The final leg of reorganising its complex business structure has buoyed sentiments of Allcargo Logistics Ltd investors. To streamline operations and increase efficiency, the Allcargo Group is looking to rejig its domestic and international businesses into separate companies.
The final leg of reorganising its complex business structure has buoyed sentiments of Allcargo Logistics Ltd investors. To streamline operations and increase efficiency, the Allcargo Group is looking to rejig its domestic and international businesses into separate companies.
On Thursday, the boards of Allcargo Logistics and Allcargo Gati Ltd approved an arrangement for restructuring of the businesses. To simply explain the rejig, the Allcargo Group will eventually have four listed businesses: Allcargo ECU Ltd, Allcargo Logistics (after demerger of the international supply chain business), Allcargo Terminals Ltd, and TransIndia Real Estate Ltd.
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On Thursday, the boards of Allcargo Logistics and Allcargo Gati Ltd approved an arrangement for restructuring of the businesses. To simply explain the rejig, the Allcargo Group will eventually have four listed businesses: Allcargo ECU Ltd, Allcargo Logistics (after demerger of the international supply chain business), Allcargo Terminals Ltd, and TransIndia Real Estate Ltd.
Reacting to this, Allcargo Logistics’ stock zoomed nearly 8% on Friday.
Streamlining costs and realizing synergies of customers, manpower, and infrastructure are the additional advantages of this restructuring, Ravi Jakhar, chief strategy officer at Allcargo Group, told Mint. Leverage is also expected to be minimal.
“Allcargo ECU’s gross debt is expected to be approximately ₹350 crore, while Allcargo Logistics’ net debt is projected to be around ₹250 crore,” he said.
Market share gains in the express and logistics business could also be on the horizon. After the rejig, the express and contract logistics businesses will come under Allcargo Logistics.
“Currently, Allcargo Logistics commands a 17% market share in the organized express business and is a market leader in chemical warehousing in the contract logistics business,” Jakhar said.
The Street’s initial reaction suggests that this is a step in the right direction. The restructuring is expected to be implemented in 10-12 months and is subject to a slew of regulatory approvals.
Meanwhile, the stock of AllCargo Gati plunged 13% on Friday. As part of the restructuring, shareholders of Allcargo Gati will get 63 shares of Allcargo Logistics (after the demerger) for every 10 shares held in Allcargo Gati.
Although the restructuring exercise seems mostly positive, investors are nervous about the concrete advantages for Allcargo Gati shareholders.
“It is premature to determine whether the impact on Allcargo Gati shareholders is positive or negative due to uncertainty over the listing price for the combined entity which is expected to get a re-rating post simplification of holding structure with synergy benefits,” Vikram Suryavanshi, vice president equity, PhillipCapital, said.
Besides the plan’s timely implementation, Allcargo Logistics investors should track demand trends in the sector. In 2023 so far, Allcargo Logistics stock has given adjusted returns of 26%, as per Bloomberg.
