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India Logistics – Part -II

May 28, 2008

In continuing the Goldman Sachs coverage on India Logistics & Transportation, the following stocks have been assigned Neutral rating unlike the BUY rating on Gateway Distriparks and Gati Ltd.

Transport Corporation of India Ltd: TCIL
TCIL is an integrated logistics company and the largest organized player in the road freight business, with a 15% share of the organized market – it moves close to 1.5% of India’s surface traffic annually.

The company plans to invest Rs3,400 mn (~US$85 mn) in capex (~30% of current sales) between FY2009E-FY2010E. A majority of this would be directed toward the quick turnaround express and SCS businesses (1.5 mn sq ft of warehouse space added in FY2008). Gati offers a better business mix and has higher absolute margins (we estimate that the low-margin legacy transport segment will still account for 48% of TCIL’s revenues in FY2010E (55% in FY2008).

Goldman has a Neutral rating and a DCF-based 12-month target price of Rs 119, implying 25% upside from current levels.

Allcargo Global Logistics:
Allcargo is a leading player in the MTO segment, with a strong international network. It provides consolidation services for lessthan- container (LCL) load cargo and is also in the project cargo handling business, involving packaging and transportation of cargo from factory to project site.

Heavy operating expenses in the MTO segment and high employee costs (including severance) associated with recent acquisitions have led to significant margin erosion over the past several quarters (EBIT margins moved down from 19% in 2005 to 7.7% in 2007).

The company’s growth will be restricted (sales CAGR of 14% in 2007-2009E), given its higher exposure to lower-growth areas outside India (41% of 2006 revenues from Europe). Thus, the Neutral rating. 12-month DCF based target price of Rs 904, implying 27% potential upside from current levels.

Container Corp. of India Ltd:
Concor is the largest established player in the Indian multimodal logistics business, with a significant infrastructure advantage over its peers – the company handles 33% share of India’s EXIM container traffic (we estimate the segment accounted for 80% of
FY2008E sales).

The company would be unable to sustain the growth it delivered in FY2006-FY2007 (25%) because of a lack of spare capacity and slower overall EXIM demand growth. Goldman forecast Concors sales to grow at a 12% CAGR in FY2008E-FY2010E. Concor has stated its intent to diversify into the air cargo and cold-chain logistics space by leveraging its core infrastructure. If successful, this could provide a boost to sales.

Goldman has set a DCF-based 12-month price target of Rs 928, implying 5% upside from current levels.

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