Share price of one of India’s premier Express Distribution providers moved up by nearly 1.4 percent on BSE to Rs. 103.75 in the morning trading session of Tuesday. The stock received a buy call for a 57 percent potential upside from Nuvama Wealth and Investment Limited, previously known as Edelweiss Broking Limited.
With a market capitalisation of Rs. 1,339 crore, at 09:35 a.m., the shares of Allcargo Gati Limited were trading in the green at Rs. 103.55, up by 1.22 percent.
Allcargo Gati received a ‘buy’ rating from Nuvama Wealth and Investment with a target price of Rs. 163 per share, implying an upside of 57 percent from the current trading price of Rs. 103.55.
The brokerage maintained a ‘buy’ call, as the brokerage expects a steady margin expansion as volumes improve and realisation recovers.
Further, the brokerage is optimistic about the company’s turnaround as the new management paves the way for profitable growth.
The company’s revenue fell 2.4 percent YoY to Rs. 406 crore, which was estimated at Rs. 427 crore by the brokerage, due to a 7.1 percent drop in surface express realisation and a 15.7 percent drop in fuel station revenue.
Realisation fell 7.1 percent YoY to Rs. 10.8 per kg due to a decline in the share of MSME customers, and a shift in the product mix towards intra-state transport.
Despite a 7.1 percent YoY decline in realisation, the contraction in gross margin was limited to 17 bp on direct cost optimisation.
The company reported a net loss of Rs. 6 crore on high depreciation, as against the brokerage’s estimations of Rs. 3 crore.
Nuvama maintained its FY26 revenue and EBITDA margin guidance of Rs. 3,000 crore and 9-10 percent, respectively. The brokerage expects the recovery in the margin to continue., and intends to reduce direct operating cost per kg by 5 percent in FY25.
It also expects 64.8 percent EBITDA CAGR over FY24–26 on operating leverage benefits, driven by higher volumes, probable increase in revenue from non-enterprise accounts, and a fall in direct cost/kg on cost rationalisation efforts with an improvement in the turnaround time.
It further anticipates a 220 percent CAGR in net profit over FY24–26 to Rs. 63 crore in FY26 on higher EBITDA and lower interest cost
With a focus on capacity additions, better service, and client additions to drive market share gains, the company has commissioned two new super-hubs in Bengaluru (Q2FY24) and Indore (Q3FY24), and with this, six of the planned eight expansions are now complete.
Nuvama Wealth expects the efforts taken in the recent quarters to result in healthy market share gains and forecasted a CAGR of 12.7 percent in surface express volume over FY24–26.
The management maintained its bullish outlook on the surface transport sector given the resilient demand across local end-user segments, expected improvement in consumption trends after a lull in FY24, and improving road infrastructure and connectivity. This optimism is corroborated by robust GST collections and rising e-way bill trends.
As of 31st March 2024, Allcargo Gati is net debt-free, with a surplus cash balance of Rs. 31 crore and in FY24, it liquidated non-core assets worth Rs. 78 crore, while assets worth nearly Rs. 13 crore were set aside and will be liquidated in FY25.
The stock has delivered negative returns of nearly 11.6 percent in the last one year and around 25.5 percent in the last six months.
As of March 2024, the ace investor Mukul Mahavir Agrawal holds 70 lakh equity shares in Allcargo Gati, representing a 5.37 percent stake.
Founded in 1989, Allcargo Gati Limited, formerly Gati Limited, is engaged in the provision of express distribution and supply chain solutions. Its key business verticals include Express Distribution, Air Freight, E-commerce, First and Last Mile Logistics, etc.
Written by Shivani Singh
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