Arshiya International provides end-to-end services and solutions for logistic and supply chain management. The group operates in two segments.
Arshiya International provides end-to-end services and solutions for logistic and supply chain management. The group operates in two segments. The first one is logistics operations and related services including IT, while logistic infrastructure solutions, comprising container freight stations, free trade warehousing zone (FTWZ) operations, and rail transport operations, is the second segment.
Business: The company works with synergistic functioning of its several strategic verticals including FTWZ, rail transport, third-party logistics (3PL), 4PL, trucking, warehousing and IT. It is expanding its service offerings and operational capability. The step into the logistics infrastructure solutions is highly innovative and developing FTWZ
will help it utilise early opportunities.
Of the topline of Rs 114 crore in the third quarter, Rs 104 crore came from logistics business while Rs 10 crore came from software business. Logistics infrastructure business will start contributing now with the flagging off of rail projects. The revenues will expand further with completion of FTWZs.
Investment rationale: Arshiya is expanding its services. It has recently started Middle East road transportation services, which will have a fleet of 1,250 owned and leased vehicles along with trailers. It has entered into contracts with five blue-chip companies whose transportation requirements will be catered to for the next two years.
Arshiya has commenced its rail operations in February 2009. These customised rail solutions have industry- and product-specific designed containers. This helps reduce operating costs for customers as well as damage to its cargo. Starting the first phase, it has deployed first of the planned 30 rakes.
The second rake will start in this month and ply between Haldia and western parts of India.
Trans-shipping rates are being impacted worldwide but value-added services helped Arshiya revenues to be above global trends. Its integrated value services have helped expand revenue from customers. It is renewing contracts with wider services, for example, Rohm and Haas. Contracts with Reebok and other have also been renewed.
For shipping activities, 14 new customers have been added, which will drive volumes and revenue even at lower rates. It is trying to enhance its ties with leading Indian and Fortune 500 companies. It plans Japanese business’ expansion and has associations with Japanese logistics player Keihin.
A new strategic accounts division has been formed for logistics. This will help customers during this economic crisis offering more value and help them gain competitive advantage through wider services being offered at reduced costs. The service starting with one customer will expand to five or six.
Mumbai’s Jawaharlal Nehru Port Trust FTWZ is progressing with capex of Rs 530 crore. Rs 145 crore of equity out of total planned Rs 177 crore has come in whereas Rs 153 crore of debt out of planned Rs 353 crore has been tied up. The construction of container freight station and container yard facility will be completed by October. The first phase of warehousing starts from January 2010 while all warehouses will be completed by 2010 end. Letters of intent (LoIs) have already been signed with customers. LoIs received by Arshiya are actually twice the size of land available at JNPT FTWZ. Other FTWZs where land acquisition has been done include Khurja, UP (project cost-Rs 435 crore) and another recently planned one at Nagpur in lieu of called-off warehouse at Sohar, Oman.
In the Middle East, nine new customers have been added from FMCG, chemicals, energy etc. Warehousing and consolidation services are being provided to leading shipping companies with the likes of APL, the world’s leading shipping line. In Qatar, a project on oversized cranes was done.
The trucking business is expanding but without major involvement of working capital or capex. With contracts tied up, trucks are being deployed on lease basis. Thus as the freight rates are being impacted new revenue opportunities are being sought for value-added services.
Concerns: Any delays in project completions, capital raising or government policy changes can delay revenues from logistics infrastructure business.
Valuations: Arshiya clocked sales of Rs 114.16 crore at the end of third quarter that grew good 9% on y-o-y basis. Net profits at Rs 13.02 crore rose 25% over last year. Even in the challenging environment both operating and profit margins enhanced 260 basis points (bps) and 146 bps, respectively, over the last year. With addition in customer base and service base, and new business revenues to be contributed by rail infrastructure and later by FTWZ and warehousing, Arshiya is all set to enhance its revenues and profits and is a good addition to portfolio with medium to long-term prospects.
The writer does not hold any shares in the company
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