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.
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.