Global Economy Overview
Global economic growth in 2022 slowed down to 3.2 percent after
recording a 6.0 percent growth in 2021. The degrowth was marked by high inflation, Russia
Ukraine conflict, disruption in food and energy markets, and continued instances of
Covid-19 pandemic. In 2022, Central banks around the World raised interest rates in quick
succession to tame inflation. US Fed effected the largest cumulative rate hike in any year
since 1980. On the positive front, supply chain bottlenecks started easing in 2022 due to
reduced backlogs and better delivery times.
The pressure from these shocks is likely to continue in 2023 with IMF
predicting the global growth to slow down to 2.7 percent in 2023, though Central banks are
likely to ease interest rate tightening. Accordingly, global inflation should decrease,
although more slowly than initially anticipated, from 8.7 percent in 2022 to 7.0 percent
in 2023 and 4.9 percent in 2024. While expectations of a soft-landing form the base case
outlook but overall uncertainty remains high. Stickiness of inflation and impact of high
rates are becoming apparent resulting in pressure on the banking sector. In this backdrop,
the emerging markets, though not immune to spill over effects, are likely to grow better
as developed economies face the direct brunt of a slowdown.
International trade flows are projected to further weaken in 2023. The
baseline scenario projects that volume growth of global trade in goods and services will
nearly stagnate in 2023, as per United Nations World Economic Situation and Prospects
(WESP) 2023. This is further exacerbated by unresolved trade tensions between the US and
China. However, Chinas growth pick-up in 2023, after lifting of lockdowns early in
the year, remains a silver lining for the global trade. Global shipping rates have largely
normalised after falling significantly from their record highs.
Weakness in global trade will provide greater consolidation
opportunities benefitting larger players like Allcargo. Introduction of newer trade lanes,
digitalisation initiatives, and better yield management will help Allcargo emerge stronger
from the slowdown as we continue our journey to gain market share and explore business
opportunities.
(Source: https://www.imf.org/en/Publications/WEO,
https://www.un.org/development/desa/dpad/document_ gem/global-economic-monitoring-unit/world-economic-
situation-and-prospects-wesp-report/)
Indian Economy Overview
Amidst uncertain global economic outlook, Indian economy exhibited
signs of resilience. Strong economic growth helped India overcome the UK to become the
fifth-largest economy after it recovered from COVID-19 pandemic shock. Indias real
GDP recorded a growth of 7.2 percent in FY 2022-23, stronger than RBIs expectation
of 7 percent. Currently available forecasts of Indias real GDP growth for 2023-24,
including those of the RBI, broadly settle between 6.0 and 6.5 per cent, this contrasts
with Global GDP growth projection of 3 percent. India has emerged as the fastest-growing
major economy in the world and is expected to be one of the top three economic powers in
the world over the next 10-15 years, backed by its robust democracy and strong
partnerships. In US dollar terms, Indias per capita GDP has crossed USD 2,450 which
represents a stride towards becoming a middle-income economy. The Government announced
Foreign
Trade Policy (FTP) 2023 in March. It aims at reducing transaction costs
and encourage ease of doing business through process re-engineering and automation.
Overall aggregate demand conditions remain resilient for the country.
Governments thrust on the infrastructure and revival of corporate investments in
select sectors augur well for the economy. Investment activity in India is exhibiting
buoyancy on the back of strong composite Purchasing Managers Indices (PMI) readings.
Merchandise exports have risen by 6 percent in FY 2002-23 to all time high of USD 447.5
billion and services exports remain strong. Overall, merchandise imports also reached an
all-time high of USD 714.2 billion in FY23, increasing by 16.5 per cent y-o-y. E-way bill
volumes and toll collections remained strong, reaching new highs in March 2023. RBIs
monetary policy measures have resulted in headline CPI inflation declining from 7.8
percent in April 2022 to 5.7 percent in March 2023 with further easing expected during the
year. However, weak global macroeconomic scenario is impacting India as well with Indian
Q1FY24 merchandise exports down 15 percent to USD 103 billion as compared to USD 121
billion in Q1FY23.
