Allcargo Group’s strategic move to segregate its domestic and international operations into distinct entities aims to enhance operational efficiencies, human resource management, and reduce infrastructure expenses.
Allcargo Logistics Ltd shareholders have seen their confidence boosted as the company enters the final phase of revamping its intricate corporate structure. With an aim to separate its domestic and global divisions and enhance operational efficiency, the Allcargo Group has embarked on a strategic split of its businesses.
On Thursday, both Allcargo Logistics and its arm Allcargo Gati Ltd gave the green light to a tactical business redevelopment plan. Breaking down the revamp, the end result will be the formation of four separate listed entities: Allcargo ECU Ltd, Allcargo Logistics (which will emerge post the segregation of the international supply chain business), Allcargo Terminals Ltd, and TransIndia Real Estate Ltd.
This restructuring news propelled a nearly 8% surge in Allcargo Logistics’ shares on Friday.
“Besides trimming expenses, the group is poised to consolidate synergies across customer relationships, workforce, and infrastructure,” stated Ravi Jakhar, Chief Strategy Officer at Allcargo Group, in a conversation. A leaner leverage profile is also anticipated post-restructuring.
Jakhar indicated, “Post-separation, Allcargo ECU’s gross debt will stand around ₹350 crore, with Allcargo Logistics’ net debt likely to be about ₹250 crore.”
Furthermore, the reorganization could pave the way for Allcargo Logistics to expand its market footprint in the express and logistics segments. Post-restructuring, the express delivery and contract logistics sectors will be consolidated under the Allcargo Logistics umbrella.
Jakhar added, “At present, Allcargo Logistics holds a commanding 17% slice of the organized express sector and tops the contract logistics market in chemical warehousing.” The reshuffling of Allcargo’s business structure has evidently set the stage for the company to sharpen its competitive edge in the logistics landscape.
The financial community has reacted positively, indicating approval for the latest strategic move. The plan, which will take approximately 10 to 12 months to finalize, is still pending various regulatory consents.
Allcargo Gati’s shares took a hit this Friday, dropping by 13%. As revealed in the restructuring plan, for every 10 shares of Allcargo Gati owned, stakeholders will receive 63 shares of Allcargo Logistics subsequent to the division.
Despite the overall optimistic outlook on the restructuring, there remains a sense of apprehension amongst investors regarding the real benefits to Allcargo Gati’s shareholders.
Vikram Suryavanshi, Vice President of Equity at PhillipCapital, commented, “Predicting the impact on Allcargo Gati shareholders is challenging at this stage due to the uncertainties surrounding the listing price of the new combined entity, which is anticipated to receive a re-rating following the restructuring and expects to capitalize on synergies.”
Success of the plan also hinges on its on-time execution, and investors in Allcargo Logistics need to keep an eye on demand trends within the industry. Based on data from Bloomberg, the stock of Allcargo Logistics has yielded an adjusted return of 26% in the year 2023 so far.
