Arshiya International Ltd
BSE Code: 506074
Face Value (FV): Rs.2
CMP: Rs.86.8
EPS: Rs.3.58 (Rs.17.9, for Rs.10, FV Scrip)
Book Value: Rs.77.78
Market Cap: Rs.509.97

Company Background: ARSHIYA INTERNATIONAL LIMITED is an integrated logistics player providing wide range of supply chain solutions. The company plans to expand its operations and has recently raised Rs.350 crores. It is setting up FTWZs for expanding operations, has joined hands with overseas majors of the industry and has thus gained a competitive advantage over other players. Its major operations are in India and Gulf region. It is in a knowledge driven logistics solution business which is in its nascent stage in India. The potential for growth arises from the need of the corporate to delegate warehousing and transporting of products and focusing on the core competency of themselves.

Industry Overview: Indian logistics sector is largely dominated by unorganized players operating on a very small scale, majority owning not more than five trucks. Such players account for almost 80% of the business of the industry. The trend is changing and inclination towards outsourcing the business needs of warehousing and transportation is increasing. Prior to the popularity of the concept of outsourcing of logistics, Indian corporate invested heavily on setting up warehousing and distribution channels.
Logistics outsourcing has gained popularity as the companies are able to reduce their overall cost of distribution by utilizing services of specialized players in the industry. Thus, the business of integrated logistics players is set to expand manifold in the coming years. To ensure core competency in the business, integrated logistics players are also focusing on end to end solutions and other value added services. The sector remains largely untapped in India offering significant growth potential.

Financials: For Q1FY09, the company came out with very good set of numbers. The total income of the company came out to be Rs.77.96 Cr as against Rs.45 Cr in the same period previous year. The profit before tax and depreciation increased to Rs.8.41 Cr as against Rs.2.92 Cr in the same period previous year.

Even after providing for higher tax and higher depreciation, the net profit of the company for Q2FY08, came out to be a whooping Rs.5.5 Cr as against Rs.1.91 Cr in the same period previous year. The EPS of the company fell in Q2FY09, fell due to increase in equity capital from Rs.8.74 Cr to Rs.11.75 Cr in the same period previous year. Another interesting point is that both the operating and net profit margins increased substantially in Q2FY09 as compared to the same period previous year.

Investment Rationale:
• Fully integrated solution player: The Company is a fully integrated logistics solution provider. It has joined hands overseas with BDP International, Cyberlog and Genco to cater to the clients in India and Gulf region. This provides a competitive advantage to the company. It renders wide range of services and is expanding its operations rapidly across the business segments.
• Setting up FTWZs: The Company has decided to set up Free Trade Warehousing Zones (FTWZs) in India at two locations viz. JNPT near Mumbai and Delhi. Another FTWZ will be set up at Sohar (Oman). The FTWZs will be first of their kind in India and will facilitate the company to cater basic and value added services to the clients.
• Fancy for Railway Sector-related stocks in the current market scenario: Off late it has been seen that a sudden fancy has arisen amongst the investors/traders, for the Railway Sector, related stocks. In case of Arshya International Ltd what is interesting is that the ongoing Containerized Rail Operation Project has been transferred to a Special Purpose Vehicle viz. Arshiya Rail Infrastructure Ltd a wholly owner subsidiary of the Company. The total project expenditure incurred till the date of incorporation of Special Purpose Vehicle and License to operate Containerised Rail has been transferred to Arshiya Rail Infrastructure Ltd at Cost. Moreover, out of net proceeds of Rs.341.87 Cr received by the company on placement to QIBs and Rs.17.49 Cr on conversion of warrants, Rs.258.97 Cr has been utilised for payment of Capital
advance and Capital expenditure for ongoing FTWZ Projects and Rs.100 Cr have been invested by subscribing to equity capital of wholly owned subsidiary viz - Arshiya Rail Infrastructure Ltd, a Special Purpose Vehicle for Containerized Rail Project. Thus this stocks could move up if its considering the current trend for the shares of the companies more or less connected to the railway sector.
• Positive on Charts: If we look at the daily charts of the company we see that the stock has made a permanent bottom at around Rs.78 and then a higher bottom at around Rs.82. The MACD is showing positive divergence pattern and could soon move in the positive territory. Moreover, the other chartical parameters like Bollinger Bands, Stochastic, and RSI are in buy mode. The Candle Stick chart pattern however does not give a definite trend for the days ahead.
• Broad array of services: The Company’s alliance with specialists in the sector both in India and abroad has helped to develop wide spectrum of services for the clients. The major services offered by the company are:
1. International freight transporting, global logistics management and consulting services by using the expertise of BDP India.
2. Providing of supply chain management technology solutions in collaboration with Cyberlog.
3. Logistics services in the retail warehousing sector by supplying products to large brand stores through Genco. Thus, the company offers all variety of services in the sector and has been catering in the 3PL format (third party logistics).

Downsides:
• Dependence on corporate: The company is in a services related business of handling products manufactured by others, warehousing and transporting of such products on time and in a proper manner. Deficiency in services can lead to loss of market share for the company.
• Regulatory clearances: The Company is setting up infrastructure to render services in India and Gulf region. Any delay in the clearances for such set up will dampen the operations and viability of business.
• Expansion spree significant; fund raising concerns: The Company has successfully raised Rs.350 crores by issuing equity capital at the rate of Rs.310 per share. But the company may not be able to do so, on a regular basis. To expand the operations, the company needs funds to the extent of Rs.1900 crores. Thus the company may leverage its balance sheet for expansion and face interest burden in the future.

Conclusion:Given the growth visibility of the sector, the competitive advantage of the company in the industry and past performance, it is expected that Arshiya International Ltd, will be able to multiply its revenues and profits manifold in the next three years to four years.
I recommend a BUY on the stock at the CMP of Rs.86.8 for a short to medium term target of Rs.130. The stock has to move above Rs.100 to show some momentum in its movements. Any crossover could take the stock above Rs.130 in the next few months time frame, provided the market condition improves a bit. The resistances for the scrip are Rs.95, Rs.100, Rs.112, Rs.125 and Rs.135 where some booking should be done. Keep a SL of Rs.77.5 (exit) for any short term trade. This stock is suitable for investors who need a steady income, but with less risk.

Note: The stock was recommended to the Paid Groups on 23rd November, 2008.