The Union Budget 2023-24 aimed at strengthening Indias economic
status in the 75th year of Indias independence. Seven priorities adopted in the
budget included inclusive development, reaching the last mile, infrastructure &
investment, unleashing the potential, green growth, youth power and financial sector. RBI
expects Indias real GDP to grow at 6.5 percent during the financial year 2023-24, on
the back of resilient economic activity and evenly balanced risks. Globally, geopolitical
issues, high inflation, and tight monetary policy conditions will continue to have a
negative impact on the growth. Despite global challenges, India will continue to grow and
remain resilient against external shocks. India is set to benefit from governments
thrust on infrastructure, capital expenditure, and increased credit growth. Apart from
government expenditure, improving sentiments from private sector and better capacity
utilisation also hold the key to Indias economic growth. CPI inflation is projected
at 5.1 percent for 2023-24.
(Source: IMF World Economic Outlook April 2023, RBI State of the
Economy Bulletin - April and June 2023, Union Budget 2023-24, pib.gov.in)
Global Logistics Sector
The global shipping sector remained volatile during the year with
significant softening of freight rates. The diminishing tailwinds were driven by supply
chain normalisation, geopolitical uncertainty, continued incidents of Covid-19 pandemic,
and high inflation. Shipping Lines have witnessed softening demand during the year and
will likely see further drop in profitability as contracts are renewed at lower rates.
They now expect a bounce back on trade activity in the second half of 2023. Freight rates
appear to have normalised paving way for more predictable shipping rates and therefore,
more stable supply chains going forward.
Key trends shaping the sector include 1) Need for stable supply chains,
2) Protectionism and Friend-shoring, 3) Rising e-commerce, and 4) Digitalisation. Global
geopolitical tensions have led to an emerging trend of ‘friend-shoring wherein
investments, manufacturing links and facilities are moved to countries that are deemed to
be ‘friendly. Higher base and
inventory levels saw a muted H2FY23 for global logistics industry.
However, e-commerce activity remained strong compared to pre- pandemic levels, despite
elevated inflation. Global e-commerce logistics market is expected to grow by 7.9% in
2023.
Global freight forwarding industry is fragmented with top 15- 20
players occupying 35-40% market share followed by lot of small regional players with
insignificant market share. High competitive intensity leads to a competitive pricing
landscape. Players with established networks, digitalisation, operational expertise, and
vendor relationships stand to gain in the current backdrop.
(Source: https://www.ajot.com/news/global-e-commerce- logistics-market-to-grow-7.9-in-2023,
htt ps:// www. ajot. com/news/ arti cle/supply-chain- professionals-sound-alarm-on-recession-ggeopolitical-
tensions-and-cost-pressures-in-h2-2023)
Indian Logistics Sector
India, a favoured investment destination and among fastest growing
economies, is poised to be one of the top three economies and a global manufacturing hub
in this decade. Logistics play a pivotal role in powering the growth in EXIM and domestic
trade. The Indian logistics sector is pegged to grow at a rate of 10-12 percent, to USD
380 billion by financial year 2025. Indias logistics cost is in the range of 12- 14
percent of GDP which is high as compared to developed economies that typically range 7-8
percent. The Government has taken initiatives that will help reduce the logistics cost to
below 10 percent of GDP. These initiatives are in the areas of improving infrastructure,
helping boost manufacturing, providing a digital landscape, and effective policymaking.
India improved its logistics ranking of the World Bank to Rank 38, moving up by six
places.
In September 2022, the Prime Minister launched the National Logistics
Policy (NLP) which acts as a guiding document for States / UTs seeking to formulate
logistics policy (19 States / UTs have notified their logistics policy). The National
Logistics Policy has outlined the ambition and roadmap for the Indian logistics sector.
The policy is centred around upgradation and digitisation of logistics infrastructure
& services. Further, with focus on bringing efficiency in services (processes, digital
systems, regulatory framework) and human resources, the policy puts marked emphasis on
streamlining processes for seamless coordination, and reduction in overall logistics cost,
besides incentivising employment generation and skilling of the workforce. NLP also lays
emphasis on the shift towards more energy-efficient modes of transportation and greener
fuels to reduce the carbon footprint.
