Friday, March 07, 2008

Investment update - Patel Integrated Logistics

I recently picked up a few shares of a logistics company based out of Mumbai - Patel Integrated Logistics. At the current market price of Rs.63, the company is valued at a Mcap of Rs.100 crore (on a fully diluted basis). This for a company that possibly has the widest presence in India, so far as logistics and transportation are concerned.

Patel Integrated Logistics operates a fleet of around 1000 trucks and boasts of a pan-India presence. However, unlike many of the other leading players in the logistics space which provide all kinds of transport facilities - surface, air and sea-based, Patel offered only surface transport services.

It was more of a truck operator.

However, things seem to be changing for the good. The company is taking a lot of initiatives to offer full-fledged logistics services. These include - warehousing, FTL (full truck load), LTD (less than truck load), express delivery services (i.e. door-to-door, godown-to-door pick up and delivery, etc.), among others.

The company recently tied with Ashok Leyland to replace some of its old trucks and further induct new ones (225 trucks in toto). Further, it is also looking to fit vehicle tracking systems in all its trucks, thereby allowing it to track its fleet on a real time basis and optimally utilize trucks, in terms of route deployment and manpower. Each of these initiatives is likely to result in lower costs for the company in the years to come.

The single most important risk with Patel Integrated Logistics is the "Management's ability to Deliver".

However, given its reach and the scalability in the logistics space, Patel Integrated Logistics is an ideal takeover candidate. If the print media is to be believed, two major business houses (Mukesh Ambani-led RIL and the Future Group) were quite keen to takeover this company and the valuations on offer were in the vicinity of Rs.125-150 crore, a good 25-50% above the current levels.

Stock details:

CMP - Rs.63
Mcap - Rs.100 crore (on a fully diluted basis)
TTM Sales - Rs.282 crore
TTM PAT - Rs.5.1 crore
Trailing P/E - 20 times.
Dec'07 sales (y-o-y % change) - 8%
Dec'07 PAT (y-o-y % change) - 38%

While on a relative basis the stock is not inexpensive, it does offer significant upside from current levels, provided the management delivers or sells out to someone like RIL or the Future Group. Even if neither happens, and the company continues to operate at current levels of profitability, the downside could be in the range of 20-25%.

Imp Links:

Patel Integrated Logistics [link]
Patel Retail [link]
Patel Roadways [link]
Quarterly performance [link]

Sector outlook:

- India has one of the largest road networks in the world, carrying nearly 80% of the passenger traffic and 65 % of freight traffic throughout the country.

- Growth in demand for logistics services is directly correlated to the growth of the economy.

- Further, expenditure on logistics services in India amounts to about 13 per cent of the GDP against less than 10 per cent in most developed nations.

- This is largely on account of a grossly underdeveloped infrastructure. With Government's thrust on Infrastructure and development of Roads, the expenditure in this segment is expected to remain robust.

- In its bid to improve this scenario, Government of India has chalked out plans to invest about USD 350 billion in upgrading and creating infrastructure in India.

- This augurs well for logistics service providers in India.

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