AVG Weekly – Flag formation. After good results in Q3, it went up (forming the pole of the flag) but has been consolidating since then for last 3 months.
The logistics sector hasn’t thrown any big winners in this bull market. AVG has been cheap and has also grown quite well. Unlike other logistics players, AVG is focused primarily on the FMCG sector (60% of revenue) and considers some of the big names as customers
Nestle infact is over 20% of topline and has been a customer since company’s inception in 2010. Nestle has been associated with the promoter since 1991. So long and deep associations offer a lot of comfort. FMCG as a sector is recession proof, so swings in profitability should be relatively lower. Long term contracts also should help in reducing cyclicality in the business.
Other than FMCG, they are also present in the tyres space with the tyre majors like MRF, JK Tyre and Apollo tyres. In pharma, they are involved in cold-chain logistics. They also have a presence in capital goods sector.
The company has 6 leased rail lines – all long haul routes like Chennai – Guwahati, Delhi – Bangalore, Bangalore – Ludhiana etc. – Road transportation costs keep increasing year after year due to diesel prices, toll charges, bribes etc. Rail competes really well with Road and having a 6 year lease on these railway lines provides a big cushion for the company in terms of rising transportation costs. Transporting via rail also seems to give FMCG majors green credentials, so they seem to opt for it.
Under road transportation, the company owns 550+ trucks but operates 1200+ vehicles (rest on lease basis). The company plans to expand in an asset-light fashion and is supporting its drivers to take up ownership of vehicles (“Chalak se Malik” – very small currently at 10-15 vehicles)
Warehousing – the company has grown warehousing at a very brisk pace (2010 – 25k sqft, 2019 – 3.82 lakh sqft, 2021 – 5 lakh sq ft and in 2023 – 7 lakh sg ft). The relationship with FMCG majors allows them to put up warehousing capacity as they consolidate transport and warehousing with one vendor. The newly started Packers and Movers business as well is high margin and expected to grow quite well.
The debt reduction should aid in some financial leverage – there’s mention of 1.5 Cr of monthly EMI reducing to 30 lakh/month – which should add to bottomline by 4 Cr per quarter
Company has recently signed up PepsiCo (for transporting Lays), Leap India, Colgate, Bigbasket and L’oreal recently as customers
Expansion in cold-chain logistics, warehousing and packers n movers – all higher margin businesses, coupled with new signups and growing business with existing clients should grow topline to 700 Cr next year as per guidance. The valuation isn’t very demanding, given the growth and even when compared to peers in the sector. The last two concall transcripts are very good for understanding the business. It doesn’t appear to be a fly-by-night operator. I haven’t done any deep work on scuttlebutt other than reading the transcripts.
Disc: Have positions around 530-550 levels. Not qualified to advise.
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