Governments thrust on achieving best-in-class logistics costs and
improving trade flows is led by flagship programmes like Make in India, PM Gati Shakti,
Dedicated Freight Corridors (DFC), and Production Linked Incentive (PLI) schemes.
Additionally, emergence of e-commerce provides a strong growth outlook for the sector.
Significant opportunities emerge in the logistics value chain – Container trade,
Transportation, Express Delivery, Warehousing, Processing, and Distribution.
Recognising the logistics sector as one of the seven engines of growth
in the Indian economy, latest Budget allocated 1.4 lakh crore for the development of the
railway infrastructure, while 20,000 crore were granted to expand the national highway
network by 25,000 km. This focus on implementation of infrastructure development
initiatives will strengthen the multimodal supply chain network and enable the logistics
industry to operate at its optimum efficiency.
Industry preferences are shifting towards integrated supply- chain
services and other sophisticated solutions such as inventory optimisation and data
analytics from isolated offerings such as transportation or warehousing. The logistics
outlook remains robust with government-led reforms, changing industry preferences and
newer business segments (e-commerce, network services) with some softness expected in
H1FY24, reflecting weak global macroeconomic scenario and related impact on demand.
(Source: pib.gov.in, Union Budget 2023-24, IBEF, pmindia.gov.in,
Niti Ayog, World Bank)
About Allcargo Logistics
Having commenced operations in 1994, Allcargo Logistics takes pride in
being among the leading Indian Multinational Companies today. The organisation has been
providing seamless, end-to-end logistics solutions to its customers, for over two and a
half decades. The mission is to create a sustainable, well governed, and market-leading
logistics business worldwide, with digitalisation at its core. Allcargo, along with its
subsidiaries, offers a wide range of services like International Supply Chain which
includes Less than Container Load (LCL) and Full Container Load (FCL), air freight,
trucking, and door-to-door services, globally. On the domestic front, the organisation
offers services across express logistics, contract logistics, and supply chain management.
Through this gamut of offerings, Allcargo has laid out a single window to offer customised
logistical solutions to its Indian and Global customers.
The organisational strategy is focused on creating market leadership in
respective business segments. Through ECU Worldwide, its wholly owned global subsidiary,
Allcargo operates one of the worlds largest and most complex LCL consolidation
network, with more than 300 offices across 180 countries. Within this niche segment, ECU
Worldwide commands the largest market share of 15%. The strategic acquisition and
turnaround of Gati has resulted into the organisation maintaining its market leadership in
the B2B surface express distribution space. Gati manages one of the industrys widest
supply chain networks, covering 99 per cent of Government of India approved PIN Codes.
Allcargo Supply Chain, wholly owned subsidiary, helps spearhead efforts in the Contract
Logistics space with leadership in solutions for the chemicals sector and increasing focus
in other sectors.
The Company has de-merged into three entities through a mirror
demerger:
- Allcargo Logistics Limited – focusing on International Supply Chain (LCL and FCL
operations), Express Logistics through its subsidiary Gati, and Contract Logistics through
its subsidiary Allcargo Supply Chain.
- Allcargo Terminals Limited – focusing on the CFS and ICD business of the Group.
- TransIndia Real Estate Limited – housing a portfolio of high yielding rental assets
including the Logistics Park. Recently, the business has also initiated plans to diversify
the crane rental business which was non-core to its operations.
The rationale behind the demerger is to help the company accelerate
growth by creating independent business undertakings. The demerger leads to strategic
independence for each entity and allows operational and financial flexibility to drive
growth. The Company also refreshed its visual identity to showcase the organisations
transformation and progress in shaping the future of global and domestic supply chains.
