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    Considering acquisitions to reach Rs 12000 cr by 2020: Shashi Kiran Shetty, Allcargo Logistics

    Synopsis

    “We are confident that subject to some of the acquisitions, we would hit Rs 12000 crore.”

    ET Now
    In an interview with ET Now, Shashi Kiran Shetty, Allcargo Logistics, plans to grow both organically and inorganically in existing businesses and also diversify into more products in the global market by getting into full container load business and air freight products in the future.

    Edited excerpts:

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    You have got an ambitious target of Rs 12,000 crore revenue by 2020, from a turnover of Rs 6500 crore expected this fiscal. How do you aim to achieve that in three years?

    We, as an organisation, have a global spread and a tremendous focus on India. The markets from where our current contribution primarily comes in are Europe, North America, China and obviously India. The strategy is to grow the business in these markets.

    In future, both organically and inorganically, -- in our existing business and also diversify into more products offering in the global market by getting into the full container load business and the air freight products in the future. That is one strategy that would contribute significantly to the top line and bottom line. As I mentioned, we so far have a good track record on acquisitions and integration and we will continue to pursue that going forward as well. So, that is one area.
    The second area is India and as we all know India is one of the fastest growing economies and with all the reforms that is taking place, particularly with GST, the trade is likely to move more and more into the organised sector because of the demonetisation impact.

    The Indian logistic industry is likely to be transformed and we also know that it has got the infrastructure status and that will make sure that the long-term funding and the cost of borrowing both are likely to reduce. Long-term borrowing potential is high and we as an organisation have a very good rating which is AA minus and we want to leverage all that in the months and years to come. We have a reasonably well thought out strategy about how to go about it. We are confident that subject to some of the acquisitions, we would hit Rs 12000 crore, which is our stated goal.

    Which geography do you think you will be getting large contribution from in the next three years?
    The first one is obviously India and the rest of them would spread out into the European, American and the Asian markets.

    Segmentally, Multimodal transport operation (MTO) contributes the highest to your revenues, which is nearly about 85% and that is proxy to global trade. While it will remain the mainstay, how much will other segments like CFS (container freight station) as well as P&D (pick-up & delivery) make up for the pie as the mix evolves in the next three years?

    From the revenue standpoint, the MTO business contributes the maximum numbers and if you look at the bottom line, the Indian business contributes almost about 50% and the global business contributes 50%. We hope to maintain that mix in terms of the bottom line and for that to happen, our global business needs to grow faster in revenue terms and the
    Indian business have always been led by investments into the CFS and the P&D segment.

    Going forward, we are likely to take our warehousing space from current three million square feet to about 10 million square feet over the next three to five years and build inland container depots and private freight terminals utilising our existing land bank which are primarily in four locations outside Delhi, Nagpur, Hyderabad and Bangalore.

    We will use a substantial amount of warehouses for our contract logistics business. This means these warehouses which are going to build primarily will be used for our own requirements and also for third party logistic service providers. Also some of the locations where we do not own the land and do not necessarily need to own land and properties, we will lease from the other leasing providers going forward.

    You have also indicated that a capex plan of Rs 700 to Rs 1000 crore is what you have lined up for the next three to five years. How much would be raised from the market either via debt or equity and what is the utilisation roadmap?
    We have not completely worked out the number but since we are a healthy organisation and leveraging is very low in our organisation and it is an AA minus rated company, substantial funding can be acquired through loan and we are also open to going to the market at the right time subject to how attractive we are to the investors. We would look at raising equity at the right time. Also we are open to partnering with some of the global real estate or global PE funds who like to invest in the real estate space. We are looking at all options what is the best way to do it.

    GST is a major enabler for the entire logistics space. How would you gain because of this? Are bigger warehouses likely to come up for using hub and spoke model along with the DFC and several small ones which are doted across the states? What trends do you foresee in the strategy to capitalise on this?
    This is exactly the reason why we are entering the market at this stage to concentrate and have a deeper look at the Indian logistic space. The whole strategy revolves around the transformation that we have seen and I must admit the traction is good but I think it will take some more time till GST really settles down. In a couple of quarters, I am sure the whole requirement of transformation of logistics and consolidation of the industry will likely take place and we want to be ready for that.

    Compare to your first half performance, how are underlying indicators for MTO and CFS segments? What turnaround are you working on for next year onwards?
    Although our contribution has come down because of the lower utilisation of the asset, the situation is already changing and this division last year contributed close to about Rs 140 crore of EBITDA. There are always some adjustments that keeps happening, that may be an indicator. Generally this sector has never made loss but it has not contributed to the extent to which we were estimating in terms of the return on investment. But we are very confident that as the loans have been repaid, the depreciation is already getting almost at the final stage, the division will contribute far better returns going forward and the MTO business will continue to do good.

    It kept on growing over 10% in terms of volume and although the shipping cycle has not been very favourable in the last few years as all of us know, the MTO business has still retained the margin although the margin taken a little bit of a hit and that will recover as the freight rates will recover.

    The container freight station business we are very confident will continue to do well although there is a little bit of change in the way the business is structuring in the current environment of some of the containers going directly from the port.

    While the long-term outlook looks solid, what is your sense and as to what is aspiring the top line? Can you provide some visibility on the extent of improvement you are targeting on EBITDA margins and profitability ratios?
    Overall, our focus is to continue to look at how we can improve our return on capital employed and currently we are 13.5% and we are looking at taking it to 18% to 20% in the coming years.

    You earlier talked about acquisitions and rightly so. Even if organic growth accelerates, you will require a sizable strategic M&A to achieve your aspirational goal by 2020. Which are the gaps area that you are interested in plugging?
    One of them is the growing logistic market in India where we would like to get into the express space and the last mile and the first mile. That is something where we are looking at inorganically growing the business and our global business where we again are the market leaders in the space where we are operating. We have a fantastic management team, we recently hired a CEO from DHL, a Swiss national who was leading the DHL regional position for Middle East and Africa.

    Have you identified any companies yet?
    We are in discussions sporadically but we know some of the companies but we will have to wait for the right timing.



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    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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