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Arshiya International Limited

Arshiya International Limited- AIL going strong with its FTWZ business- Margins and Profitability expected to improve.

Arshiya International (AIL) has pioneered the development and operations of a Unified Supply Chain Infrastructure and Solutions - comprising Free Trade & Warehousing Zones (FTWZ), Industrial and Distribution Hubs, Rail & Rail Infrastructure, Transport & Handling, Forwarding and Supply Chain Technology & Management. AIL has started its Khurja FTWZ with 2 warehouses and  it can be estimated that the company to ramp it up to 4 by end of FY13E. The company is already operating 4 warehouses at Panvel FTWZ and we estimate the company to ramp it up to 8 warehouses by end of FY13E.

In the rail segment the company operates 20 rakes currently which they would ramp up to 30 by end of FY13E. The company continues to grow steadily in its core third party logistics (3PL) businesses. The company is expected to deliver revenue CAGR of 24% over FY12 to FY14E to ~ Rs 16.4 bn with improvement in operating margins from 25.7% in FY12 to 27.3% in FY13E and to 29.3% in FY14E. With improvement in margins and benefits of aggressive capex accruing to the company going ahead, one can expect the return ratios of the company to improve.

High leverage, execution delays and poor acceptability of the key FTWZ concept are some of the pitfalls and can be a drag for the company. Consequently we value the company at 30%
discount to the one year forward multiple of 8 x of peer group companies in the Logistics space which comes at Rs 188. The discount captures the risks on account of the high leverage position of the company. Investors with medium term view can bUY the stock with a price target of Rs 188.