In June 2023, the Company bought 30% stake in Gati KWE from KWE
(Kintetsu World Express) for an aggregate consideration of
406 cr. The Company also bought the remaining 38.87% stake in the JV
ACCI for a consideration of 145 cr, with this development, the contract logistics
business is now completely owned under the subsidiary Allcargo Supply Chain Private
Limited. At the same time, Allcargo sold its 61.13% stake in the custom clearance business
thereby fully exiting this non-core business.
In December 2022, Allcargo subsidiary ECU Worldwide acquired 75 percent
stake in Fair Trade GmBH, for a consideration of EUR
12 million, with existing promoters holding the remaining 25 percent of
the stake. The acquisition expands and strengthens the service network of ECU Worldwide in
strategically important market of Germany with sizeable volumes.
ESG Overview
Our ESG initiatives are driven by our purpose of Helping global supply
chains, while caring for sustainability and prioritising our efforts to reduce carbon
emissions. The Company aims to be carbon neutral by 2040. In its endeavours, the Company
planted more than 8,60,000 trees and aims to plant a million by 2023. Allcargo also
supports inclusive social welfare programmes in Health, Education, Environment,
Womens Empowerment, Sports, and Disaster Relief. The Company adheres to high
standards of corporate governance, creating an enabling business environment and
ecosystem. It has ISO 31000 certified framework for risk management and ISO 27001 for
information security.
Consolidated Financial Overview
Allcargo delivered a strong financial performance despite macroeconomic
headwinds. The year was marked with supply chain normalisation, softening of freight
rates, geopolitical uncertainty, high interest rate environment on the international front
while the domestic scenario remained healthy. Resilient business performance over the last
year has enabled the Company to reduce debt and reach a net cash position of 604 Cr in
financial year 2023.
Revenue for the year declined 5.3% YoY from 19,062 Cr in financial
year 2022 to 18,051 Cr in financial year 2023. However, the Gross Profit over same period
increased 7.7% from 3,476 Cr to 3,744 Cr. Decline in revenue is largely on account of
ocean freight rate decline, which is mostly a pass through in LCL business and hence a
similar decline in operating expenses is also visible, barring impact on FCL business and
investments in new trade lanes, which would be loss making initially. LCL yield has
remained almost same from April 2022 to March 2023, despite significant reduction in Ocean
Freight during the period.
The total (FCL + LCL) business volumes stood at 9,665 TEUs for the year
ended March 31, 2023, as against 9,520 TEUs for the
corresponding previous period, registering an increase of 1.5 percent.
Express business volumes increased from 966 kt in financial year 2022 to 1,133 kt in
financial year 2023, an increase of 17%.
EBITDA for the financial year 2023 was 1,129 Cr as compared to
1,268 cr in the previous year.
Reported profit was 653 Cr as compared to 824 Cr (continued
operations) in the previous year.
The company intends to revive profitability in international supply
chain business by increasing volumes and reducing SG&A. Yields are expected to remain
rangebound with short term decline driven by competitive pressure and bounce back with
improved operating parameters including utilisation and share of 40 feet containers.
Company will aim to offset Gross Profit impact on account of FCL, which contributes to 30%
of the total, by way of volume growth once trade environment is normalised. The express
business operations are now best in industry and with mega hubs in place, the management
expects revenue and margins to gradually expand.
Allcargo Logistics Limited
Global Container Trade Overview
Ocean freight rates oscillated dramatically between January 2019 and
March 2023. The year 2021 saw an especially steep increase in global freight rates, with
World Container Composite Index reaching a record of 10,000+ in September 2021. Driven by
post Covid normalisation of the supply chains and associated inventory levels,
notwithstanding the weakness in overall demand, the freight rate index has dropped by ~80%
from the peak (September 2021) to March 2023, subsequently reaching pre-Covid levels.
Global exports saw an increase of 2.6% in 2022 over 2021, this was impacted by health
restrictions in China in the wake of frequent Covid breakouts.
