Allcargo Logistics goes for another restructuring

Allcargo Logistics goes for another restructuring: Here’s how it’s beneficial for shareholders

The plan by Allcargo Logistics to reorganize into distinct companies operating both domestic and international businesses will not only streamline operations but also improve efficiency, increase investor visibility, and present more focused investment opportunities.

Allcargo Logistics’ shares increased by more than 7% on December 22 following the announcement of the demerger of its international operations, and the company closed the day at Rs 307.50. Allcargo Gati’s stock was trading in the red at Rs 119.95 at close, despite opening the day higher.

In an interview with CNBC-TV18, Ravi Jakhar of Allcargo stated that this action will simplify the corporate structures of important domestic and international supply chain companies, resulting in immediate business synergies.

Breaking down the demerger of AllCargo Logistics

The International Supply Chain (ISC) division of global logistics leader Allcargo Group will be divided into a distinct company named Allcargo ECU Ltd. It will comprise the international subsidiaries under ECU Worldwide NV as well as the portion of the business related to international supply chains that is based in India.

In contrast, Allcargo Logistics would now be the parent company of the Express and Contract Logistics businesses. Allcargo Group will have four business ventures following the demerger: Allcargo ECU Limited, Allcargo Logistics. TransIndia Real Estate Limited and Allcargo Terminals Limited.
The plan is anticipated to be put into effect within the next 10 to 12 months, the company says, pending regulatory filings and approvals from the Stock Exchange, shareholders, NCLT, etc.

In order to get into the express logistics market, Allcargo Logistics paid about Rs 416 crore to acquire GATI in 2000. Allcargo offers a wide range of logistics services for both local and foreign markets. Allcargo Group completed the demerger of TransIndia Real Estate and Allcargo Logistics earlier this year.

What analysts say about AllCargo

According to analysts, this move will be crucial in achieving the group’s goal of streamlining the business. In addition, Nirav Karkera of Fisdom notes that there are a number of other reasons why this might be advantageous for the business.

The first is that it will improve organizational effectiveness. This will make it simple to assign KPI ownership to various senior management personnel in terms of P&L. The reorganization will improve core business and sharpen attention to each individual business.

For Allcargo Logistics, there are three “buy,” one “sell,” and one “hold” call among the analyst coverage. B&K Securities stated in November 2023 that poor worldwide demand had affected Allcargo Logistics’ performance, and that this situation should persist for the next two quarters at the very least. Nevertheless, in spite of intense competition, the company maintains its superior performance, grows its trade lanes, gains market share, and enhances its express logistics business performance. In addition, the company’s strong and lean balance sheet is still a result of restructuring.

Allcargo Logistics
Image Source : Moneycontrol

What this means for shareholders and investors

Fundraising is another crucial component. The Board of Directors has given the logistics company permission to raise up to Rs 500 crore in capital. According to Karkera, investors want to know where their money is going, whether they are providing debt or equity funding.

The current structure makes it unclear to investors in these companies’ equity—especially big portfolio managers and institutional investors—what kind of business they are funding—domestic or foreign, for example. Even debt investors benefit from the new structure’s clarity and assistance in determining the risks associated with their investments.

Shareholding pattern of Allcargo and share swap details

The promoters still own 69.9 percent of the company as of September 2023, but FIIs and FPIs have increased their ownership to 10.87 percent. As of September 2023, the public shareholding decreased by 16.24% from the previous quarter.

The company release states that the direct shareholding will get rid of the complicated and ineffective corporate structure. For every ten shares held in Allcargo Gati, shareholders will receive sixty-three shares in the merged Allcargo Logistics. In addition to keeping their shares in Allcargo Logistics, shareholders of Allcargo Logistics will receive 1:1 shares in the merged Allcargo ECU Limited. This comprises the Allcargo Logistics 3:1 bonus shares that the shareholders approved.

How Allcargo group stocks reacted to demerger news

Markets have responded to the move mostly favorably in the short term. Allcargo Gati’s shares have decreased while those of Allcargo Logistics have increased. Now that the swap ratio has been determined, Karkera clarified, this will help maintain the ratio between the two entities.

“Today’s action is merely to guarantee that everyone will benefit from the agreement once it is finalized. The market will gradually adjust its pricing in various aspects as analysts have additional time to examine the plan and the stock modifications, he stated.

The majority of analysts argue that it is too soon to assess how this will affect the company, but if things continue as they are, they should be advantageous for the valuation. According to Karkera, investors should hold the stock in the current situation while exercising caution regarding the developments that are occurring as the demerger is finished over the course of the anticipated next 12 months.

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