Allcargo Logistics Shares Gain After Jefferies Initiates 'Buy' Coverage

Shares of Allcargo Logistics Ltd. gained after Jefferies initiated coverage with a 'buy' call, citing turnaround in businesses volume growth.

The brokerage expects an annualised 14% earnings per share from FY24 through FY26, aided by turnaround in its partial truckload service business and multimodal transport operator business volume growth.

"We believe Allcargo Logistics' value creation proposition is being underestimated as the business is yet to be understood," the brokerage said in its Jan. 3 note.

The demerger of container freight station and logistics parks should drive stocks up by 24%, according to Jefferies.

The house has initiated coverage with a 'buy' rating and a target price of Rs 500, implying a potential upside of 23%.

The shares of the company gained 3.44% intraday before closing 1.23% higher on Wednesday. The benchmark Nifty 50 declined 1%. The relative strength index stood at 46.

Of the six analysts tracking the stock, four maintain 'buy', one suggests a 'hold' and one recommended a 'sell' rating, according to Bloomberg data. The 12 month consensus price target implies a upside of 22.9%.

Partial Truckload And Multimodal Transport

In the note, Jefferies expects Allcargo's PTL business to turnaround on the back of double digit revenue growth. This is likely to drive the five-year incremental revenue growth, it said.

"We believe organised players should comfortably grow in high double-digits in the next decade as they gain share from the unorganised players, Jefferies said, calling Gati as one of the top five organised players with about 15% share of the organised pie.

The logistics firm had forayed into the express PTL through the acquisition of Gati in 2020. Allcargo hired a third-party consulting firm, Alvarez and Marsal, to help it turn around Gati's fortunes, Jefferies noted.

"Making the business asset-light by selling CVs it owned, reducing exposure in non-core businesses like cold chain, and gaining customers through digital offerings are initiatives that are paying off," it added.

Meanwhile, the brokerage expressed confidence in the firm's MTO business, adding that it shows margins above 6% sustainably.

Still it expects some margin normalisation from this business, from the 47.5% quarterly peak seen in FY22 to 6.4-6.5%. This compares with the 4-5% range seen in the last 10 years, it added.

The brokerage said that 17% of Allcargo's EBIT contribution will be domestic express logistics by FY26, with "step-jumps after as margins further improve with rising volumes."