Shipping Lines have witnessed softening demand during the year and will
likely see further drop in profitability as contracts are renewed at lower rates. However,
freight rates appear to have normalised paving way for more predictable shipping rates and
therefore, more stable supply chains going forward. As a result of falling spot rates,
container lines have started actively managing capacity by slow-steaming and bringing in
blank sailings (cancelling a scheduled port call or voyage). The average fleet speed for
both large and medium containerships has decreased by about 10 percent compared with
previous highs in 2021. Reducing speed virtually adjusts the supply of containerships to
decrease while also reducing bunker fuel costs.
(Source: https://www.statista.com/statistics/1250636/global- container-freight-index/,
https://www.refinitiv.com/perspectives/market-insights/why- has-the-container-shipping-boom-waned/,
Industry Reports)
International Supply Chain Business Overview
International Supply Chain includes the movement of cargo, domestically
or internationally through multiple modes of transportation like air, ocean, road, and
rail. This service includes Non- Vessel Owning Common Carrier(NVOCC) operationsrelated to
Less than Container Load (LCL) consolidation, Full Container Load (FCL) forwarding and
related services. International Supply Chain business is aggregation/consolidation of
cargo in shipping vessels. LCL players like Allcargo book the container berths with the
shipping companies on a regular basis and in turn resell the space in smaller quantity
(less than container load) to the consumers at better rates. This is a win-win for both as
consumers save the cost of hiring the full container and LCL player can resell the space
at favourable rates.
Allcargo is a global leader in LCL consolidation and operates the
largest global LCL network with 15% market share. The Company operates across 2,500 direct
trade lanes and 4,000 Port pairing.
LCL business accounts for ~6-8 percent of the overall global shipping
trade volumes. The balance ~92% is FCL, which is addressed by large freight forwarders.
Global cargo traffic volumes have been growing at an average rate of ~3 percent for the
past decade. However, Allcargo has been growing at rate which is higher by 2-3x of the
global cargo growth rate. This significant outperformance was driven by strong growth in
the LCL segment led by organic and inorganic initiatives.
The Company has been at forefront of digital developments and offers a
unique combination of traditional strengths with excellent network and modern technology
through ECU 360 platform. Close to 60 percent of ECU worldwide bookings are being done
through the ECU 360 platform. Complementing digitalisation are companys efforts
towards yield management and trade lane management.
International Supply Chain Financial Overview
The consolidated (FCL + LCL) business volumes stood at 9,665 TEUs for
the year ended March 31, 2023, as against 9,520 TEUs for the corresponding previous
period, registering an increase of 1.5 percent. Within this, LCL volumes remained flat YoY
at 9.05 mn cbm and FCL volumes grew by 1.8 percent YoY to 604.5 thousand TEUs.
Total revenue for the year ended March 31, 2023, was 16,333 crore, as
against 17,642 crore for the corresponding previous
period. EBIT was 875 crore for the year ended March 31, 2023, as
against 1,187 crore for the corresponding previous period.
Express Distribution Business Overview
Allcargo operates its express distribution division through its wholly
owned subsidiary Gati Ltd. Gati, incorporated in 1989, is one of Indias oldest and
leading express logistics players. The company boasts of a strong network and reach that
covers about 99% of government of India approved pin codes. Gati is predominantly a
multimodal express logistics player that provides end-to-end solutions to its clients.
Services provided by Gati include express distribution, air freight and supply chain
management. Gati also provides special services like student express, bike express, art
express and Laabh. Gati, being one of the oldest express logistics players, has a strong
and longstanding relationship with marquee clients.
Post its acquisition by Allcargo Logistics in 2020, Gati embarked on a
road to transformation where the company restructured its balance sheet, improved its
governance structure, reduced its debt, and moved on to the next phase of transformational
growth Gati 2.0. Under Gati 2.0 the company laid down five pillars of growth that are a)
digitisation, b) sales acceleration, c) infrastructure, d) streamlining operations and e)
talent pool. The company has carved out a path to profitable growth based on these pillars
and is well on its way to achieving the same.
