Aqua Logistics Ltd - Analyst Research Views

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Aqua Logistics Ltd (ALL), a third party logistics service provider is issuing 65521739 shares with face value of INR 10 in its Initial Public Offer (IPO).

Issue Opens 25TH Jan 2010
Issue Closes 28TH Jan 2010
Price Band (INR) 220-230
Total size of the Issue INR 1500 mn

Unicon Research Analyst Recommends a Subscribe with Long Term View and says,

At the upper and lower price band of INR. 230 and 220 ALL would trade at 27.8x and 26.6x its annualised EPS of INR8.28 (post dilution). The valuation seems a bit stretched in comon to established peers like Gateway Distriparks, Transport corp and Allcargo which trade at 17x, 20x and 24x. However looking at the industry growth potential, the company’s growth plans, business model and financials, investors could subscribe to the issue at the lower end of price band to get appreciation in long term.

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Way2Wealth Sr. Analyst: Sejal Jhunjhunwala's Views on Acqua Logistics is to AVOID the issue and the justification given is as follows,

In the past 3 years, the topline of the company has shown a phenomenal CAGR of 123%, which we consider on account of the low base as during this period the logistics sector was an under performer. But its earnings have not reflected the same kind of growth as its main revenues come from the low end MMT segment. Its cash flows for the past 4 years is negative.

The company’s H1FY10 earnings is at Rs 6.2, while for FY09 was at Rs7.6. Even if we consider a 58% growth in its FY10E earnings at Rs 12, considering it has already achieved Rs6.2 in H1FY10 and projecting higher contribution from contract & project logistics going forward, the company is trading at a P/E of 18.8x at the higher band and 18x at the lower band, its FY10E earnings of Rs12.2. Though we have mentioned that the company cannot be directly compared to its Indian peers, just to give an investor a sense of its expensive valuations, we can say that ALL is trading in line with its peers like Allcargo, GDL and Concor.

Additionally, it has anchor investors like Enam Securities, Carwin Merchantiles, Shubhkam Ventures and
Supersonic Trading. Pre issue holding of these investors are at 11%, 4%, 3.7% and 3.2% respectively. Though the management has stated that these anchor investors have a lock in period of 1 year, as per its DRHP it is stated as 30 days.

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HDFC Securities' Analyst Wrote,

ALL started as a freight forwarding company as Aqua Logistics Private Limited on September 20, 1999. In 2003, ALL bagged its first project logistics order from ABB Limited and the first contract logistics order from Tellabs India Private Limited. Over the period the company has increased its presence in various parts of the country by opening branch offices. Internationally ALL has arrangement with 3PL partners and vendors. The company’s logistic services all three modes of transportation- surface, air and sea.

Being a smaller player and a new entrant, it may have to resort to aggressive bidding for contracts as a result of which its profitability metrics could take time to improve. The issue seems expensive compared to its peers and may not provide enough returns in the near term. Its long-term prospects seem reasonable if it is able to improve its margins and cashflows and at the same time match/beat the growth rates (in revenues ) of its peers.

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Angel Broking's  Param Desai and Mihir Salot writes,

The company has been on high growth trajectory since the last three years due to its low base. However, this may not be the case going forward especially in the MTO Segment. Nonetheless, we have assumed 50% Earnings CAGR over FY2009-12E on account of Margin expansion due to higher contribution from the Project Cargo and Contract Logistic Segments and overall improvement in the trade scenario. At the lower price band, the IPO is available at 13.4x FY2012E EPS, which is in line with Allcargo, but at a premium to GDL on our estimated FY2012E EPS. We believe ALL should trade at a discount to Allcargo and GDL given that these players have a proven track record, diversified portfolio of services and stronger balance sheets. Hence, we recommend an Avoid on the IPO.