Target Price : ₹145
CMP: ₹126.20
Allcargo Logistics (AGLL) announced the 1:1 demerger of its global international supply chain business into a new entity, Allcargo ECU. Also, AGLL seeks to amalgamate its listed subsidiary, Allcargo Gati, and the wholly owned subsidiary, Allcargo Supply Chain Pvt Ltd, into a single entity, i.e., AGLL (comprising asset-light businesses of express logistics and contract logistics with a simplified corporate structure).
Existing shareholders of Allcargo Gati, for every 10 shares held, will receive 63 shares of Allcargo Logistics. Post-restructuring, promoter shareholding will drop to 49.4 per cent from 52.9 per cent.
The amalgamation is along expected lines. The current 24.4 crore shares in AGLL, post-bonus of 3:1, will increase to 98.3 crore shares, and an incremental 40.4 crore shares will be issued to Allcargo Gati shareholders (other than the parent) in the ratio of 63:10 shares.
The combined entity may have a share capital of ₹280 crore, with a 139 crore share of face value ₹2 and debt of ₹300 crore, resulting in an EV of ₹580 crore and a valuation of 3x EV/EBITDA. We retain our estimates but lower the P/E multiple to 25x from 27x, as the near-term focus would be on integration. Thus, our TP is pared to ₹145 from ₹157.