During the year, Allcargo Logistics announced its plan to acquire a 30%
stake from KWE in GKEPL, a subsidiary housing the express business. The acquisition is a
part of a well-planned strategy by Allcargo that involves further investment in the
express business. Allcargo acquired the 30% stake from KWE in June 2023 for a
consideration of 406 crores. The agreement was mutually agreed upon by both Allcargo and
KWE. The strategic collaboration with Allcargo allows Gati to leverage its global network
and allows opportunities to cross sell its products.
With Gati 2.0 the management continues its path to achieve sustainable
profitability. The management continues to walk on the pillars of growth it had laid out
with more vigor. Out of the mentioned pillars, Talent Acquisition of top management, which
is a key differentiator between organisations, has been undertaken and the Company is now
being driven by seasoned professionals. Significant reinforcement has been made at mid-
level as well. Right talent enables a right approach, well directed strategy execution,
and ensure future readiness.
Express Distribution Financial Overview
The total revenue for the year ended March 31, 2023, was 1,723 crore
as against 1,490 crore for the corresponding previous period, an increase of 16%. Express
business volumes increased from 966 kt in financial year 2022 to 1,133 kt in financial
year 2023, an increase of 17%.
EBIT losses narrowed to 24 crore for the year ended March 31, 2023,
compared to 32 crore for the corresponding previous period.
Allcargo Supply Chain (Contract Logistics) Overview
For financial year 2023, the contract logistics business appears as a
Joint Venture of the Company with CCI; however, effective 17 May 2023, it is now a wholly
owned subsidiary of the Company. Allcargo Logistics provided contract logistics services
through its
Group Company Avvashya CCI (ACCI-CL). Avvashya CCI was a joint venture
between Allcargo and CCI Logistics, where Allcargo held 61% and CCI held 38%.
In May 2023, the Company bought the remaining 38.87% stake in the JV
ACCI for a consideration of 163 cr, with this development, the contract logistics
business is now completely owned under the subsidiary Allcargo Supply Chain Private
Limited. At the same time, Allcargo sold its 61.13% stake in the custom clearance business
under ACCI for 39 crores, thereby fully exiting this non- core business.
Post the successful execution of the transaction, the contract
logistics business is housed under a wholly owned subsidiary Allcargo Supply Chain Private
Limited. This strategic decision would provide greater control over the operations with a
well-
Key Financial Ratios
focussed strategy. This will also create room to explore potential
synergies between the contract logistics and express distribution business going forward.
The contract logistics business includes end- to-end logistics services
– warehousing, transportation, payments and inventory management. Allcargo Supply
Chain offers 3-PL and warehousing solutions enabled with customised services for its
customers spread across diverse industries. Through its extensive and wide network, the
organisation can provide unmatched reach backed by its expertise to cater to customised
and specific requirements. The contract logistics business is market leader in chemical
warehousing and is rapidly growing in other segments like pharma, auto, retail and
e-commerce. It has over 50 warehouses across 45 locations in India and manages over 5
million sqft. of built-up warehousing space.
| Ratios |
|
Consolidated
|
|
March 31, 2023 |
March 31,
2022* |
Variation (%) |
| Net Debt - Equity ratio (Refer Note a) |
(0.28) |
0.32 |
-186% |
| Net Debt / EBIDTA (Refer Note a) |
(0.63) |
0.74 |
-185% |
| Debtors Turnover ratio (in days) |
52 |
49 |
6% |
| Interest Coverage ratio |
12.51 |
11.04 13%
|
| Current ratio |
1.33 |
1.14 |
17% |
| Operating Profit Margin (Refer Note b) |
6.62% |
7.55% |
-12% |
| Net profit ratio (Refer Note b) |
3.40% |
4.48% |
-24% |
| Return on Average Net Worth (Refer Note b) |
19% |
29% |
-37% |
* March 31, 2022 is including Continuing and Discontinuing business as reported in
previous year annual report
- Reduction in Net Debt during the year ended March 31, 2023, due to increase in cash,
bank balances and current investments Net debt has become negative on March 31, 2023
- Consequent to demerger, there is a reduction in profitability due to CFS, Equipment
hiring & Logistics Park business moving out of Allcargo Ltd. and reduction in
profitability of International Supply Chain business.
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