Rating Rationale

Strengths
* Established position in the global non-vessel owning common carrier (NVOCC) and domestic container freight station (CFS) businesses: The Allcargo group is India's largest, and a leading global operator in the NVOCC business, backed by a strong network. It is the largest player in the Less than Container Load (LCL) freight forwarding industry globally. Despite challenging global trade conditions, the volume in this business grew at a cumulative rate of 15% over the last three fiscals through 2016, due to its strong global network and longstanding relationships with customers. Global seaborne trade growth is estimated to sustain at about 4% over the medium term, outpacing the fleet growth. Further, more focus on FCL cargo, which is a much larger market compared to LCL cargo, by leveraging on existing network should help NVOCC business grow volume at current level without significant investments. Besides, the group is a leading player in the CFS segment, which is its most profitable business, with stations at four major ports of India, and two inland container depots (ICDs) at Pithampur and Dadri. Any substantial change in freight rates or EXIM volume may impact overall growth and will be a key monitorable.

* Diversified revenue streams, leading to a healthy business risk profile: The Allcargo group has a diversified business risk profile, with four major segments - NVOCC, CFS, Contract logistics, and P&E contributing 83%, 6%, 6% and 5%, respectively, to its revenue in fiscal 2018. Furthermore, the group is setting up grade-A warehouses in its existing land bank of about 350 acres at strategic locations- these will be 'Built-to-Suit' as per customer requirements and sold to customers as per pre-agreed terms or leased out on a long-term basis and subsequently sold to customers. The cash flows from this business should start flowing in from fiscal 2020 and further diversify the business profile. However, timely completion and sale of warehouses, and quantum of revenue/profit from this business will remain a key credit monitorable.

* Strong financial risk profile: The group's financial risk profile is driven by a healthy capital structure and debt protection metrics. Gearing and debt to EBITDA ratios stood at 0.31 time and 1.15 times respectively, as on September 30, 2018, while interest coverage ratio and net cash accruals to total debt ratio are estimated to be healthy at 11.6 times and 0.6 time respectively for fiscal 2019. Group's gearing is likely to remain comfortable at below 0.5 time, over the medium term, driven by healthy annual cash accrual of over Rs 350 crore, moderate capex and inorganic growth plans which are expected to be funded prudently.

Weakness
* Volatility in export-import (EXIM) trade volume: NVOCC business is directly linked to global EXIM trade, and a steep fall in the same could negatively impact the NVOCC business by putting pressure on per TEU profitability. The CFS business, which is directly linked to Indian trade, is exposed to risks arising from variations in EXIM trade, and customs policies. Sluggishness in Indian EXIM trade, in case of a steep fall in global trade, could impact utilisation levels and profitability. Furthermore, low entry barriers have also encouraged implementation of new CFS facilities by new and existing players, thus leading to build-up of surplus facilities; this will intensify price-based competition over the long term, resulting in moderation in profitability.

* Delays in project execution impacting the performance of the P&E business: In the P&E business, the group has been executing important projects for reputed clients such as Reliance Industries Ltd ('CRISIL AAA/Stable/CRISIL A1+'), Larsen & Toubro Ltd ('CRISIL AAA/Stable/CRISIL A1+'), Bharat Heavy Electrical Ltd ('CRISIL AA+/Stable/CRISIL A1+'), and NTPC Ltd ('CRISIL AAA/Stable/CRISIL A1+') and has an effective equipment fleet of over 800. However, the business is heavily dependent on the domestic economy and the pace of project execution and completion. Around 70% of revenue is derived from power, oil & gas, cement and metals sectors, which are exposed to the vagaries in investment cycles and economic slowdown. While the groups intends to make P&E business asset-light through increase in leased asset proportion and sale of unproductive assets, the resultant benefits to operating performance will remain a key monitorable.