohandle a variety of products and offer other value added services more efficiently.

PILL is planning to increase its owned fleet size from existing 80-85 to 305-310 trucks (truck fleet isa mix of line haul, pick up & delivery vehicles and feeder vehicles); this would provide in-housecapacity to handle the growing demand from the FTL, LTL and Patel Retail divisions. The company

has recently entered into an exclusive MOU with Eicher Motors Limited (EML) under which PILLalong with its vendors would be buying 225 vehicles (ranging from 3 tonnes to 16 tonnes) from EML.PILLs vendors will deploy the acquired vehicles exclusively for PILLs operations. Under theagreement, EML shall provide a two-year unlimited mileage warranty to PILL and its vendors for thevehicles purchased; which would lead to savings in operational costs for PILL. EML shall become apreferred supplier of vehicles to the company and eventually, PILL would convert its entire fleet toEMLs vehicles (except for smaller 1.0-2.5 tonnes vehicles). We believe that the planned capitalexpenditure should enable the company to face business challenges and show decent growth over thenext 3-4 years.

RISKS & CONCERNS

PILL faces competition in each of its business segments and owing to its small scale of operations, itcould also face a threat of price-cutting from bigger established players. Although there are enoughbusiness opportunities in this industry, the entry of more players could pressurize PILLs margins.

VALUATION

At the current market price of Rs72, PILLs projected EPS (FY09E) ofRs5.4 is discounted 13.4x.We recommend a BUY on PILL with a price target ofRs110by Jun 09.


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Rs in Mn (March Ending) FY06 Var% FY07 Var% FY08E Var% FY09E

Freight (net) 1,246.3 -5.2% 1,181.2 14.8% 1,355.9 17.2% 1,589.0

Co-Loading and Cargo Income 1,592.9 0.4% 1,599.5 2.2% 1,635.3 10.5% 1,807.0

Net Sales 2,839.2 -2.1% 2,780.7 7.6% 2,991.3 13.5% 3,396.0

Total Income 2,934.9 -4.6% 2,800.2 7.4% 3,006.3 13.3% 3,406.0

Operating Expenses 2381.7 -6.3% 2,232.1 4.9% 2,341.3 12.0% 2,622.9

(% of Net Sales) 83.9% 80.3% 78.3% 77.2%

Staff Expenditure 162.6 19.9% 195.0 20.0% 233.9 15.0% 269.0

(% of Net Sales) 5.7% 7.0% 7.8% 7.9%

Other Expenditure 200.2 14.5% 229.2 9.5% 250.9 7.7% 270.1

(% of Net Sales) 7.1% 8.2% 8.4% 8.0%

Total Expenditure 2,744.4 -3.2% 2,656.3 6.4% 2,826.1 11.9% 3,162.0

PBDIT (Ops) 94.7 31.3% 124.4 32.8% 165.2 41.6% 233.9

(% of Net Sales) 3.3% 4.5% 5.5% 6.9%

Interest 40.5 -0.1% 40.4 24.6% 50.4 -4.6% 48.0

PBDT (Ops) 54.3 54.7% 83.9 36.8% 114.8 62.0% 185.9

(% of Net Sales) 1.9% 3.0% 3.8% 5.5%

Depreciation 33.9 -10.0% 30.5 28.2% 39.0 60.0% 62.5

PBT (Ops) 20.4 162.2% 53.5 41.7% 75.7 62.9% 123.4

(% of Net Sales) 0.7% 1.9% 2.5% 3.6%

Other Income 95.8 -79.6% 19.6 -23.4% 15.0 -33.3% 10.0

Extraordinary Item 0.0 0.0

PBT 116.2 -37.1% 73.0 24.3% 90.7 47.0% 133.4

Tax 21.6 29.9% 28.1 16.2% 32.7 47.0% 48.0

(% of PBT) 18.6% 38.5% 36.0% 36.0%

Extraordinary Item 0.0% 33.5 0.0 0.0

Profit after Tax 94.5 -17.0% 78.4 -25.9% 58.1 47.0% 85.4

(% of Total Income) 3.2% 2.8% 1.9% 2.5%

Equity Capital 133.2 133.2 158.7 158.7

EPS 7.1 5.9 3.7 5.4

EBITDA per Share 7.1 9.3 10.4 14.7

PATEL INTEGRATED LOGISTICS LIMITED-PROFIT & LOSS ACCOUNT STATEMENT

Annexure: 1


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Rs in MM (March Ending) FY06 FY07 FY08E FY09E

I. SOURCES OF FUNDS

1. Shareholders' Funds:

a) Capital 133.2 133.2 158.7 158.7

b) Reserves & Surplus 435.6 498.5 700.9 767.7

568.9 631.7 859.6 926.5

2. Loan Funds:

a) Secured Loans 161.0 197.5 362.8 353.3

b) Unsecured Loans 140.8 127.3 141.0 127.2

301.8 324.8 503.8 480.4

3. Deferred Tax Liability 14.2 32.8 32.8 32.8

Less: Deferred Tax Assets - - - -14.2 32.8 32.8 32.8

Total 884.9 989.4 1396.2 1439.7

II. APPLICATION OF FUNDS

1. Fixed Assets:

a) Gross Block 417.6 451.7 876.2 909.2

b) Less: Depreciation 194.0 164.3 203.3 265.8

c) Net Block 223.6 287.4 672.8 643.3

d) Capital WIP 1.9 1.9 1.9 1.9

225.5 289.3 674.7 645.2

3. Investments: 74.3 83.6 83.6 74.8

4. CA, Loans & Advances:

a) Inventories - - - -

b) Sundry Debtors 592.6 582.7 650.5 741.4

c) Cash & Bank Balances 127.0 142.2 90.4 81.1

d) Loans & Advances 319.3 344.8 372.8 402.6

1,039.0 1,069.7 1113.7 1225.1

Less:

