Category Archives: Business

Here’s why SBI Cap initiates coverage on Tiger Logistic with ‘buy’

SBI Cap Securities has initiated coverage with a buy rating on Tiger Logistic, saying as revenues growing at 25 percent CAGR over the past 5 years, it foresees the company almost doubling its net profit margin to 4.7 percent by FY19 in a span of 5 years.

The brokerage house has set a target price of Rs 275 for the stock, giving an upside potential of 27 percent from current levels.

It has valued Tiger at a P/E of 20x of its FY18 earnings estimate, which it believes is on conservative side as average of industry is way above it at 22.8.

SBI Cap says its well diversified business portfolio, asset light business model, focus on new areas, expansion in new domestic markets, higher focus on defence logistics and focus on improving import logistics revenue share are key investment rationales.

Tiger is one of the country’s leading providers of end-to-end supply chain solutions. Incorporated in 2000, Tiger entered into logistic space with a prime focus on international logistics.

The company has well diversified horizontal business spread. It currently operates as international freight forwarders, custom clearance agents, transporters, custom consultants and project transportation specialists with no geographical boundaries.

Moreover, with no client contributing more than 17 percent of the topline, the business is also vertically well spread with reduced dependence of revenue on any single client, the brokerage house says.

Company operates in 3 segments – one is multimodal logistic, which accounts for approximately 55 percent of total revenue, second is transportation, which accounts for around 20 percent and lastly the custom house agent, which accounts for rest of the pie.

Majority of its revenue is sourced from sectors like automobiles (contributed 23 percent to FY16 revenue), project logistics (34 percent), commodities (20 percent), defence (around 10 percent) & others.

It says past performance of the company instills a sense of confidence & belief about the future prospects of company.

Company’s topline has grown at a CAGR of 23 percent in last 5 years, whereas company’s operating profits have grown at a CAGR of 24 percent during same period which highlights its margin improvement efforts. This growth is far above industry average for the same period. The growth in top line is driven by growth in volumes. However, realisation per TEU’s (twenty-foot equivalent unit) has declined due to competitive scenario.

As compared to its peers (Gateway Distriparks, VRL Logistics, Gati, Sical Logistics, Kesar and Allcargo), Tiger has outperformed in terms of revenue and PAT growth. Tiger has a competitive return on capital employed and return on equity. It has high growth potential, majorly because of its higher focus on international logistics and its potential business growth from import logistic, the brokerage house believes.

India spends around 14.4 percent of its GDP on logistics and transportation as compared to less than 8 percent by the other developing countries as per The Associated Chamber of Commerce & Industry of India.

SBI Cap says Indian logistics industry is expected to grow at a CAGR of around 9 percent between 2015 and 2020. Indian freight transport market is expected to grow at a CAGR of 13.35 percent by 2020 driven by the growth in the manufacturing, retail, FMCG and e-commerce sectors. Freight transport market in India is expected to be worth USD 307.70 billion by 2020.

It further says logistic industry has a strong positive correlation with economic activity. From the overall market trend and macro economic analyses it can be understood that the overall macro factors like infrastructure spending, Make in India, revival in investment cycle and GST rollout are in favor of logistics.

However, the brokerage house says the risk for its recommendation could be company’s dependency on other logistic player, change in foreign regulation & policy, any delay in infra projects and raising working capital & debtors collection days.

Source: MoneyControl

Rain Industries hits record high, up 9% as Motilal Oswal initiates coverage with buy call

Rain Industries shares hit a life-time high of Rs 286, rising 9.2 percent intraday Thursday after research house Motilal Oswal has initiated coverage on the stock with a buy rating, citing likely strong earnings growth and reasonable valuations.

The brokerage firm set a target price for the stock at Rs 362 per share, implying a potential upside of 33 percent from Wednesday’s closing price.

“Although the stock has got re-rated, valuations still appear attractive. We value the stock at Rs 362 based on 6.5x EV/EBITDA of CY19, and initiate coverage with a Buy rating,” Motilal Oswal said in its report.


After trading at low single digit PE for very long period, Rain has finally got re-rated on visibility of margin expansion and growth driven by multiple enduring tailwinds and multiple competitive advantages, it added.

Rain is globally the second largest producer of calcine pet coke (CPC) and coal tar pitch (CTP), which are used in aluminum smelting.

The research house feels the dual benefit of demand growth and supply shock is driving up global CPC prices.

CPC production is hurt in China after the government’s firm action in 2017 to contain pollution. As a result, China has turned a net importer of CPC. Simultaneously, aluminum production is set to grow outside China – many smelters in North America and Europe are restarting.

Motilal Oswal expects these tailwinds to last for 2-3 years, enabling EBITDA/PAT CAGR of 24/50 percent over CY16-19. It expects volume to grow at a compound annual growth rate of 4 percent in CY16-19.

Motilal Oswal said coal tar pitch market has stabilised on capacity cuts in key markets where Rain operates.

Coal tar pitch has been oversupplied for many years in Rain’s key markets due to declining aluminum production. Consequently, there have been many shutdowns. Koppers, the largest producer of CTP in the world and a key competitor, has closed seven plants in the last 2-3 years. This has resulted in supply correction and improved utilisation.

The industry is now running at 80-90 percent utilisation and margins have stabilised. As aluminum production starts to recover on expected restart of smelters, demand and margins will expand, the research house feels.

Rain Industries, the second largest carbon product supplier to the aluminum industry, has decided to set up a 370ktpa CPC kiln at a capex of USD 65 million near Vizag to meet strong growth in demand from Indian smelters. It is also investing USD 17 million in debottlenecking of petrochemical feedstock distillation by 200kt in Europe.

Both projects are scheduled for completion by March 2019 and short payback period of 2-3 years should drive remunerative volume growth, Motilal Oswal believes.

Rain’s carbon segment contributes 80 percent to consolidated EBITDA. Its chemicals segment converts coal tar distillates into resins, modifiers, aromatic chemicals, superplasticizers, etc. It also operates a 3.5mt cement plant in southern India and sells cement under the Priya brand.

The company has been generating strong free cash flow and rewarding shareholders with dividends and buybacks. “We believe it will continue to do so,” Motilal Oswal said.

At 10:33 hours IST, the stock price was quoting at Rs 278.25, up Rs 16.30, or 6.22 percent on the BSE.


Source: MoneyControl