5. Current Liabilities & Provisions

a) Liabilities 435.9 425.0 463.0 492.4b) Provisions 17.9 28.2 12.8 13.0

453.8 453.2 475.8 505.3

Net Current Assets 585.1 616.5 637.9 719.8

Total 884.9 989.4 1396.2 1439.7

0 0

Annexure: 3

PATEL INTEGRATED LOGISTICS LIMITED-BALANCE SHEET


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Rs in MM (March Ending) FY06 FY07 FY08E FY09E

I. OPERATING ACTIVITIES

A) Profit before Taxation 116.2 73.0 90.7 133.4

B) Adjustments:

i) Depreciation / Amortisation 33.9 30.5 39.0 62.5

ii) Dividend Income (0.5) (1.3) - -

iii) Profit on Sale of Investments (75.0) (1.0) - -

iv) Profit on Sale of Assets (1.7) 0.5 - -

v) Interest (Net) 34.3 32.4 50.4 48.0

(9.0) 60.9 89.4 110.5

Operating Profit before Working Cap Changes: 107.1 134.0 180.2 243.9

C) Adjustments for (Increase)/Decrease in:

i) Trade & Other Receivables (105.1) (15.8) (67.9) (90.8)

ii) Inventories - - - -

iii) Current Liablities & provisions 110.6 (7.3) 22.6 29.6

iv) Loans & Advances (28.0) (29.8)

iv) Others - -

5.5 (23.1) (73.2) (91.1)

Cash Generated from Operations: 112.6 110.9 106.9 152.8

- Direct taxes paid (29.5) (25.3) (32.7) (48.0)

NET CASH FROM OPERATING ACTIVITIES 83.1 85.5 74.3 104.8

II) INVESTMENT ACTIVITIES

i) Purchase of Fixed Assets (10.1) (44.6) (424.5) (33.0)

ii) Purchase of Investments (54.3) (56.3) - -

iii) Sale of Investments 72.4 46.2 - 8.9iv) Interest Received 7.0 7.6 - -

v) Inter corporate Deposits (3.1) - -

vi) Dividend Received 0.5 1.3 - -

NET CASH FROM INVESTMENT ACTIVITIES 12.5 (45.8) (424.5) (24.1)

III) FINANCING ACTIVITIES

i) Proceeds from Issue of Share Capital 0.2 188.4 -

ii) Proceeds from Long Term Borrowings (35.7) 23.0 179.0 (23.3)

iii) Dividends paid (5.0) (7.6) (18.6) (18.6)

iv) Interest paid (40.8) (41.9) (50.4) (48.0)

NET CASH FROM FINANCING ACTIVITIES (81.3) (26.4) 298.4 (89.9)

NET CHANGE IN CASH & CASH EQUIVALENTS 14.3 13.4 (51.8) (9.3)

Cash and Cash Equivalents - Opening Balance 86.8 128.8 142.2 90.4

Cash and Cash Equivalents - On Amalgamation 27.6 - - -

Cash and Cash Equivalents - Closing Balance 128.8 142.2 90.4 81.1

PATEL INTEGRATED LOGISTICS LIMITED-CASH FLOW STATEMENT

Annexure: 4


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(March Ending) FY06 FY07 FY08(E) FY09(E)

Liquidity Ratios

Current Ratio 2.29 2.36 2.34 2.42

Acid Test Ratio 2.29 2.36 2.34 2.42

Cash Ratio 0.12 0.13 0.08 0.07

Leverage Ratios

Debt : Equity 0.53 0.51 0.59 0.52

Debt : Asset 0.34 0.33 0.36 0.33

Interest Coverage Ratio 1.50 2.32 2.50 3.57

Turnover Ratios

Labour/Staff : Sales 5.73% 7.01% 7.82% 7.92%

Debtors Turnover 5.09 4.73 4.85 4.88

Fixed Assets Turnover 12.70 9.68 4.45 5.28

Sales : Gross Fixed Assets 6.80 6.16 3.41 3.74

Working Cap Turnover 4.85 4.51 4.69 4.72

Debtor Days 76 76 79 80

Profitability Ratios

Operating Margin 3.34% 4.47% 5.52% 6.89%

Net Profit Margin 3.33% 2.82% 1.94% 2.51%

Return On Assets 10.93% 8.36% 4.87% 6.02%

Return On Networth 17.80% 13.06% 7.79% 9.56%Return On Capital Employed 15.9% 9.3% 9.3% 9.6%

EPS Growth 263.6% -17.1% -37.8% 47.0%

Valuation Ratios

P/E 19.68 13.38

PEG -0.52 0.28

EV : Sales 0.52 0.45

EV : EBIDTA 9.42 6.59

Market Cap : Sales 0.38 0.34

Market Cap : EBIDTA 6.92 4.88

Price : Book Value 1.33 1.23

Price : Cash Earnings 11.77 7.73

Annexure: 5

PATEL INTEGRATED LOGISTICS LIMITED-KEY RATIOS


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patel integrated logistics feb 08

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